Can the govt claim immunity when entering contracts under the President’s name? Here’s what SC has ruled

The Supreme Court has held that the government, when entering into a contract under the President’s name, cannot claim immunity from the legal provisions of that contract under Article 299 of the Constitution, in a recent case.

A Bench led by Chief Justice of India (CJI) DY Chandrachud said, “Having considered the purpose and object of Article 299, we are of the clear opinion that a contract entered into in the name of the President of India, cannot and will not create an immunity against the application of any statutory prescription imposing conditions on parties to an agreement, when the Government chooses to enter into a contract”.

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.

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, while 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 a contract it entered into.

Article 299 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 by the Governor of the State” and that all such contracts and “assurances of property made in the exercise of that power shall be executed” on behalf of the President or the Governor by persons in a manner as directed and authorised by them.

Further, the phrase ‘expressed to be made and executed’ under Article 299 (1) means that there must be a deed or contract in writing and that it should be executed by a person duly authorised by the President of the Governor on their behalf.

The objective behind Article 299(1), as per the 1954 top court ruling in ‘Chatturbhuj Vithaldas Jasani v. Moreshwar Parashram & Ors’, is that there must be a definite procedure according to which contracts must be made by agents acting on the government’s behalf; otherwise, public funds may be depleted by unauthorized or illegitimate contracts. It implies that contracts not adhering to the manner given in Article 299(1) cannot be enforced by any contracting party.

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

What was the case?

The May 19 ruling delivered by the Bench, also comprising Justices PS Narasimha and JB Pardiwala, dealt with an application filed by Glock Asia-Pacific Limited against the Centre on the appointment of an arbitrator in a dispute.

Glock Asia Pacific entered into a contract with the Ministry of Home Affairs for the supply of 31,756 Glock pistols. Subsequently, there was a dispute between the two parties due to the Centre invoking a performance bank guarantee. A performance bank guarantee, similar to a letter of credit, is the bank’s promise that it will meet the debtor’s liabilities, provided that he fails to meet the contractual obligations.

Glock then issue 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 did the court hold?

One of the major grounds of the challenge given under Section 12(5) of the Arbitration and Conciliation Act, 1996, says that notwithstanding any prior agreement, any person whose relationship with the parties or counsel 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.

Deciding the case in Glock’s favour, the court observed that the arbitration clause allowed a “serving employee of the Union of India, a party to the contract, to nominate a serving employee of the Union of India as the Sole Arbitrator.” Holding this to be in conflict with Section 12(5), the court allowed the present application.

The court also appointed former SC judge Justice Indu Malhotra “as the Sole Arbitrator to adjudicate upon the disputes” in the case.

Referring to the recommendation of the 246th Law Commission Report, which dealt with the issue of contracts with government entities, the court observed that when the party appointing an arbitrator is the State, “the duty to appoint an impartial and independent adjudicator is even more onerous.”

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 its judgement, the court referred to its 1966 ruling in ‘K.P. Chowdhry v. State of Madhya Pradesh. And Others’, which laid down essential requirements for government contracts under Article 299.

In that ruling, the top court had reiterated three conditions to be met before a binding contract against the government could arise, namely: “(1) the contract must be expressed to be made by the Governor or the Governor-General; (ii) it must be executed in writing, and (iii) the execution should be by such persons and in such manner as the Governor or the Governor-General might direct or authorise.” Prior to this, the Apex Court, in its 1962 ruling in ‘State of Bihar v. Messrs. Karam Chand Thapar’, had laid down these three conditions too.

