Chaturbhuj v. Moreshwar

In the Supreme Court of India
Name of the CaseChatturbhuj Vithaldas Jasani v. Moreshwar Parashram And Others
Citation1954 AIR 236, 1954 SCR 817
Year of the Case1954
PetitionerCHATTURBHUJ VITHALDAS JASANI
Respondent MORESHWAR PARASHRAM AND OTHERS.
Bench/Judges   BOSE, VIVIAN MUKHERJEA, B.K. BHAGWATI, NATWARLAL H.
Acts Involved             Representation  of the People Act (XLIII  of  1951); The Constitution of India, 1950; Indian Contract Act (IX of 1872)

The judiciary has several times confronted with the issue of the interpretation of cases involving contractual obligations where the government is one of the parties. The contractual obligations are determined by provisions of Article 299 of the Indian Constitution and Indian Contract Act, 1872. The court had several occasions to determine the question of contractual formalities and completion of obligations even before the coming into effect of the present Constitution. The governmental liability is practically the same as that of a private person, subject to any contract to the contrary. The government derives any benefit under an agreement not fulfilling the requisites of Article 299(1), the Government may be held liable to compensate the other contracting party under S.70 of the Act, based on quasi-contractual liabilities, to the extent of the benefit received.

Introduction    

Due to the expanding age of commercialization, the Government Contract has been assumed great importance in modern times. The government’s economic activities are increasing as the government is increasingly assuming the role of the provider and dispenser of a large number of services and benefits. Currently, a large number of individuals and business organizations are enjoying government contracts such as licenses, quotas, etc. This raises the possibility of the exercise of power by the government to dispense largest arbitrarily and as such the courts need to look after protecting the rights of contracting parties.  There is a necessity to develop some norms to regulate and protect the individual interest in such means.

Background of the case

The judiciary has several times confronted with the issue of the interpretation of cases involving contractual obligations where the government is one of the parties. A contract entered into by or with the Central or State Government has to fulfill certain formalities as prescribed by Article 299 of the Indian Constitution which is to be complied with, but that does not mean that the provisions of the Indian Contract Act have been superseded.

In the case of State of Bihar v. Majeed,[1] the Hon’ble Supreme court held that “It may be noted that like other contracts, a Government Contract is also governed by the Indian Contract Act, yet it is distinct a thing apart. In addition to the requirements 185 of the Indian Contract Act such as offer, acceptance, and consideration, a Government Contract has to comply with the provisions of Article 299. Thus subject to the formalities prescribed by Article 299 the contractual liability of the Central or State Government is the same as that of any individual under the ordinary law of contract.”

The governmental liability is practically the same as that of a private person, subject to any contract to the contrary. To protect the innocent parties, the courts have held that if government derives any benefit under an agreement not fulfilling the requisites of Article 299(1), the Government may be held liable to compensate the other contracting party under S.70 of the Act, based on quasi-contractual liabilities, to the extent of the benefit received. The reason is that it is not just and equitable for the Government to retain any benefit it has received under an agreement that does not bind it. Article 299(1) is not nullified if compensation is allowed to the plaintiffs for work done or services rendered on a reasonable basis and not based on the terms of the contract.

An important question arises that if a contract is to be heard due to non-compliance with Article 299, what are the benefits derived under that contract? Whether or not the government will have the responsibility to return them?

In this context, it will be necessary to review the facts of the case of the State of West Bengal v. B.K. Mondal.[2]

 In this case, Section 175 (3) of the Government of India Act, 1935 was challenged and the provisions of which were similar to Article 299 of the present Constitution, the respondent constructed a building for the use of the Civil Service Department and that the works in question had been done by the respondent in terms of a contract entered into between the parties but the Government did not pay and its obligations were denied on the ground that the contract was not in compliance with Section 175 (3) of the Government of India Act. In the alternative, it was alleged that if the contract in question was invalid then the respondent’s claim fell under s. 70 of the Indian Contract Act. The respondent had lawfully done such works not intending to act gratuitously on that behalf and the appellant had enjoyed the benefit thereof.

In the case of State of West Bengal v. B.K. Mondal, the Honorable Supreme Court has given some conditions necessary for the application of section 70.

(1) A person should lawfully do something for another person or deliver something to him.

(2) In doing the said thing or delivering the said thing he must not intend to act gratuitously

(3) The other person for whom something is done or whom something is delivered must enjoy the benefit thereof.

