Liability of State In Contract And In Torts
Article 298 provides that the executive power of the Union and of each State shall extend to the carrying on of any trade or business and to the acquisition holding and disposal property and the making of contracts for any purpose. Article 299 (I) lays down the manner of formulation of such contract. Article 299 provides that all contracts 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 authorize. Article 299 (2) makes it clear that 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 or executing any such contract or assurance on behalf of any of them be personally liable in respect thereof. Subject to the provisions of Article 299 (1), the other provisions of the general law of contract apply even to the Government contract.
A contract with the Government of the Union or State will be valid and binding only if the following conditions are followed: -
1) The contract with the Government will not be binding if it is not expressed to be made in the name of the President or the Governor, as the case may be.
2) The contract must be executed on behalf of the President or the Governor of the State as the case may be. The word executed indicates that a contract with the Government will be valid only when it is in writing.
3) A person duly authorized by the President or the Governor of the State, as the case may be, must execute the contract.
The above provisions of Article 299 are mandatory and the contract made in contravention thereof is void and unenforceable.
The Supreme Court has made it clear that in the case grant of Government contract the Court should not interfere unless substantial public interest is involved or grant is mala fide when a writ petition is filed in the High Court challenging the award of a contract by a public authority or the State, the Court must be satisfied that there is some element of public interest involved in entertaining such a petition.
Effect of A Valid Contract With Government
However, as Article 299 (2) provides 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. As soon as a contract is executed with the Government in accordance with Article 299, the whole law of contract as contained in the Indian Contract Act comes into operations. Thus the applications of the private law of contract in the area of public contracts may result in the cases of injustice.
A contract of service with the Governments not covered by Article 299 of the Constitution. After a person is taken in a service under the Government, his rights and obligations are governed by the statutory rules framed by the Government and not by the contract of the parties.
Service contracts with the Government do not come within the scope of Article 299. They are subject to “pleasure”. They are not contracts in usual sense of the term as they can be determined at will despite an express condition to the contrary.
In India the remedy for the branch of a contract with Government is simply a suit for damages. The writ of mandamus could not be issued for the enforcement of contractual obligations. But the Supreme Court in its pronouncement in Gujarat State Financial Corporation v. Lotus Hotels, has taken a new stand and held that the writ of mandamus can be issued against the Government or its instrumentality for the enforcement of contractual obligations. The Court ruled that it is too late to contend today the Government can commit branch of a solemn undertaking on which other side has acted and then contend that the party suffering by the branch of contract may sue for damages and cannot compel specific performance of the contract through mandamus.
The doctrine of judicial review has extended to the contracts entered into by the State of its instrumentality with any person. Before the case of Ramana Dayaram Shetty v. International Airport Authority. The attitude of the Court was in favor of the view that the Government has freedom to deal with any one it chooses and if one person is chosen rather than another, the aggrieved party cannot claim the protection of article 14 because the choice of the person to fulfill a particular contract must be left to the Government, However, there has been significant change in the Court’s attitude after the case of Ramana Dayaram Shetty. The attitude for the Court appears to be in favor of the view that the Government does not enjoy absolute discretion to enter into contract with any one it likes. They are bound to act reasonably fairly and in non-discriminatory manner.
In the case of Kasturi Lal v. State of J&K, in this case Justice Bhagwati has said “Every activity of the Government has a public element in it and it must, therefore, be informed with reason and guided by public interest. Every government cannot act arbitrarily without reason and if it does, its action would be liable to be invalidated.” Non- arbitrariness, fairness in action and due consideration of legitimate expectation of affected party are essential requisites for a valid state action. In a recent case Tata Cellular v. Union of India, the Supreme Court has held that the right to refuse the lowest or any other tender is always available to the Government but the principles laid down in Article 14 of the Constitution have to be kept in view while accepting or refusing a tender. There can be no question of infringement of Article 14 if the Government tries to get the best person or the best quotation. The right to choose cannot be considered to be an arbitrary power. Of course, if the said power is exercised fro any collateral purpose the exercise of that power will be struck down.
The present position is that the contract made in contravention of the provisions of Article 299 (1) shall be void and therefore cannot be ratified.
