CONTRACTUAL LIABILITY AND TORTIOUS LIABILITY OF THE STATE

CONTRACTUAL LIABILITY 

(a) Prior to commencement of Constitution 

Before commencement of the Constitution also, the liability of the Government for breach of contract was recognised. East India Company was established in India, essentially for commercial activities. As early as in 1785, in Moodalay v. Morton’, the Supreme Court of Calcutta held that the East India Company was subject to the jurisdiction of the municipal courts in all matters and proceedings undertaken by them as a private trading company. 

In a number of statutes also, such liability of the Government had been recognised. Thus, the provisions were made in the Government of India Acts of 1833, 1858, 1915 and 1935. 

(b) Constitutional provisions 

The contractual liability of the Union of India and States is recognised by the Constitution itself.Article 298 expressly provides that the executive power of the Union and of each State shall extend to the carrying on of any trade or business and the acquisition, holding and disposal of property and the making of contracts for any purpose. 

Article 299(1) prescribes the mode or manner of execution of such contracts. It reads: “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 Presi- dent, 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.” 

(c) Requirements 

Reading the aforesaid provision, it becomes clear that Article 299 lays down the following conditions and requirements which must he fulfilled in contracts made by or with the Union or a State: 

(I) All such contracts must be expressed to be made by the President or the Governor as the case may be:

(2) All such contracts are to be executed by such persons and in such manner as the President or the Governor may direct or authorise; and 

(3) All such contracts made in the exercise of the executive power are to be executed on behalf of the President or the Governor as the case may be. 

A contract to be valid under Article 299(1), must be in writing. The words ‘expressed to be made’ and ‘executed’ in this article clearly go to show that there must be a formal written contract executed by a duly authorised person. Consequently, if there is an oral contract, the same is not binding on the Government. This does not, however, mean that there must be a formal agreement properly signed by a duly authorised officer of the Government and the second party. The words ‘ex- pressed’ and ‘executed’ have not been literally and technically construed. 

The second requirement is that such a contract can be entered into on behalf of the Government by a person authorised for that purpose by the President or the Governor as the case may be. If it is signed by an officer who is not authorised by the President or Governor, the said contract is not binding on the Government and it cannot be enforced against it. 

The last requirement is that such a contract must be expressed in the name of the President or the Governor, as the case may be. Thus, even though such a contract is made by an officer authorised by the Government in this behalf, it is still not enforceable against the Government if it is not expressed to be made ‘on behalf of’ the President or the Governor. 

(d) Effect of non-compliance 

The provisions of Article 299(1) are mandatory and not directory and they must be complied with. They are not inserted merely for the sake of form, but to protect the Government against unauthorised contracts. If, in fact, a contract is unauthorised or in excess of authority, the Government must be safeguarded from being saddled with liability to avoid public funds being wasted. Therefore, if any of the aforesaid conditions is not complied with, the contract is not in accordance with law and the same is not enforceable by or against the Government. 

Formerly, the view taken by the Supreme Court was that in case of non- compliance with the provisions of Article 299(1), a suit could not be tiled against the Government as the contract was not enforceable, but the Government could accept the liability by ratifying it.’

(e) Effect of valid contract 

If the provisions of Article 299(1) are complied with, the contract is valid and it can be enforced by or against the Government and the same is binding on the parties thereto. Article 299(2) provides that neither the President nor the Governor shall be personally liable in respect of any contract executed for the purpose of the Constitution or for the purpose of any enactment relating to the Government of India. It also grants immunity in favour of a person making or executing any such contract on behalf of the President or the Governor from personal liability. 

f) Quasi-contractual liability: Doctrine of unjust enrichment 

As discussed above, the provisions of Article 299(1) of the Constitution [Section 175(3) of the Government of India Act, 1935) are mandatory and if they are not complied with,. the contract is not enforceable in a court of law at the instance of any of the contracting parties. In these circumstances, with a view to protecting innocent persons, courts have applied the provisions of Section 70 of the Indian Contract Act, 1872 and held the Government liable to compensate the other contracting party on the basis of quasi-contractual liability. What Section 70 provides is that if the goods delivered are accepted or the work done is voluntarily enjoyed, then the liability to pay compensation for the enjoyment of the said goods or the acceptance of the said work arises. Thus, where a claim for compensation is made by one person against another under Section 70, it is not on the basis of any subsisting contract between the parties, but on the basis of the fact that something was done by one party for the other and the said work so done has been voluntarily accepted by the other party”. Thus. Section 70 of the Contract Act prevents ‘unjust enrichment’. 