The Hon’ble Supreme Court has now determined that the government is not subject to the obligation under the contract to pay for the work done by the contract. But under Section 70 of the Contract Act, in which the Government’s status is as a citizen, therefore, there is no reason why it should not be under obligation.

Thus to protect the innocent parties the court have held that if the government desires any benefit under the agreement not fulfilling the requisites of the article 299(1), the government may be held liable to compensate the Other contracting party under section 70 of the Indian Contract Act based on Quasi controlled liabilities to the extent of benefit received.

The following are the important decisions given by the Supreme Court or other courts supporting the above stance.

  1. State of West Bengal v. B.K. Mondal, AIR 1962
  2. M.P.Sugar Mills v. the State of U.P., AIR 1979
  3. Union of India v. Rallia Ram, AIR 1963
  4.  Bhiakraj Jaipuriya v. Union of India, A I R 1962
  5. Union of India v. Anglo (Indian)Afghan agencies, AIR 1968. ( Promissory Estoppel)
  6. Chaturbhuj v. Moreshwar, AIR 1967.

Finally, this important question should also be considered whether a judicial Review over to government contracts can be exercised or not. Judicial review can be exercised under the following circumstances.

  • If the Government has entered into a contract any arbitrariness (violative to Art.14,) and
  • all the procedure have not been duly followed in the contract
  • the activities of the government are prejudicial to the party
  • Principles of natural justice have not been followed or the principles it has been disregarded.

 If any of the circumstances mentioned above, the court may exercise the power of judicial review. The above-mentioned grounds are not exhaustive and other grounds can also be added for judicial review.

Facts

This case is debated on the disqualification of a candidate seeking election for parliament. The candidate was a partner in a firm that had entered into contracts with the central government for the supply of goods.

This is an appeal against a decision of the Nagpur Election Tribunal. The contest before the tribunal was about two seats in the Bhandara Parliamentary Constituency. The elections were held on five days in December 1951 and January 1952.

Thirteen candidates filed nomination papers, among them one was the petitioner. Of these, six contested for the reserved seat for the Scheduled Castes. One of these was Gangaram Thaware who has since died.

The Scheduled Caste in question is the Mahar caste. Thaware’s nomination for the reserved seat was objected on the ground that he was not a Mahar. It is admitted that he was born a Mahar, but later on, he joined the Mabanubhava Panth. This sect does not believe in caste, and alternatively, it forms a separate caste in itself. The contention was that when Gangaram Thaware joined the Panth he ceased to be a member of the Mahar caste. This objection succeeded and his nomination was rejected.

The nomination of another Scheduled Caste candidate was also rejected and five others were withdrawn before the election, among them was the present petitioner. That left six candidates of whom three were eligible for the reserved seat.

The two who were elected were Tularam Sakhare, for the Scheduled Caste seat, and Chaturbhuj Jasani, for the general seat. Jasani’s election was challenged on the ground that he was subject to the disqualifications set out in Section 7 (b) of the Representation of the People Act (Act XLIII of 1951) as he was interested in a contract for the supply of goods to the Central Government. The Election Tribunal held that the rejection of Gangaram Thaware’s nomination was improper as he continued to be a member of the Mahar caste despite his conversion to the tenets of the Mahanubhava. Panth. It also held that Chaturbhuj Jasani had a contract with the Central Government, so he was disqualified. Accordingly, it set aside the whole election.

The petitioner is a partner in Moolji Sicka & Company, which is a firm of bidi manufacturers. The Central Government was interested in stocking and purchasing bidis for sale to its troops through its canteens. Accordingly, it placed two of the brands of bidis manufactured by this firm on its approved list and entered into an arrangement with the firm under which the firm was to sell, and the Government was to buy from the firm, from time to time, these two brands of bidis. It was argued that this amounted to a contract for the supply of goods within the meaning of the section. It was said that the contract was embodied in four letters.

Issues

Two substantial questions arose between the parties:

The disqualification alleged in this case is that Chaturbhuj Jasani had an interest in a contract, or a series of contracts, for the supply of goods to the Central Government. He had this interest because the contracts were made with Moolji Sicka & Company a firm of which Jasani is one of the partners. Now the question is whether any contract for the supply of goods to Government by Moolji Sicka & Company existed at any time on or between the relevant dates on which elections were scheduled.

As Gangaram Thaware stood as a Scheduled Caste candidate and his nomination was rejected on the ground that he did not belong to the Scheduled Caste in question, namely the Mahars, the only question here is whether he ceased to be a Mahar when he joined the Mahanubhava Panth.