The Supreme Court has made it clear that the provisions of Article 299 (1) are mandatory and therefore the contract made in contravention thereof is void and therefore cannot be ratified and cannot be enforced even by invoking the doctrine of Estoppel. In such condition the question of estoppel does not arise. The part to such contract cannot be estoppel from questioning the validity of the contract because there cannot be estoppel against the mandatory requirement of Article 299.
The Government cannot exercise its power arbitrarily or capriciously or in an unprincipled manner. In this case Justice Bhagwati has said “ Every activity of the Government has a public element in it and it must therefore, be informed with reason and guided by public interest: Government cannot act arbitrarily and without reason and if it does, its action due consideration of legitimate expectation of affected party are Court has held that the right to refuse the lowest or any other tender is always available to the Government but the principles laid down in article 14 of the Constitution have to be kept in view while accepting or refusing a tender. The right to choose cannot be considered to be an arbitrary power. Of Course, if the said power is exercised for any collateral purpose the exercise of that power will be struck down.”
In the case of Shrilekha Vidyarathi v. State of U.P (1991 S.C .C 212) the Supreme Court has made it clear that the State has to act justly, fairly and reasonably even in contractual field. In the case of contractual actions of the State the public element is always present so as to attract article 14. State acts for public good and in public interest and its public character does not change merely because the statutory or contractual rights are also available to the other party. The court has held that the state action is public in nature and therefore it is open to the judicial review even if it pertains to the contractual field. Thus the contractual action of the state may be questioned as arbitrary in proceedings under Article 32 or 226 of the Constitution. It is to be noted that the provisions of Sections 73, 74 and 75 of the Indian Contract Act dealing with the determination of the quantum of damages in the case of breach of contract also applies in the case of Government contract.
According to section 70 where a person lawfully does anything for another person or delivers anything to him such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of or to restore, the thing so done or delivered. If the requirements of Section 70 of the Indian Contract act are fulfilled, even the Government will be liable to pay compensation for the work actually done or services rendered by the State.
Section 70 is not based on any subsisting contract between the parties but is based on quasi-contract or restitution. Section 70 enables a person who actually supplies goods or renders some services not intending to do gratuitously, to claim compensation from the person who enjoys the benefit of the supply made or services rendered. It is a liability, which arise on equitable grounds even though express agreement or contract may not be proved.
Section 65 of the Indian Contract Act, 1872
If the agreement with the Government is void as the requirement of Article 299 (1) have not been complied, the party receiving the advantage under such agreement is bound to restore it or to make compensation for it to the person form whom he has received it. Thus if a contractor enters into agreement with the Government for the construction of go down and received payment therefore and the agreement is found to be void as the requirements of Article 299 (1) have not been complied with, the Government can recover the amount advanced to the contractor under Section 65 of the Indian Contract act. Action 65 provides that when an agreement is discovered to be void or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it to make compensation for it to the person from whom he received it.
Suit Against State In Torts
Before discussing tortuous liability, it will be desirable to know the meaning of ‘tort’. A tort is a civil wrong arising out of breach of a civil duty or breach of non-contractual obligation. The word ‘tort’ has been defined in Chambers Dictionary in the following words:-
“Tort is any wrong or injury not arising out of contact for which there is remedy by compensation or damages.”
Thus, tort is a civil wrong, which arises either out of breach of no contractual obligation or out of a breach of civil duty. In other words, tort is a civil wrong the only remedy for which is damages. The essential requirement for the arising of the tort is the beach of duty towards people in general. Although tort is a civil wrong, yet it would be wrong to think that all civil wrongs are torts. A civil wrong which arises out for the breach of contact cannot be put in the category of tort as it is different from a civil wrong arising out of the breach of duty towards public in general.
Liability For Torts
In India immunity of the Government for the tortious acts of its servants, based on the remnants of old feudalistic notion that the king cannot be sued I his own courts without his consent ever existed. The doctrine of sovereign immunity, a common law rule, which existed in England, also found place in the United States before 1946 Mr. Justice Holmes in 1907 declared for a unanimous Supreme Court:
“A sovereign is exempt from suit not because of any formal conception or obsolete theory, but on the logical and practical ground that there can be no legal right as against the authority that makes the law on which the right depends.”
