When the government enters into a contract to build a road, buy defense equipment, or rent a building, what rules apply?
1. Mandatory Requirements under Article 299
For a contract with the Central or State Government to be legally valid and binding, it must strictly comply with three mandatory requirements under Article 299 of the Constitution:
- The contract must be expressed to be made by the President of India (for Central contracts) or the Governor of the State (for State contracts).
- The contract must be executed on behalf of the President or Governor.
- The contract must be executed by authorized officers and in a authorized manner.
Effect of Non-Compliance: If any of these three requirements is not met, the contract is completely Void and cannot be enforced against the government or ratified later. The contracting officer is also not personally liable.
Remedy (Section 70 of the Contract Act): To prevent the state from gaining free benefits under a void contract, courts allow the citizen to recover compensation under Section 70 (Quasi-contract) if the government enjoyed the benefit of the non-gratuitous work.
2. Government Privilege in Legal Proceedings (State Secrets)
Under Section 123 of the Indian Evidence Act, the government can claim privilege to withhold documents from the court, asserting that disclosure would harm public interest (state secrets, cabinet papers, or defense plans).
However, the court has the absolute power to inspect the document in camera to decide if the claim of privilege is genuine (State of UP v. Raj Narain, 1975). The state cannot hide regular administrative files under the guise of state secrets.
3. Promissory Estoppel
If the government makes a clear promise to a citizen (e.g., promising tax exemptions for 5 years to set up an industry), and the citizen alters their position and invests capital based on that promise, the government is estopped from backing out of that promise, unless they can prove a compelling public interest overrides it (Motilal Padampat Sugar Mills).