Related Provisions

The related provision of law involved in the present case is

Constitutional provisions

 Article 298 of the Indian Constitution mentions the power of the Union and the State government to carry on any trade or business that has been provided. For the formation of a Government contract the requirements under Article 299 have to be fulfilled and if they have fulfilled a contract can be enforced against the Government.

Art.299 says

 (1) All contracts made in the exercise of executive power of the Union or 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 the power shall be executed on behalf of the President or the Governor by such person and in such manner, as he main direct or authorize.

(2) Neither the Governor nor President shall be personally liable in respect of any contract or assurance made or executed for any enactment related to Government of India here to be a force in force, nor shall any such contract or assurance on behalf of any of them be personally liable in respect thereof.

Section 7 in the Representation of the People Act, 1951:

7. Definition:

a.  “appropriate Government” means about any disqualification for being chosen as or for being a member of either House of Parliament, the Central Government, and concerning any disqualification for being chosen as or for being a member of the Legislative Assembly or Legislative Council of a State, the State Government;

b. “Disqualified” means disqualified for being chosen as, and for being, a member of either House of Parliament or the Legislative Assembly or Legislative Council of a State.

Section 70 in the Indian Contract Act, 1872

70. The obligation of a person enjoying the benefit of non-gratuitous act.—

“Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and 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.

Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and 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.”

Section 230(3) in the Indian Contract Act, 1872

(3) Where the principal, though disclosed, cannot be sued.

Related Cases

Ø  To prove that A contract for the supply of goods does not terminate when the goods are supplied, it continues into being till payment is made and the contract is fully discharged by performance on both side, the following cases were relied on:

The English courts in the case of O’Carroll v. Hasting[3] headed by O’Brien L.C.J. said that “these contracts have not been “merged, abandoned, rescinded, extinguished or satisfied; and if any demur was made as to payment before payment was made, he could have sued upon the contract especially; or if he sued for work done at the request of the defendants the contract would have been a part of his necessary proofs” We agree with the learned Lord Chief Justice in thinking that “it is far-fetched to contend that a man is not concerned in the contract or security by which he can enforce payment.”

The same view was taken, by Costello J. in an Indian case in Satyendrakumar Das v. Chairman of the Municipal Commissioners of Dacca[4] . The Counsel for the appellant relied strongly on certain English cases.

Also, in Krihsnaji Nilkant v. Secretary of State,[5] the court ruled that contracts with the Secretary of State must be by a deed executed on behalf of the Secretary of State for India and in his name. They cannot be made by correspondence or orally.

 Secretary of State v. Bhagwandas[6]and Devi Prasad Sri Krishna Prasad Ltd. v. Secretary of State[7] held they could be made by correspondence.

Secretary Of State V. O.T. Sarin & Company[8] took an intermediate view and held that though contracts in the prescribed form could not be enforced by either side, a claim for compensation under section 70 of the Indian Contract Act would lie.

Judgment

It was held that a contract with the government for the supply of goods subsisted till it was fully discharged by both sides and payment was made and based on this fact, the contract was existing on the last date of putting in the nomination and the date when the results were declared. It was held that candidate had a share and an interest in the contract for the supply of goods on the crucial dates and he was disqualified according to section 7 (b) of the representation of the people act, 1951

The court emphasized that “There can be no doubt that the Chairman of the Board of Administration acted on behalf of the Union Government and his authority to contract in that capacity was not questioned. There can equally be no doubt that both sides acted in the belief and on the assumption, which was also the fact, that the goods were intended for Government purposes, namely, amenities for the troops. The only flaw is that the contracts were not in proper form and so, because of this purely technical defect, the principal could not have been sued. But that is just the kind of case that Section 230(3) of the Indian Contract Act is designed to meet. It would, in our opinion, be disastrous, to hold that the hundreds of Government officers who have daily to enter into a variety of contracts, often of a petty nature, and sometimes in an emergency, cannot contract orally or through correspondence and that every petty contract must be affected by a ponderous legal document couched in a particular form.

It may be that Government will not be bound by the contract in that case, but that is a very different thing from saying that the contracts as such are void and of no effect. It only means “that the principal cannot be sued-; but we take it there would be nothing to prevent ratification, especially if that was for the benefit of Government. There is the authority for the view that when a Government officer acts more than authority Government is bound if it ratifies the excess (The Collector of Masulipatam v. Cavaly Venkata Narrainapah). We accordingly hold that the contracts in question here are not void simply because the Union Government could not have been, sued on them because of article 299(1).