Today, hardly, anyone agrees that the stated ground for exempting the sovereign from suit is either logical or practical.
Vicarious Liability of the State
When the responsibility of the act of one person falls on another person, it is called vicarious liability. Such type of liabilities is very common. For example, when the servant of a person harms another person through his act, we held the servant as well as his master liable for the act done by the servant.
Here what we mean is essentially the vicarious liability of the State for the torts committed by its servants in the exercise of their duty. The State would of course not be liable if the acts done were necessary for protection life or property. Acts such as judicial or quasi-judicial decisions done in good faith would not invite any liability. There are specific statutory provisions which the administrative authorities from liability. Such protection, however, would not extent malicious act. The burden of proving that an act was malicious would lie on the person who assails the administrative action. The principles of law of torts would apply in the determination of what is a tort and all the defences available to the respondent in a suit for tort would be available to the public servant also. If after all this, a public servant is proved to have been guilty of a tort like negligence, should the State, as his employer is liable?
In India Article 300 declares that the Government of India or a of a State may be sued for the tortious acts of its servants in the same manner as the Dominion of India and the corresponding provinces could have been sued or have been sued before the commencement of the present Constitution. This rule is, however, subject to any such law made by the Parliament or the State Legislature.
Case Law on the tortious liability of the State
The first important case involving the tortious liability of the Secretary of State for India-in –Council was raised in P and O. Steam Navigation v. Secretary of State for India.
The question referred to the Supreme Court was whether the Secretary of State for India is liable for the damages caused by the negligence of the servants in the service of the Government. The Supreme Court delivered a very learned judgment through Chief Justice Peacock, and answered the question in the affirmative. The Court pointed out the principle of law that the Secretary of State for India in Council is liable for the damages occasioned by the negligence of Government servants, if the negligence is such as would render an ordinary employer liable. According to the principle laid down in this case the Secretary of State can be liable only for acts of non sovereign nature, liability will not accrue for sovereign acts Chief Justice peacock admitted the distinction between the sovereign and non sovereign functions of the government and said:
“There is a great and clear distinction between acts done in exercise of what are termed sovereign powers, and acts done in the conduct of undertakings which might be carried on by private individuals without having such powers delegated to them.”
But the judgment of P. and O. Steam Navigation case, was differently interpreted in Secretary of State v. Hari Bhanji, In this case it was held that if claims do not arise out of acts of State, the civil Courts could entertain them.
The conflicting position before the commencement of the Constitution has been set at rest in the well known judgment of the Supreme Court in State of Rajasthan v. Vidyawati, where the driver of a jeep, owned and maintained by the State of Rajasthan for the official use of the Collector of the district, drove it rashly and negligently while taking it back from the workshop to the residence of the Collector after repairs, and knocked down a pedestrian and fatally injured him. The State was sued for damages. The Supreme Court held that the State was vicariously liable for damages caused by the negligence of the driver. In fact, the decision of the Supreme Court in State of Rajasthan v. Vidyawati, Kesoram Poddar v. Secretary of State for India, introduces an important qualification on the State immunity in tort based on the doctrines of sovereign and non-sovereign functions. It decided that the immunity for State action can only be claimed if the act in question was done in the course of the exercise of sovereign functions.
Then came the important case of Kasturi Lal v. State of U. P. where the Government was not held liable for the tort committed by its servant because the tort was said to have been committed by him in the course of the discharge of statutory duties. The statutory functions imposed on the employee were referable to and ultimately based on the delegation of the sovereign powers of the State.
The Court held that the Government was not liable as the activity involved was a sovereign activity. The Court affirmed the distinction between sovereign and non-sovereign function drawn in the P. and O. Steam Navigation’s case in the following terms.
The Supreme Court’s judgment unambiguously indicates that the Court itself on the question of justice felt strongly that Kashturi lal should be compensated yet, as a matter of law they held that he could not be.
There are, on the other hand, a good number of cases where the courts, although have maintained the distinction between sovereign and non- sovereign functions yet in practice have transformed their attitude holding most of the functions of the government as non-sovereign. Consequently there has been an expansion in the area of governmental liability in torts.
