Article 299 of the Constitution

Q. Why in Next/Context:

·     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.

·       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.

Q. What is Article 299 of the Constitution?

·    Article 298 grants the Centre and the state governments the power to carry on trade or business, acquire, hold, and dispose of property, and make contracts for any purpose, 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.

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

Q. What was the case?

·    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.

·    An application was filed by Glock Asia-Pacific Limited against the Centre on the appointment of an arbitrator in a dispute.

Q. What did the court hold?

·    Deciding the case in Glock’sfavour, 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.”

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

·      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.