According to section 2(e) of Indian Contract Act,1872, "every promise and every set

ofpromises forming consideration for each other is an agreement. For example 'A'promises
to 'B' to sell his land for Rs 75,00,000/- and 'B' accepts to purchase for the said amount.
Here 'A' and 'B' entered into an agreement.

A contract is an agreement which is made between at least 2 people in

which both of them agree to perform an act or abstain from doing the act
in return for some consideration. Section 2(h) of the Indian Contract Act
has defined a contract as an agreement which is enforceable by law. Thus
when an agreement is not against the provisions of law it is a contract.

Section 2(h) of the Indian Contract Act,1872 defines acontract as

“
An agreement enforceable by law
”.
The word
“
agreement
”
has been defined inSection 2(e) of the Act as
“
every promise and every set of promises, forming consideration foreach other
.”
A contract to which The Central Government or a State Government is a party iscalled a
“
Government Contract
”.
Government contracts have been accorded Constitutional recognition. The Constitution,
underArticle 298 , clearly lays down that the executive power of the Union and of each state
extends to
“
the carrying on of any trade or business and to the acquisition, holding and disposal of
propertyand the making of contracts for any purpose
”.
The Constitution therefore, provides that agovernment may sue or be sued by its own name. A
similar provision is found in the Code ofCivil Procedure 1908 under Section 79.

