Liability of the State in Contract (Article 299) — Administrative Law Notes

Liability of the State in Contract (Article 299)

A businessman supplies goods to the Government on the strength of letters going back and forth — no formal deed, no signature “for and on behalf of the President.” When payment is refused and he sues, he discovers that the Constitution sets strict formalities for a government contract, and a contract that ignores them is void — the officer is not personally bound and the State is not bound either. Article 299 is a trap for the unwary, and the exam loves it.

What are the essentials of a valid government contract?

A contract by the Union or a State must satisfy the three formalities of Article 299(1). All three are mandatory:

Expressed to be made by the President or the Governor — the contract must be expressed to be made by the President (Union) or the Governor (State), as the case may be.
Executed on behalf of the President/Governor — it must be executed (signed) in that name.
Executed by an authorised person — by a person duly authorised/directed by the President or Governor to execute it.

If any of the three is missing, the contract is not binding on the Government — it is void/unenforceable against the State (Bhikraj Jaipuria v Union of India (1962); K.P. Chowdhry v State of M.P. (1967)). The formalities are strict and cannot be waived, because they protect public funds from unauthorised commitments.

Effect of non-compliance:

The contract is unenforceable against the Government — no suit on the contract succeeds.
Under Article 299(2), the officer who made it is not personally liable (unlike an agent under ordinary law) — a protection for officers acting officially.
But the citizen is not always without remedy — where the Government has received a benefit under a void contract, the citizen can claim quasi-contractual relief under Section 70 of the Contract Act (restitution — “compensation for a non-gratuitous act enjoyed”) — State of West Bengal v B.K. Mondal & Sons (1962); Mulamchand v State of M.P. (1968).

Article 299(1): “All contracts made in the exercise of the executive power of the Union or of a State shall be expressed to be made by the President, or by the Governor of the State, as the case may be, and all such contracts and all assurances of property made in the exercise of that power shall be executed on behalf of the President or the Governor by such persons and in such manner as he may direct or authorise.”

In Simple Terms: A government contract is valid only if it satisfies all three formalities of Article 299 — expressed to be made by the President/Governor, executed in that name, by an authorised person. Miss any one and the contract cannot be enforced against the State, and the officer is not personally liable (Art. 299(2)). But if the Government took a benefit under the void contract, the supplier can recover the value under Section 70 of the Contract Act.

flowchart TD
    ROOT["Government contract — Article 299(1)"]:::root
    ROOT --> A["Expressed to be made by<br/>President / Governor"]:::leaf
    ROOT --> B["Executed on behalf of<br/>President / Governor"]:::leaf
    ROOT --> C["By a duly authorised person"]:::leaf
    A --> Q{"All three satisfied?"}
    B --> Q
    C --> Q
    Q -->|"Yes"| OK["Binding on the State"]:::good
    Q -->|"No"| BAD["Void vs State; officer not personally liable (Art. 299(2))<br/>but s.70 Contract Act relief if benefit received"]:::bad
    classDef root fill:#FFF8DC,stroke:#000,stroke-width:1px,color:#000;
    classDef leaf fill:#E6F3FF,stroke:#1E3A8A,color:#000;
    classDef good fill:#D5F5E3,stroke:#1E8449,color:#000;
    classDef bad fill:#FADBD8,stroke:#943126,color:#000;
    linkStyle default stroke:#888,stroke-width:1px;

🧩 WORKED EXAMPLE — Contract by correspondence

Facts. A contract is concluded between A and the Government of India through an exchange of letters. There is no formal deed expressed to be made by the President and executed by an authorised person. A sues to enforce it.

Rule. Article 299(1) requires the three formalities; a contract not so expressed and executed is unenforceable against the Government, even if concluded by correspondence.

Apply. The letters may show agreement, but they do not satisfy Article 299 — not expressed to be made by the President, not executed by an authorised person in that name. The contract is void against the State.

Conclusion. A cannot enforce the contract. If the Government received goods/benefit under it, A can claim their value under Section 70 of the Contract Act (quasi-contract), but not on the contract itself.

Case Laws

Chatturbhuj Vithaldas Jasani v Moreshwar Parashram (1954) — substantial compliance with Art. 299 considered; formalities are important but the provision is not to defeat honest claims where a benefit is taken.
Bhikraj Jaipuria v Union of India (1962) — Article 299 formalities are mandatory; a non-conforming contract is void against the Government.
State of West Bengal v B.K. Mondal & Sons (1962) — where the State takes a benefit under a void contract, s.70 of the Contract Act gives restitution.
Mulamchand v State of M.P. (1968) — no enforcement of a contract void under Art. 299, but s.70 relief is available for benefit conferred.

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