Sovereign And Non-Sovereign Dichotomy Changed Judicial Attitude
It is redeeming to note that the sovereign and non-sovereign dichotomy in the State functions which the Supreme Court has followed so far, is no being narrowed down by a new gloss over the sovereign functions of the State The courts started holding most of the governmental functions as non-sovereign with a result that the area of tortious liability of the government expanded considerably.
The Madhya Pradesh High Court Has put up the entire legal position, which emerged from the analysis of the cases, in the following words:
“These cases show that the traditional sovereign functions are the making of law, the administration of justice, the maintenance of order, the repression of crime, carrying on for war, the making of treaties of peace an other consequential functions, Whether this list be exhaustive or not, it is at least clear that the socio-economic and welfare activities undertaken by a modern state are not included in the traditional sovereign functions.
It may happen that a public servant may be negligent in the exercise of his duty. It may, however, be difficult to recover compensation from him. From the point of view of the aggrieved person, compensation is more important than punishment. Therefore, like all other employers the State must be made vicariously liable for the wrongful acts of its servants.
The Courts in India are now becoming conscious about increasing cases of excesses and negligence on the part of the administration resulting in the negation of the personal liberty. Hence they are coming forward with the pronouncements holding the Government liable for damages even in those cases where the plea of sovereign function could have negative the governmental liability. One such pronouncement came in the case of Rudal Shah v. State of Bihar. Here the petitioner was detained illegally in the prison for over fourteen years after his acquittal in a full dressed trail. The court awarded Rs. 30,000 as damages so the petitioner.
In Bhim Singh v. State of J&K, where the petitioner, a member of legislative Assembly was arrested while he was on his way to Srinagar to attend Legislative Assembly in gross violation of his constitutional rights under Articles 21 and 22 (2) of the Constitution, the court awarded monetary compensation of Rs.50,000 by way of exemplary costs to the petitioner.
Another landmark case namely, C.Ramkonda Reddy v. State, has been decided by the Andhra Pradesh, in which State plea of sovereign function was turned down and damages were awarded despite its being a cases of exercise of sovereign function.
In Saheli a Women’s Resource Center v. Commissioner of Police, Delhi, where the death of nine years old boy took place on account of unwarranted atrocious beating and assault by a Police officer in New Delhi, the State Government was directed by the court to.
In Lucknow Development Authority v. M.K. Gupta, the Supreme Court has observed that where public servant by mal fide, oppressive and capricious acts in discharging official duty causes in justice, harassment and agony to common man and renders the State or its instrumentality liable to pay damages to the person aggrieved from public fund, the State or its instrumentality is duly bound to recover the amount of compensation so paid from the public servant concerned.
The Court very correctly analyses the entire position of sovereign liability in India and observed:
“The immunity peculiar to English system found its way in our system of governance through run of judgments rendered during British period, more particularly after 1858, even though the maxim lex non protest peccary that is the king can do no wrong had no place in ancient India or in medieval India as the king in both the periods subjected themselves to the rule of law and system of justice prevalent like the ordinary subjects of the States. According to Monu, it was the duty of the king to uphold the law and he was as much subject to the law as any other person. it was said by Brihaspati, where a servant commissioned by his master does an improper, for the benefit of his master, the latter shall be held responsible for it. Even during the Muslim rule the fundamental concept under Muslim law like Hindu law was that the authority of king was subordinate to that of the laws. It was no different during British rule. The courts leaned in favor of holding the State responsible for the negligence of its officers.”
Liability of The Public Servant
Liability of the State must be distinguished from the liability of the individual officers of the State. So far as the liability of the individual officers is concerned, if they have acted outside the scope of their powers or have acted illegally, they are liable to the same extent as any other private citizen would be. The ordinary law of contact or torts or criminal law governs that liability. An officer acting in discharge of his duty without bias or mal fides could not be held personally liable for the loss caused to the other person However such acts have to be done in pursuance of his official duty and they must not be ultra vires his powers. If an official acts outside the scope of his powers, he should be liable in civil law to the same extent as a private individual would be. Where a public servant is required to be protected for acts done in the course of his duty, special statutory provisions are made for protecting them from liability.