Principles Underlying Government Contracts

Reasonableness, fairness
The principle of reasonableness and rationality which is legally as well as philosophically an essential element of equality or non-arbitrariness is
projected by Article 14 and it must characterize every State Action , whether it be under the authority of law or in exercise of executive power
without making of law. The state cannot , therefore , act arbitrarily in entering into relationship, contractual or otherwise with a third party, but
its action must conform to some standard or norm which is rational an non- discriminatory. The action of the Executive Government should be
informed with reason and should be free from arbitrariness.
It is indeed unthinkable that in a democracy governed by the rule of law the executive Government or any of its officers should possess
arbitrary power over the interests of the individual. Every action of the executive Government must be informed with reason and should be
free from arbitrariness. That is the very essence of the rule of law and its bare minimal requirement. And to the application of this principle it
makes no difference whether the exercise of the power involves affection of some right or denial of some privilege.
ll actions of the State and its instrumentality are bound to be fair and reasonable. The actions are liable to be tested on the touchstone of
Article 14 of the Constitution of India. The State and its instrumentality cannot be allowed to function in an arbitrary manner even in the matter
of entering into contracts. The decision of the State either in entering into the contract or refusing to enter into the contract must be fair and
reasonable. It cannot be allowed to pick and choose the persons and entrust the contract according to its whims and fancies. Like all its actions,
the action even in the contractual field is bound to be fair. It is settled law that the rights and obligations arising out of the contract after
entering into the same is regulated by terms and conditions of the contract itself.
The requirement of 'fairness' implies that even administrative authority must act in good faith; and without bias; apply its mind to all relevant
considerations and must not be swayed by irrelevant considerations; must not act arbitrarily or capriciously and must not come to a conclusion
which is perverse or is such that no reasonable body of persons properly informed could arrive at. The principle of reasonableness would be
applicable even in the matter of exercise of executive power without making law. It is settled principle of law that the court would strike down
an administrative action which violates any foregoing conditions.
The duty to act fairly is sought to be imported into the contract to modify and alter its terms and to create an obligation upon the State which is
not there in the contract. The Doctrine of fairness or the duty to act fairly and reasonably is a doctrine developed in the administrative law field
to ensure the Rule of Law and to prevent failure of justice where the action is administrative in nature. Just as principles of natural justice
ensure fair decision where the function is quasi-judicial, the doctrine of fairness is evolved to amend, alter or vary the express terms of the
contract between the parties. This is so, even if the contract is governed by statutory provisions.
In a democratic society governed by the rule of law, it is the duty of the State to do what is fair and just to the citizen and the State should not
seek to defeat the legitimate claim of the citizen by adopting a legalistic attitude but should do what fairness and justice demand.
Public Interest
Tate owned or public owned property is not to be dealt with at the absolute discretion of the executive. Certain percepts and principles have to
be observed. public interest is the paramount consideration. There may be situations where there are compelling reasons necessitating the
departure from the rule, but there the reasons for the departure must be rational and should not be suggestive of discrimination. Appearance
of public justice is as important as doing justice. Nothing should be done which gives an appearance of bias, jobbery or nepotism.
The consideration to weigh in allotting a public contract are and have to be different than in case of a private contract as it involves expenditure
from the public exchequer. The action of the public authorities thus have to be in conformity with the standards and norms which are not
arbitrary, irrational or unreasonable. And whenever the authority departs from such standard or norms, the Courts intervene to uphold and
safeguard the equality clause as enshrined in Article 14 of the Constitution and strike down actions which are found arbitrary, unreasonable
and unfair and prone to cause a loss to the public exchequer and injury to public interest. Therefore, even when an award of contract may not
be causing any loss to the public exchequer manifestly, it may still be liable to quashment for being unfair, unreasonable, discriminatory and
violative of the guarantee contained in Article 14.
Equality, non-arbitrariness
From a positivistic point of view, equality is antithetic to arbitrariness. In fact, equality and arbitrariness are sworn enemies; one belonging to
the rule of law in a republic, while the other, to the whim and caprice of an absolute monarch. Where an act is arbitrary, it is implicit in it that it
is unequal both according to political logic and constitutional law and is violative of Article 14. the principle of reasonableness, which legally as
well as philosophically, is an essential element of equality or non-arbitrariness pervades Article 14 like a brooding omni-presence and the
procedure contemplated by Article 21 must answer the test of reasonableness in order to be in conformity with Article 14.
Contractual Liability
Article 299(2) immunizes the President, or the Governor, or the person executing any contract on his behalf, from any personal liability in
respect of any contract executed for the purposes of the Constitution, or for the purposes of any enactment relating to Government of India in
force. This immunity is purely personal and does not immunize the government, as such, from a contractual liability arising under a contract
which fulfills the requirements under Article 299(1).
The governmental liability is practically the same as that of a private person, subject, of course, to any contract to the contrary.
In order 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 the Act, on the basis of 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 which does not bind it. Article 299(1) is not nullified if compensation is allowed to the plaintiffs for
work actually done or services rendered on a reasonable basis and not on the basis of the terms of the contract.
three conditions namely:
1. a person should lawfully do something for another person or deliver something to him;
2. in doing so, he must not intend to act gratuitously; and
3. the other person for whom something is done or to whom something is delivered must enjoy the benefit thereof.
The Courts have adopted this view on practicable considerations. Modern government is a vast organization. Officers have to enter into a
variety of petty contracts, many a time orally or through correspondence without strictly complying to the provisions under Article 299. In such
a case, if what has been done is for the benefit of the government for its use and enjoyment, and is otherwise legitimate and proper, the Act
should step in and support a claim for compensation made by the contracting parties notwithstanding the fact that the contract in question has
not been made as per the requirements of Article 299.If it was to be held in applicable, it would lead to extremely unreasonable circumstances
and may even hamper the working of government. Like ordinary citizens even the government should be subject to the provisions .
Similarly, if under a contract with a government, a person has obtained any benefit, he can be sued for the dues of the Act though the contract
did not confirm to Article 299. if the Government has made any void contracts it can recover the same of the Act.
It needs to be emphasized that , Contract Act, does not deal with the rights and liabilities of parties accruing from that from relations which
resemble those created by contracts. Thus, in cases falling , the person doing something for another cannot sue for specific performance of the
contract nor can he ask for damages for breach of the contract for a simple reason that no valid contract exists between the parties. All that is
that if the goods delivered are accepted, or the work done is voluntarily enjoyed, then the liability to enjoy compensation for the said work or
goods arises. where a person does a thing not intending to act gratuitously and the other enjoys it.
in no way detracts from the binding character of Article 299(1) . The cause of action for the respondent's claim is not any breach of contract by
the government. In fact, the claim is based on the assumption that the contract in pursuance of which the respondent has supplied the goods,
or made the construction in question, is ineffective and, as such, amounts to no contract at all. Thus, does not nullify Article 299(1). In fact, may
be treated as supplementing the provisions under Article 299(1).What prevents is unjust enrichment and it as much to individuals as to
corporations and governments.
What Are Standard Form Contracts
Standard Form Contracts are agreements that employ standardized, non-negotiated provisions, usually in preprinted forms. These are
sometimes referred to as “boilerplate contracts,” "contracts of adhesion," or "take it or leave it" contracts. The terms, often portrayed in fine
print, are drafted by or on behalf of one party to the transaction – the party with superior bargaining power who routinely engages in such
transactions. With few exceptions, the terms are not negotiable by the consumer.
Standard form, business-to-consumer contracts fulfill an important efficiency role in the mass distribution of goods and services. These
contracts have the potential to reduce transaction costs by eliminating the need to negotiate the many details of a contract for each instance a
product is sold or a service is used. However, these contracts also have the ability to trick or abuse consumers because of the unequal
bargaining power between the parties. For example, where a standard form contract is entered into between an ordinary consumer and the
salesperson of a multinational corporation, the consumer typically is in no position to negotiate the standard terms; indeed, the company’s
representative often does not have the authority to alter the terms, even if either side to the transaction were capable of understanding all the
terms in the fine print. These contracts are typically drafted by corporate lawyers far away from where the underlying consumer and vendor
transaction takes place.
The danger of accepting unfair or unconscionable terms is greatest where these artful drafters of such contracts present consumers with
attractive terms on the visible or “shopped” terms of most interest to consumers, such as price and quality, but then slip one-sided terms
benefiting the seller into the less visible, fine print clauses least likely to be read or understood by consumers. In many cases, the consumer
may not even see these contracts until the transaction has occured. In some cases, the seller knows and takes advantage of the knowledge that
consumers will not read or make decisions on these unfair terms.