(g) Conclusions 

It is submitted that the following observations of Bose, J. lay down correct law on the point: ‘We feel that some reasonable meaning must be attached to Art. 299(1). We do not think the provisions were inserted for the sake of mere form. We feel they are there to safeguard Government against unauthorised contracts. If in fact a contract is unauthorised or in excess of authority it is right that Government should be safe guarded. On the other hand, an officer entering into a contract on behalf of Government can always safeguard himself by having recourse to the proper form. 

(h) Contractual liability and writ jurisdiction 

If a person enters into a contract with the Government and is entitled to certain benefits thereunder, he can approach a court of law. The question, however, is as to

whether he can file a petition under Article 32 or under Article 226 of the Constitution of India. In R.K. Agarwal v. State of Bihar-‘8, the Supreme Court classified cases of breach of contract in three categories: 

(i) Where a petitioner makes a grievance of breach of promise on the part of the State in cases where on assurance or promise made by the State he has acted to his prejudice and predicament, but the agreement is short of a contract within the meaning of Article 299 of the Constitution; 

(ii) Where the contract entered into between the person aggrieved and the State is in exercise of a statutory power under certain Acts or Rules framed thereunder and the petitioner allege’ a breach on the part of the State; and 

(iii) Where the contract entered into between the State and the person aggrieved is not statutory but purely contractual and the rights and liabilities of the parties are governed by the terms of the contract, and the petitioner complains about breach of such con- tract by the State. 

The first type of obligations were held to be enforceable under Article 226 of the Constitution by applying the doctrine of promissory estoppel. 

The second category covers those cases where the contract is entered into between an individual and the State in the exercise of some statutory power. In these cases, the breach complained of is of a statutory obligation. In such cases, an action of public authority is challenged and hence, a petition is maintainable. 

With regard to the third category of cases, the rights of the parties flow from mere terms of the contract entered into by the State and a party to such contract cannot invoke writ jurisdiction of the Supreme Court under Article .32 or of a High Court under Article 226 of the Constitution of India. 

3. TORTIOUS LIABILITY 

(a) Doctrine of vicarious liability 

Since the State is a legal entity and not a living entity, it has to act through human agency, i.e. through its servants. When we discuss the Tortious liability of the State, it is really the liability of the State for the tortious acts of its servants that has to be considered. In other words, it refers to when the State can be held vicariously liable for the wrongs committed by its servants. 

Vicarious liability refers to a situation where one person is held liable for act or omission of other person. Winfield explains the doctrine of vicarious liability thus: ”The expression ‘vicarious liability’ signifies the liability which A may incur to C for

damage caused to C by the negligence or other tort of B. it is not necessary that A shall have participated in any way in the commission of the tort nor that a duty owed in law by A to C shall have been broken. What is required is that A should stand in a particular relationship to B and that B’s tort should he referable in a certain manner to that relationship”. Thus, the master may he held liable for the torts committed by his servant in the course of employment. 

The doctrine of vicarious liability is based on two maxims: 

(i) Respondeat superior (let the principal he liable); and 

(ii) Qui facit per alium facit per se (he who does an act through another does it himself). 

(b) English law 

In England, under common law, absolute immunity of the Crown was accepted and the Crown could not be sued in tort for wrongs com- mitted by its servants in the course of their employment. The rule was based upon the well-known maxim of English law “the King can do no wrong” 

(c) Indian law 

(1) General 

So far as Indian law is concerned, the maxim “the King can do no wrong” was never fully accepted. Absolute immunity of the Government was not recognised in the Indian legal system even prior to the commencement of the Constitution and in a number of cases, the Government was held liable for tortious acts of its servants. 

(ii) Constitutional provisions 

Under Article 294(b) of the Constitution, the liability of the Union Government or a State Government may arise ‘out of any contract or otherwise’. The word ‘otherwise’ suggests that the said liability may arise in respect of tortious acts also. Under Article 300(1), the extent of such liability is fixed. It provides that the liability of the Union of India or a State Government will be the same as that of the Dominion of India and the Provinces before the commencement of the Constitution. It is, therefore, necessary to discuss the liability of the Dominion and the Prov- inces before the commencement of the Constitution of India. 

