Why in News?

• The Supreme Court held that the government, when entering into a contract under the President’s name, cannot claim immunity from the legal provisions of that contract under Article 299 of the Constitution.

What’s in Today’s Article?

• What is Article 299 of the Indian Constitution?
• Procedure to be Followed for Making a Contract
• What are the Requirements for Government or State Contracts?
• What was the Case?
• The Apex Court’s Ruling

What is Article 299 of the Indian Constitution?

• Article 298: It grants the Centre and the state governments the power to carry on trade or business, acquire, hold, and dispose of property, and make contracts for any purpose.
• Article 299: It provides that 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.
  • Executed on behalf of the President or the Governor by persons in a manner as directed and authorised by them [Article 299 (1)].

Procedure to be Followed for Making a Contract:

• In 1954, the top court held that there must be a definite procedure according to which contracts must be made by agents acting on the government’s behalf; otherwise, public funds may be depleted by illegitimate contracts.
• It implies that contracts not adhering to the manner given in Article 299(1) cannot be enforced by any contracting party.
• However, Article 299 (2) says that neither the President nor the Governor can be personally held liable for such contracts.

What are the Requirements for Government or State Contracts?

• In 1966, the apex court laid down essential requirements for government contracts under Article 299.
• 3 conditions to be met before a binding contract against the government could arise:
  • The contract must be expressed to be made by the Governor or the President;
  • It must be executed in writing, and
  • The execution should be by such persons and in such a manner as the Governor or the President might direct or authorise.

What was the Case?

• The case dealt with an application filed by Glock Asia-Pacific Limited, a pistol manufacturing company, against the Centre regarding the appointment of an arbitrator in a tender-related dispute.
• According to the Arbitration and Conciliation Act, 1996, any person whose relationship with the parties or counsel of the dispute falls under the 7th Schedule (of the Act) will be ineligible to be appointed as an arbitrator.
  • The 7th Schedule includes relationships where the arbitrator is an employee, consultant, advisor, or has any other past or present business relationship with a party.

The Apex Court’s Ruling:

• Referring to the 246th Law Commission Report, the court observed that when the party appointing an arbitrator is the State, the duty to appoint an impartial and independent adjudicator is even more onerous.
• Thus, the court rejected the Centre’s reliance on Article 299, saying that Article 299 only lays down the formality that is necessary to bind the government with contractual liability.
• Thus, the substantial law relating to the contractual liability of the Government is to be found in the general laws of the land.
• The court also appointed former SC judge Justice Indu Malhotra “as the Sole Arbitrator to adjudicate upon the disputes” in the case.