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What are Government Contract?

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About the Government Contract

The Government has never been considered as an ‘honest man’. In England, this principle was duly accepted and it was observed that for the protection of the rule of law, the Crown must be subjected to reasonable amounts of legal liabilities.

Contractual liability of the Union of India and States is perceived by the Constitution itself. Article 298 explicitly gives that the executive power of the Union and of each State should reach out to the carrying on of any exchange or business and the obtaining, holding and transfer of property and the making of agreements for any reason.

There are no special laws for governing Government contracts.

Indian Contract Act, 1872

Since, there are no direct laws, and Government Contract being contractual relationships are governed by the said act. As per the said act, an agreement which is enforceable in law is a contract.

The General Clauses Act, 1897

The said act applies to documents which means to include any matter written, expressed or described upon any substance by means of letters, figures or marks, or by more than one of those means which is intended to be used, or which may be used, for the purpose or recording that matter.

In the case of State of Bihar v Majeed[5], the Hon'ble Supreme court held that;
'It may be noted that like other contracts, a Government Contract is also governed by the Indian Contract Act, yet it is distinct a thing apart. In addition to the requirements of the Indian Contract Act such as offer, acceptance and consideration, a Government Contract has to comply with the provisions of Article 299. Thus, subject to the formalities prescribed by Article 299 the contractual liability of the Central or State Government is same as that of any individual under the ordinary law of contract.'
Supreme Court in the case of State of Bihar v. Majeed observed that a Government Contract is essentially like other Contracts hence it does come under the purview of the Indian Contract Act. However, in addition to having said that, it was also duly noted that a Government Contract is of a special nature hence it has to take into considerations not only the provisions of the Indian Contract Act but also the Constitution of India through Article 299.

It was held by the Hon'ble Supreme Court in the case of K.P.Chowdhary v State of Madhya Pradesh that,
'In view of the provisions of Article 299(1) there is no scope for any implied contract. Thus, no contract can be implied under this Article.if the contract between the Government and a person is not incompliance with Article 299(1), it would be no contract at all and would not be enforceable as a contract either by the Government or by the person.'

Another distinct feature about Government Contracts is the non-recognition of implied Contracts. Supreme Court in the case of K.P. Chowdhary v. State of Madhva Pradesh observed that implied Contracts enjoy no place under Article 299(1). Hence, no contract between the Government and a person would be in compliance as per the provisions of Article 299 if the concerned contract would be an implied contract, and an implied Government contract wouldn;t be a valid contract hence would not enjoy legal enforceability.