(Courtesy:- The Indian Express, 30 May 2023)

 

Tax defaulters may find water pipe dry

The city's civic body can disconnect water supply to premises to recover unrealised taxes, the Calcutta High Court today observed.
"That water supply is an essential service cannot be used as a pretext to prevent disconnection of supply lines if a consumer defaults on his tax payment," a division bench comprising Justices Asim Banerjee and Prasenjit Mondal stated in its order.
In 2001, when the Kolkata Municipal Corporation (KMC) had been disconnecting water lines of properties including some big hotels and other companies for tax default, a firm, Nilambar Finvest Company, had moved the High Court saying that the Corporation could not do it as water supply was an essential service.
As per KMC Act 275(i)(aa), it can disconnect water supply in case of tax default, KMC lawyer Ashok Das Adhikari had claimed. However in 2002, Justice Bhaskar Bhattacharya had declared the provision unconstitutional.
Challenging the order, KMC moved the division bench of the court. The bench today set aside the 2002 judgement ordering that the civic body could apply the provision to recover tax from defaulters.
Source:-Business Standard (18-Mar-09)
For any query:- legalpoint@aol.in

‘Freedom of expression should be used with great responsibility’

Communication festival ‘Article 19’ begins‘Blogging on the Internet needs to be regulated’

Registrar of Manipal University G.K. Prabhu said on Thursday that freedom of expression was a powerful tool for journalists, but it should be used with great responsibility.
He was speaking after inaugurating “Article 19”, an international communication festival organised by the Manipal Institute of Communication (MIC) here.
Dr. Prabhu said that the freedom of expression had certain restrictions attached to it, and journalists should respect them.
Krishna Mariyanka, Director-Consultant of Aikya Global, said that the field of communication carried with it a tremendous responsibility. At present, blogging on the Internet was uncontrolled. Some form of regulation was required to make it responsible. The Supreme Court had recently observed that bloggers would be held responsible for the content of their blogs. Bloggers should focus on issues, he said.
Director of the Manipal Institute of Communication M.V. Kamath said the attack by a fringe group on some girls at a pub in Mangalore recently was wrong. President of Sri Rama Sene Pramod Muthalik did not know what Indian culture was. “Harmony among various communities is the defining feature of our country. Mr. Muthalik is insulting the culture of this country,” he said.
Student coordinator of the event Elvin Jacob delivered introductory remarks.
Prahlad Kakkar, a pioneer in the advertisement industry, conducted a workshop for the participants.
Some of the participants presented papers on “Media and web entrepreneurship” and “Revitalising the newspaper business” at the Manipal Media Students’ Convention, which is also a part of “Article 19”.
Source:- http://www.hindu.com/2009/02/28/stories/2009022854981500.htm

Should right to property return?

PIL In SC Questions ’70s Move To Give It Statutory Status

Should right to property be made a fundamental right? The Supreme Court on Friday issued notice to the Centre on a PIL, which said that the purpose for which right to property was relegated to a mere statutory right in the late 1970s is no longer relevant.

The PIL seeking restoration of the right to property in the third chapter of the Constitution, which enumerates the fundamental rights enjoyed by every citizen, argued that it was made a statutory right in 1978 to abolish large land holdings with zamindars and the rich, and their distribution among landless peasants.

Having achieved the purpose behind the legislative action in the late 1970s, the government should now initiate fresh measures to put ‘right to property’ back in the fundamental right basket, argued senior advocate Harish Salve on behalf of petitioner Sanjiv Kumar Agarwal of NGO ‘Good Governance India Foundation’.

He said what was done 30 years ago to address a particular issue, was now being abused by the government to strip farmers of their valuable land holdings for the purpose of acquiring vast tracts of land, including agricultural fields, for setting up SEZs.

Salve told a bench comprising Chief Justice K G Balakrishnan and Justice P Sathasivam that the situation was grave and needed urgent remedial action.

The bench issued notice to the Union law ministry seeking its response to the PIL, which challenged the constitutional validity of the 44th Constitutional Amendment, 1978, on the ground that it was violative of the basic structure of the Constitution.

The petition, filed through advocate Gopal Shankaranarayanan, stated that in the recent past acquisition of agricultural land depriving poor farmers of their only means of livelihood has given credence to the necessity for a fresh debate on making right to property as a fundamental right again.

Though the 1978 constitutional amendment was to permit government to acquire land for public purpose without being dragged to courts by big zamindars, the alteration of the status of the right to property never intended to harm small landholders, the petition stated.

But, in the last decade, in the garb of purported public purpose, land was being snatched away from the poor and underprivileged and handed to rich multinational companies and builders without offering sufficient compensation, the PIL alleged.
Source:- The Times of India 28 Feb. 09 Delhi P.16