Context: In a recent decision, the Supreme Court ruled that the government cannot claim immunity from the legal provisions of a contract entered into under the President's name under Article 299 of the Constitution.

What is the case?

• Glock Asia-Pacific Limited Vs Government of India: 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.

• There was a dispute between the two parties and Glock then issued a notice invoking arbitration, nominating a retired Delhi High Court judge as the sole arbitrator. 

• When the government was called to accept this, it said that the arbitrator’s nomination violated one of the tender conditions that said an officer in the Law Ministry, appointed by the MHA Secretary, would be the arbitrator in case of a dispute.

• Thus, Glock challenged this clause in the agreement, which allowed a government officer to resolve the difference between the two parties as an arbitrator, as one party here was the MHA itself.

What is Article 299 of the Constitution?

• Article 298 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.

• The Article 299 delineates the manner in which these contracts will be concluded.

• Articles 298 and 299 came after the Constitution came into effect and the government entered into contracts even in the pre-independence era.

• According to the Crown Proceedings Act of 1947, the Crown could not be sued in court for the contract it has entered.

• Article 299 (1) of the Constitution 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 the Governor of the State” and that all such contracts and assurances of property made shall be executed on behalf of the President or the Governor by persons as directed by them.

• Article 299 (2) says that neither the President nor the Governor can be personally held liable for such contracts.

Article 299 (1) of the constitution

• Under Article 299 (1) there must be a deed or contract in writing and that it should be executed by a person duly authorised by the President or the Governor on their behalf.

• Its objective is that there must be a definite procedure according to which contracts must be made by agents acting on the government’s behalf.

• This objective was stated by SC in ‘Chatturbhuj Vithaldas Jasani v. Moreshwar Parashram & Ors’ .

• The contracts not adhering to the manner given in Article 299(1) cannot be enforced by any contracting party.

SC’s rulings

• The Section 12(5) of the Arbitration and Conciliation Act, 1996 states that notwithstanding any prior agreement, any person whose relationship with the parties of the dispute falls under any of the categories in the Seventh Schedule will be ineligible to be appointed as an arbitrator.

• The Seventh Schedule includes relationships where the arbitrator is an employee, consultant, advisor, or has any other past or present business relationship with a party.

• Thus, the court rejected the Centre’s reliance on Article 299, saying, “Article 299 only lays down the formality that is necessary to bind the government with contractual liability” and not “the substantial law relating to the contractual liability of the Government”, which is to be found in the general laws of the land.

What are the requirements for government or state contracts?

• In ‘K.P. Chowdhry v. State of Madhya Pradesh. And Others’ and in ‘State of Bihar v. Messrs. Karam Chand Thapar’, SC has laid down the requirements for government contracts under Article 299.

• 3 conditions to be met before a binding contract against the government can be made:

1. The contract must be expressed to be made by the Governor or the Governor-General;

2. It must be executed in writing;

3. The execution should be done by such persons and in such manner as the Governor or the Governor-General might direct or authorise.