(iii) Sovereign and non-sovereign functions 

(A) Before commencement of Constitution

The English law with regard to immunity of the Government for tortious acts of its servants is partly accepted in India also. As observed by the High Court of Calcutta in Steam Navigation Co.”, ‘as a general rule this is true, for it is an attribute of sovereignty, and a universal law that a State cannot be sued in its own courts without its consent’. Thus, a distinction is sought to be made between ‘sovereign functions’ and ‘non-sovereign functions’ of the State. In respect of the former, the State is not liable in tort, while in respect of the latter, it is. Let us try to understand the distinction between sovereign and non-sovereign functions with reference to some concrete cases on the point: 

Peninsular and Oriental Steam Navigation Co. v. Secretary of State” is considered to be the first leading case on the point. In this case, a servant of the plaintiff-company was taking a horse-driven carriage be- longing to the company. While the carriage was passing near the government dockyard, certain workmen employed by the Government, negligently dropped an iron piece on the road. The horses were startled and one of them was injured. The plaintiff-company filed a suit against 

the defendant and claimed Rs 350 as damages. The defendant claimed immunity of the Crown and contended that the action was not maintain- able. The High Court of Calcutta held that the action against the defendant was maintainable and awarded the damages. The court pronounced: 

“There is a great and clear distinction between acts done in the exercise of what are usually termed as sovereign powers, and acts done in the conduct of undertakings which might he carried on by private individuals without having such powers delegated to them.” 

Holding the Government liable, the court further observed: “The Secretary of State is liable for damages occasioned by the negligence of servants in the service of Government, if the negligence is such as would render an ordinary employer liable.” 

From the aforesaid observations of the court, it is clear that the court classified the acts of the Secretary of the State into two categories – (1) sovereign acts; and (ii) non-sovereign acts. In respect of the former category of acts, the Secretary of State was not liable, but in respect of the latter category of acts, he was. As the impugned act fell within the second category, the action was maintainable. 

B) After commencement of Constitution 

In State of Rajasthan v. Vidhyawati, a jeep, was owned and maintained by the State of Rajasthan for the official use of the Collector of a district. Once the driver of the jeep was bringing it back from the workshop after repairs. By his rash and negligent

driving of the jeep a pedestrian was knocked down. He died and his widow sued the driver and the State for damages. A Constitution Bench of the Supreme Court held the State vicariously liable for the rash and negligent act of the driver. The court after referring to the Steam Navigation Co. did not go into the wider question as to whether the act was a sovereign act or not. But it held that the rule of immunity based on the English law had no validity in India. After the establishment of a Republican form of Government under the Constitution there was no justification in principle or in public interest, that the State should not be held liable vicariously for the tortious acts of its servants. 

It is submitted that the law has been rightly laid down by the Supreme Court in Vidhyawati. Unfortunately, however, within a very short time, a clear departure was made in Kasturi La142 and the efficacy of the law laid down in Vidhyawati was considerably watered down by the Supreme Court. 

In Kasturi Lal v. State of U.P., a certain quantity of gold and silver was attached by police authorities from one R on suspicion that it was stolen property. It was kept in Government ,malkhana which was in the custody of a Head Constable. The Head Constable misappropriated the property and fled to Pakistan. R was prosecuted but acquitted by the court. A suit for damages was filed by R against the State for the loss caused to him by the negligence of police authorities of the State. The suit was resisted by the State. Following the ratio laid down in Steam Navigation Co., the Supreme Court held that the State was not liable as police authorities were exercising ‘sovereign functions’. Speaking for a Constitution Bench of the court, Gajendragadkar, C.J. observed: 

“If a tortious act is committed by a public servant and it gives rise to a claim for damages, the question to ask is: Was the tortious act committed by the public servant in discharge of statutory functions which are referable to, and ultimately based on, the delegation of the sovereign powers of the State to such public servant? If the answer is in the affirmative, the action for damages for loss caused by such tortious act will not lie. On the other hand, if the tortious act has been committed by a public servant in discharge of duties assigned to him not by virtue of the delegation of any sovereign power, an action for damages would lie.” 