Major developments in the area of public accountability have taken place. In the absence of public accountability today, corruption is a low-risk and high- profit business. The Classical observation of the Supreme Court in D.D.A v. Skipper Constructions deserves special attention.
The court observed.
“Some persons in the upper strata (which means the rich and the influential class of the society) have made the ‘property career’ the sole aim of their life. The means have become irrelevant in a land where its greatest son born in this country said, “Means are more important than the ends.”
A sense of bravado prevails; everything can be managed; every authority and every institution can be managed... They have developed utter disregard for law may, contempt for it.
In order to strengthen the concept of public accountability the court in Common Cause. A Registered Society (Petrol Pumps Matter) v. Union of India held that it is high time that public servants should be held personally liable for their functions as public servants.
Thus, for abusing the process of court public servant was held responsible and liable to pay the cost out of his own pocket.
The principle thus developed is that a public servant dealing with public property in oppressive, arbitrary or unconstitutional manner would be liable to pay exemplary damages as compensation to the government, which is ‘by the people.
In Lucknow Development Authority v M. K. Gupta, the Court asked as to who should pay the compensation for the harassment and agony to the victim? For acts and omissions causing loss or injury to the subject, the public authority must compensate. Where, however, the suffering was due to mal fide or capricious act of public servant, such a public servant would be made to pay for it. Although the Court spoke in connection with the Consumer Protection Act, if this principle is to be extended to liability for wrongful acts in general, it would doubtless provide an effective deterrent against mal fide and capricious acts of public servants. RM Sahai J observed.
“The administrative law of accountability of public authorities for their arbitrary and even ultra vires actions has taken many strides. It is now accepted both by this Court and English courts that the State is liable to compensate for loss or injury suffered by a citizen die to arbitrary actions of its employees.”
Having stated this, the learned Judge stopped to consider who would pay such compensation. Such compensation would of course be paid from the public treasury, which would burden the taxpayer. He, therefore further ordered that when a complaint was entitled to compensation, because of the suffering caused by a mal fide or oppressive or capricious act of a public servant, the Commission under the Consumer Protection Act should direct the department concerned to pay such compensation from the public fund immediately but to recover the same from those who are responsible for such unpardonable behavior by dividing it proportionately among them when they were more than one.
Where a married woman was detained on the pretext of her being a victim of abduction and rape, and the police officers threatened her and commanded her to implicate her husband and his family in a case of abduction and forcible marriage, the Court directed the State government to launch prosecution against the police officers concerned and to pay compensation to the woman and her family members who were tortured.
Where high ranking officials of a public authority, the Delhi Development Authority were held guilty of irregularities such as giving possession of lands sold in auction to the respondent bidder before receiving the auction amount in full, thus causing loss to the public and the guilt was established in an inquiry conducted by Justice (retired) O Chinappa Reddy, the Supreme Court directed the government to hold a departmental enquiry against such official. Where indiscriminate admissions were given in an educational institution in branch of eligible conditions, the Court ordered the government to take penal action against the person responsible for such admission. The head of the department is accountable to the court for carrying out he orders of the court. Personal costs may be awarded against the officer who fails to act in compliance with the court’s order.
In recent years, the Supreme Court has also imposed personal fines and liabilities on ministers who used their discretionary powers on ulterior considerations. Where a minister allotted petrol pumps to his favorites or where a minister gave out of turn allotment of houses to persons related to her or known to her in preference to those who deserved such accommodation. The Court not only quashed the allotments but also imposed exemplary damages for having denied that largesse to the deserving people. Personal liability for abuse of power is a recent phenomenon.
The Court further observed:
“In modern sense the distinction between sovereign and non-sovereign power does not exist. It all depends on the nature of power and manner of its exercise. Legislative supremacy under the Constitution arises out of Constitutional provisions. Similarly the executive is free to implement and administer the law. One of the tests to determine if the legislative or executive functions sovereign in nature is whether the State is answerable for such actions in courts of law, for instance, acts such as defense of the country, raising armed forces and maintain it, making peace or war, foreign-affairs, power external sovereignty and are political in nature. Therefore, they are not amenable to the jurisdiction of ordinary civil court. The State is immune from being sued as the jurisdiction of the courts in such matters is impliedly barred.”