The court also opined that Section 7(b) of the Representation of the People Act does not require that the contracts at which it strikes should be enforceable against the Government but that the contracts should be for the supply of goods to the Government.

The purpose of the Act is to maintain the purity of the legislatures and to avoid a conflict between duty and interest. The temptation to place interest before duty is just as great when there is likely to be some difficulty in recovering the money from Government (for example, if Government were to choose not to ratify the contracts) as when there is none. Upholding the decision of the election tribunal the court said that in our opinion, the Election Tribunal was-right in disqualifying Chatturbhuj Jasani.

On the question that whether Gangaram Thaware ceased to be a Mahar on joining the Mahanubhava Panth the court answered that “After considering the historical material placed before us, it seems that conversion to this sect imports little beyond an intellectual acceptance of certain ideological tenets and does not alter the convert’s caste status, at any rate, so far as the householder section of the Panth is concerned. So much for the caste consciousness on both sides, he was still regarded as a Mahar after his conversion and always looked upon himself as a Mahar and identified himself with the caste. No one on the other side denies this. As we have shown, they took shelter behind generalities and evaded the issue by saying that in that case, he cannot be a real Mahanubhava. If he was not, then he must have continued a Mahar even on their view.”

The evidence also discloses that Gangaram Thaware led Mahar agitations and processions as a member and leader of the Mahar caste. In 1936 he contested the election for the Provincial Assembly as a Mahar candidate. No one appears to have questioned his competency. And lastly, he declared himself to be a Mahar in the verification to his nomination form in the present election as also in an affidavit filed before the Returning Officer who rejected his nomination. The ‘Returning Officer described that as a “cleverly, worded document.” We have read it and find nothing tricky or crooked in it, therefore, applying the test in Abraham v. Abraham[9], we hold that despite his conversion he continued to be a Mahar and so his nomination form was wrongly rejected. That affects the whole election. The other points argued before the Election Tribunal was not pressed before us. We, therefore, uphold the decision of the Tribunal and dismiss the appeal with costs.

Concepts Highlighted

Government Contract

Contract to which the Central Government or State Government as the case may be is a party is called a “Government Contract”. The Indian Contract Act does not prescribe any form for entering into Governmental contracts. It may be oral or in writing it may be express or implied from of circumstances of the case and the conduct of the parties. The contractual liability of the State under the contract is the same as that of a person under the general contract. The present constitution has not brought any change in the legal status related to this matter and the state liability is the same as the East India Company before 1858.

Article 299 requires the following three conditions:

  • The contract must be expressed to be made by the President or the Governor as the case may be,
  • These contracts made in the exercise of the executive power are to be executed on behalf of the President /Governor as the case may be and,
  •  The execution must be by such person and in such manner as the President or the Governor of the case as the case may be, may direct or authorize.

The following procedure is mandatory to be followed:

(1) Government Contracts expressly as to be made by the president of the Governor.

(2) They shall be executed by a competent person and in a prescribed manner.

(3) In any case, the President or Governor is not personally liable on the contract.

(4) If the above requirements are not complied with:

  • The government is not bound by the contract because article 299 is mandatory.
  • The officer executing the contract would be personally bound.
  • The government however if it enjoys the benefit of performance by the other party to the contract would be bound to give recompense sentence on the principle of quantum merit.
  • Besides this, the doctrine of Promissory Estoppel may be applied to the facts.

Conclusion

Thus the Judiciary has also enlarged its role according to the demands of present commercial society and being a part of the welfare state it also becomes the duty of the state to fulfill its obligations towards citizens’ interests. The power of Judicial Review holds an important place in the Indian Context. Also, an over-emphasis cannot be given to the English precedents as the context in which they are applied may differ and the status of contracts and application of laws also differ in India.

Endnotes

  • State of Bihar v. Majeed, AIR 1954 SC 245.
  • State Of West Bengal v. M/S. B. K. Mondal And Sons, 1962 AIR 779, 1962 SCR Supl. (1) 876.
  • Satyendra Kumar Das v. Chairman of the Municipal Commissioners of Dacca, I.L.R. 58 Cal. 180, p. 193.
  • Krihsnaji Nilkant v. Secrtary of State, A.I.R. 1937 Bom. 449,451
  • Secretary of State v. Bhagwandas, A.I.R. 1938 Bom. 168.
  • Devi Prasad Sri Krihhna Prasad Ltd. v. Secretary of State, A.I.R. 1941 All. 377.
  • Secretary of State V. O.T. Sarin & Company
  • O’Carroll v. Hasting, (1905) 2 I.R. 590 at 608.

 

References


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