Distinguishing Vidyawati, the court held that: “when the government employee was driving the jeep car from the workshop to the Collector’s residence for the Collector’s use, he was employed on a task or an under- taking which cannot be said to be referable to, or ultimately based on, the delegation of sovereign or governmental powers of the State…. In fact, the employment of a driver to drive the jeep car for the

use of a civil servant is itself an activity which is not connected in any manner with the sovereign power of the State at all. That is the basis on which the decision must be deemed to have been founded….. (emphasis sup- plied). Thus, as observed by the Supreme Court in a subsequent case 46: “the shadow of sovereign immunity still haunts the private law, primarily, because of absence of legislation.” 

(iv) Test 

From the above discussion, the principle which emerges is that if the function involved is a ‘sovereign function’, the State cannot be held liable in tort, but if it is a ‘non-sovereign function’, the State will be held liable. But the difficulty lies in formulating a definite test or criterion to decide to which category the act belongs. 

In fact, it is very difficult to draw a distinction between the two. “The watertight compartmentalisation of the State’s functions into sovereign and non-sovereign or governmental and non-governmental is unsound and highly reminiscent of the laissez faire era. 

(v) Conclusions 

Recent judicial trend is, undoubtedly, in favour of holding the State liable in respect of tortious acts committed by its servants. In cases of police brutalities, wrongful arrest and detention, keeping the undertrial prisoners in jail for long periods, committing assault or beating up prisoners, etc. the courts have awarded compensation to the victims or to the heirs and legal representatives of the deceased. As a matter of fact, the courts have severely criticised the inhuman attitude adopted by the State officials. 

WHETHER STATE IS BOUND BY STATUTE ? 

As discussed in preceding lectures, the governmental functions have increased. 

Today, the State performs not only the ‘law and order’ functions, but as a ‘Welfare State’, it performs many non-sovereign and commercial activities also. The important question therefore arises, whether the State is subject to the same rights and liabilities which the statute has imposed on other individuals.

In other words, whether the State is bound by a statute, and if it is, to what extent the provisions of a statute can be enforced against the State. Let us discuss this point with reference to English law and then Indian law. 

(b) English law 

According to the general principles of common law, ‘no statute hinds the Crown unless the Crown was expressly named therein’ . But the aforesaid rule is subject to one exception. As it has often been said, the Crown may be bound by a statute ‘by necessary implication’. 67Thus, as Wade68states, ‘an Act of Parliament is presumed not to bind the Crown in the absence of express provision or necessary implication’. In England, the Crown enjoys the common law privilege and it is not bound by a statute, unless ‘a clear intention to that effect appears from the statute itself or from the express terms of the Crown Proceedings Act, 1947’. This principle is based on the well-known maxim ‘the King can do no wrong’. In theory, it is inconceivable that the statute made by the Crown for its subjects could bind the Crown itself. This general principle of the common law is preserved even under the provisions of the 1947 Act. 

(c) Indian law 

The above principle of common law was accepted in India and applied in some cases. 

Province of Bombay v. Municipal Corpn. of the City of J3omhay7° is the leading case on the point before independence. The Corporation of Bombay wanted to lay water mains through land which belonged to the Government. The Government agreed to the said proposal upon certain conditions. The said land was acquired by the Crown under the provisions Of the Municipal Act. Under the provisions of the Municipal Act, the municipality had power ‘to carry water mains within or without the city’. The question was whether the Crown was bound by the statute, viz, the Municipal Act. Following the English law, the Privy Council held that the Government was not bound by the statute. 

In Director of Rationing v. Corpn. of Calcutta 7 1 – ( Corpn. of Calcutta 1), the Director of Rationing of the Food Department, West Bengal used certain premises for storing rice, flour, etc. Though under the rele- vant Act a licence was required to be taken from the Corporation of Calcutta for such premises, it was not taken by the Director. He was, therefore, prosecuted by the Corporation. The question before the Su- preme Court was whether the State was bound by the statute. The Court by a majority of 4: 1 held that the Director was not liable as ‘the State is not bound by a statute, unless it is so provided in express terms or by necessary implication’.

It is submitted that the majority view is correct and is in consonance with the doctrine of Rule of Law and Equality enshrined in the Constitution of India. We have no Crown. The archaic rule based on Royal prerogative and perfection of the Crown has no relevance to a democratic republic like India. The Law Commission has also suggested that the common law rule should not he followed in India. Even in England, its survival is ‘due to little but the vis intertiae’.