But there the immunity ends. No civilized system can permit an executive to play with the people of its country and claim that it is entitled to act in any manner, as it is sovereign. No legal or political system today can place the State above law, as it is unjust and unfair for a citizen to be deprived of his property illegally by the negligent act of officers of State. The modern social thinking and judicial approach is to do away with archaic State protection and place the State or the Government at par with other juristic legal entity. Any watertight compartmentalization of the functions of the State as sovereign or non-sovereign is not sound. It is contrary to modern jurisprudence. But with the conceptual change of statutory power being statutory duty for sake of society and the people, the claim of a common man cannot be thrown out merely because it was done by an officer of the State official and the rights of the citizen are require to be reconciled so that the rule of law in a welfare State is not shaken.
It is unfortunate that no legislation has been enacted to lay down the law to torts in India. For that law, our courts have to draw from the English common law. Since the law of contract and the law of Sale of Goods and now the law of consumer protection have been enacted, it is high time that our Parliament enacts a law and thereby comes out of the legislative inertia.. The law in India on State liability has developed in the last two decades through judicial process. It has made the State liable for the torts of its servants. The courts have, however, developed such a law without expressly overruling some of the earlier decision, which defined the State liability in very narrow terms.
While the State has enacted various anti-pollution laws and the laws for the protection of the consumers, which provide quick remedies to the citizens, there is yet no sincere and strict implementation of such laws. The industry has often shown inadequate regard fro provisions requiring installation of hazard preventing devices as required by the anti pollution laws. This became clear in MC Mehta v. Union of India. The State can be compelled to perform its statutory duties though a writ of mandamus, but will the State be liable to pay compensation to those who suffer because of its negligence or failure to obtain compliance of the industries to the provisions of the anti-pollution laws?
In recent years, the courts have awarded compensation in a number of situations. Compensation was awarded for police brutalities committed on policemen People Union for Democratic Rights v. Police Commissioner to victims of negligence by medical personnel in an eye camp resulting in irreversible damage to the eyes of patients, A.S Mittal v. State of U. P., and to victims of road accidental President Union of India v. Sadashiv and to victims of environmental pollution. The plea of sovereign immunity has been rejected by courts time an again. Pushpinder Kaur v. Corporal Sharma. Besides these, the courts have awarded excreta payment and costs of public interest litigating to those who spearheaded it.The Supreme Court has held that where essential governmental functions were concerned, loss or injury occurring to any person due to failure of the government to discharge them would make it liable for compensation. Such compensation would be paid even if the plaintiff does not prove negligence on the part of an authority.
In Nilbati Behera v. State of Orissa, the Supreme Court held that the awards of compensation in the public law proceedings were different from the awards in the tort cases. In a civil suit for tortuous liability, whether the State was liable was an issue to be decided by taking evidence. The petitioner had to prove that the respondent was guilty of negligence and he suffered as a result of that. In a writ petition, the fact that a fundamental right had been violated was enough to entitle a person to compensation. Further, compensation in writ proceedings is symbolic and is not based on the quantification of the actual loss suffered by the petitioner.
Under the Consumer Protection Act, 1986, informal grievance redressal machinery has been provided. . Although consumer courts do not award damages for the civil wrongs, they have provided compensation to the consumer against unfair trade practice, deficient or negligent service or faulty goods. The consumer courts have not spared even government agencies. The Life Insurance Corporation, the nationalized banks, government hospitals have been made to pay compensation. Such actions of the consumer courts, however, do not deprive the consumer of his right to file a suit for tort in a civil court.
Thus, at last I would like to conclude that every activity of the Government has a public element in it and it must therefore, be informed with reason and guided by public interest: Government cannot act arbitrarily and without reason and if it does, its action due consideration of legitimate expectation of affected party are Court has held that the right to refuse the lowest or any other tender is always available to the Government but the principles laid down in article 14 of the Constitution have to be kept in view while accepting or refusing a tender. The right to choose cannot be considered to be an arbitrary power. Of Course, if the said power is exercised for any collateral purpose the exercise of that power will be struck down.
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