Government Contracts and Article 299 of the Constitution: The Three Mandatory Requirements, the Effect of Non-Compliance, Section 70 of the Indian Contract Act, Promissory Estoppel, and Judicial Review

A contract with the Government is an ordinary contract with one extraordinary requirement of form. Article 299(1) prescribes three conditions, and the courts have held them mandatory: a contract that does not satisfy them is void and unenforceable against the Government, and no implied contract can be spelled out in its place. That would be harsh if it stood alone, because departmental work is routinely done on instructions without the formalities being observed. Three doctrines soften it. Section 70 of the Contract Act gives a statutory claim for work done and benefit taken. Promissory estoppel binds the Government to its representations. And Article 14 subjects the award and the termination of government contracts to judicial review.

1. The Provision

Article 299, Constitution of India

(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.

(2) Neither the President nor the Governor shall be personally liable in respect of any contract or assurance made or executed for the purposes of this Constitution, or for the purposes of any enactment relating to the Government of India heretofore in force, nor shall any person making or executing any such contract or assurance on behalf of any of them be personally liable in respect thereof.

2. The Three Requirements

The contract must be expressed to be made by the President or the Governor, as the case may be. It is not enough that the Government is in substance the contracting party; the instrument must say so in his name.
It must be executed on behalf of the President or the Governor. The executing officer must sign for him and not in his own name or in the name of the department.
It must be executed by a person authorised, and in the manner the President or Governor has directed. Authorisation is ordinarily conferred by rules of business or by a notification.

There is a fourth requirement the courts have consistently read into the Article: the contract must be in writing. That is implicit in the words expressed and executed, and the Supreme Court has treated it as one of the essential conditions. The purpose of the whole provision is protective: it ensures that public funds are not depleted by unauthorised commitments, and that there is a definite procedure by which the State's agents may bind it.

3. Non-Compliance: The Contract Is Void

📖 K. P. Chowdhry v. State of Madhya Pradesh, AIR 1967 SC 203

Facts: A Divisional Forest Officer held an auction of forest contracts. The conditions required each bidder to sign the sale notice and deposit earnest money, and reserved to the officer the power to accept or reject any bid. The appellant's bid was accepted but he did not execute the formal contract. The forest contracts were re-auctioned at a lower figure and the State sought to recover the deficiency from him as arrears of land revenue, relying on the conditions of auction and on an implied contract.

Held: The Supreme Court held that nothing was recoverable. There was no contract before the bidding and none after the auction, because the requirements of Article 299(1) had not been satisfied. The terms of Article 299(1) are mandatory and the provision was made in the public interest. Further, and decisively, in view of those mandatory terms no implied contract could be spelled out between the Government and the appellant: Article 299 in effect rules out all implied contracts between the Government and another person.

Ratio: Article 299(1) is mandatory and a contract not complying with it is void against the Government. No implied contract can be substituted, since that would defeat the protective purpose of the Article.

3.1 What follows from voidness

The contract cannot be enforced against the Government, and it cannot be enforced by the Government against the other party either; the invalidity runs both ways.
No implied contract can be raised, per K. P. Chowdhry, which forecloses the most obvious workaround.
The contract is void and not merely unenforceable, so it is non est for most purposes.
Article 299(2) protects the officer personally, so the person who executed the instrument incurs no personal liability on it. He may nonetheless be personally liable on an independent footing, as where he contracted in his own name, or made a personal representation, or warranted his authority.
A party who has performed is not without remedy, but the remedy is not on the contract.

The requirements, the consequence of missing them, and the routes that survive

4. Section 70 of the Contract Act

The escape from the harshness of Article 299 lies in the fact that Section 70 is not a contract at all. It imposes a statutory obligation where a person lawfully does something for another, not intending to do so gratuitously, and the other enjoys the benefit. Because the obligation arises by operation of law and not by agreement, it is untouched by the prohibition on implied contracts in K. P. Chowdhry.

State of West Bengal v. B. K. Mondal & Sons, AIR 1962 SC 779 established the point. A contractor who built structures at an officer's oral request, which the State accepted and used, recovered compensation under Section 70 notwithstanding the absence of a compliant contract.
The three conditions must be satisfied: a lawful act done for the other, no intention to act gratuitously, and enjoyment of the benefit by the other.
The recovery is compensation, not the contract rate. The claimant recovers what the work was reasonably worth, on a quantum meruit footing.
The claim must be pleaded under Section 70. A plaint framed solely on a void contract does not convert itself, and the three conditions must be pleaded and proved.
Section 65 may also apply, requiring restoration of an advantage received where the agreement is discovered to be void, subject to the limits in Kuju Collieries Ltd. v. Jharkhand Mines Ltd., (1974) 2 SCC 533.

⚠ K. P. Chowdhry and B. K. Mondal are not in conflict

The two decisions are frequently presented as irreconcilable and they are not. K. P. Chowdhry holds that no implied contract can be raised against the Government, because an implied contract is still a contract and Article 299 governs all contracts. B. K. Mondal holds that a claim lies under Section 70, which is not a contract but a statutory obligation imposed to prevent unjust enrichment, and which therefore falls outside Article 299 altogether. The distinction is between raising an agreement the Constitution forbids and enforcing an obligation the legislature imposed. A claimant should plead Section 70 in terms, and not plead an implied contract.

5. Promissory Estoppel Against the Government

📖 Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh, (1979) 2 SCC 409

Facts: The State announced that new industrial units would be exempt from sales tax for three years, and the Chief Secretary confirmed the position to the appellant in writing. On the faith of that assurance the appellant borrowed and set up a vanaspati plant. The State afterwards changed its policy and sought to levy the tax, contending among other things that there was no contract complying with Article 299 and that the executive could not be estopped from performing its statutory functions.

Held: The Supreme Court held the State bound. The doctrine of promissory estoppel applies against the Government in the exercise of its governmental, public or executive functions, and the defence of executive necessity does not avail. Where the Government makes a promise knowing or intending that it will be acted on, and it is in fact acted on, the Government is bound, and it is immaterial that there is no consideration and no contract within Article 299. The Court held that the doctrine may be displaced only where the Government satisfies the Court that, in the facts and circumstances, equity requires that it not be held to its promise, and the burden of showing that lies on the Government.

Ratio: Promissory estoppel binds the Government in its executive functions. It operates independently of contract and of Article 299, requires no consideration, and is displaced only where the Government shows that equity so demands.

5.1 The limits of the doctrine

There can be no estoppel against a statute. The Government cannot be estopped from performing a statutory duty or from applying a statutory provision, and a promise contrary to law is unenforceable.
The promise must be clear and unequivocal, and intended to create legal relations or to be acted on.
The promisee must have altered his position on the faith of it, though detriment in the strict sense is not always required.
It is a shield and, in India, also a sword. Motilal Padampat holds that promissory estoppel may found a cause of action in India, which departs from the narrower English position.
It does not apply where the officer had no authority to make the representation at all, since the doctrine cannot confer a power the officer did not have.

6. Article 14 and Judicial Review

The Government contracts as a public authority and not as a private person, and its contractual conduct is therefore subject to Article 14. Three consequences follow.

The award of contracts must be fair, non-arbitrary and non-discriminatory. Public procurement must ordinarily be by a transparent process, and arbitrary rejection or acceptance of tenders is open to challenge.
Terms imposed by the State must satisfy the test of reasonableness. Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156 struck down an unconscionable termination clause under Section 23 and Article 14 alike.
Forfeiture and penal action by a public authority must be justified. Kailash Nath Associates v. Delhi Development Authority, (2015) 4 SCC 136 held that forfeiture of earnest money where the authority had suffered no loss was arbitrary and violative of Article 14.

The scope of review is nonetheless limited. In Tata Cellular v. Union of India, (1994) 6 SCC 651 the Supreme Court held that judicial review of an administrative decision to award a contract is concerned with the decision-making process and not with the decision itself; the court does not sit in appeal over the authority's commercial judgment, and it intervenes for illegality, irrationality or procedural impropriety. Once a contract has been concluded, disputes about its performance are ordinarily contractual and belong in a civil suit or arbitration rather than in writ jurisdiction, though a writ will lie where the action complained of is arbitrary or in breach of a public law obligation.

7. The Routes Compared

Route	What must be shown	What is recovered
Contract under Article 299	Compliance with all three requirements, in writing	Full contractual remedies, including the contract rate and damages
Section 70, Contract Act	A lawful act done for the Government, not gratuitously, and benefit enjoyed by it	Compensation, being what the work was reasonably worth
Section 65, Contract Act	An agreement discovered to be void, and an advantage received	Restoration of the advantage, or compensation for it
Promissory estoppel	A clear promise, intended to be acted on, which was acted on to the promisee's alteration of position	The Government is held to its promise, unless equity demands otherwise
Article 14 and judicial review	Arbitrariness, illegality, irrationality or procedural impropriety in the decision-making process	The decision is quashed; the court does not substitute its own commercial judgment

8. The Position Stated Shortly

Article 299(1) requires a government contract to be expressed in the name of the President or Governor, executed on his behalf, by an authorised person in the prescribed manner, and in writing.
The requirements are mandatory and enacted in the public interest, and non-compliance makes the contract void.
K. P. Chowdhry: no implied contract can be spelled out, Article 299 ruling out all implied contracts with the Government.
Article 299(2) protects the executing officer from personal liability on the contract, though he may be liable on an independent footing.
Section 70 provides the remedy, because it imposes a statutory obligation and is not a contract, which is why B. K. Mondal and K. P. Chowdhry stand together.
The recovery under Section 70 is compensation for what the work was reasonably worth, and the claim must be pleaded under the section.
Motilal Padampat Sugar Mills: promissory estoppel binds the Government in its executive functions, requires no consideration, and may found a cause of action in India.
There is no estoppel against a statute, and the doctrine cannot confer a power the officer did not have.
Article 14 subjects the award and the terms of government contracts to review for arbitrariness, as Central Inland and Kailash Nath show.
Tata Cellular: review is of the decision-making process and not of the commercial decision itself.

9. Related Topics and Provisions

Topic or provision	Connection
Obligation of a Person Enjoying a Non-Gratuitous Act under Section 70	The statutory claim against the Government in full
Unjust Enrichment vs Quantum Meruit	The measure of recovery for work done
Standard-Form and Unfair Contracts	Central Inland and Article 14 controls on State terms
Penalty and Liquidated Damages under Section 74	Kailash Nath and forfeiture by a public authority
Article 299, Constitution of India	Form of government contracts and personal immunity
Article 14, Constitution of India	Arbitrariness in the award and terms of contracts
Section 70, Indian Contract Act	Lawful non-gratuitous acts and enjoyment of the benefit
Section 65, Indian Contract Act	Restoration where an agreement is discovered to be void
Section 2(h), Indian Contract Act	Why a void arrangement is not a contract at all