The liability of the state is an important concept in administrative law. It deals with the extent to which the state is legally responsible for the acts and omissions of its agencies and officials.
Constitutional Provisions on State Liability
Articles 298, 299 and 300 of the Indian Constitution deal with state liability in contracts. Article 300 specifically provides that the liability of the Union and state governments will be the same as that of the pre-constitutional Government of India, as laid down in the Government of India Acts of 1915, 1935 and 1858. This ultimately refers back to the liability of the East India Company, which did not enjoy sovereign immunity from legal liability.
Also Read: Notes on Administrative Law
In addition to the constitutional requirements under Articles 298-300, government contracts are also subject to the provisions of the Indian Contract Act 1872. Hence, the essential elements of a valid contract under section 10 have to be fulfilled. Provisions relating to consideration, damages, etc. would also apply.
Article 299 prescribes three mandatory conditions for government contracts:
- Expressed as made on behalf of the President/Governor
- Executed on behalf of the President/Governor
- Executed by a person authorized by the President/Governor
These conditions are mandatory and non-compliance can invalidate the contract, as held in Karamshi v. State of Bombay. However, the Supreme Court has relaxed the rigour of some of these requirements, holding that even implied authorization may suffice, as seen in State of Bihar v. Karamchand Thaper & Brothers. Where the government has derived benefit under an invalid contract, it will still be liable under the doctrine of unjust enrichment embodied in Section 70 of the Contract Act, as held in New Marine Lines Construction Company v. Government of India.
Prior to the Constitution, there was some uncertainty on whether the state enjoyed sovereign immunity against tortious liability. Some decisions had indicated that immunity would apply to acts done in exercise of “sovereign powers”, but others rejected any such immunity.
Article 300 resolved this by equating the state’s liability to that of the East India Company. Hence sovereign immunity has not survived in India. This was affirmed in State decisions like State of Rajasthan v. Vidhyawati, which held the state vicariously liable for torts committed by its employees.
The issue of sovereign functions was revisited in Kasturilal Ralia Ram v. State of UP, where the Supreme Court conferred immunity for acts done in discharge of sovereign powers like police functions. However, subsequent Constitution Bench decisions have rejected the sovereign-non-sovereign distinction altogether. In N. Nagendra Rao v. State of AP, the Supreme Court held that this distinction is outdated and should no longer apply to determine state liability.
Thus, the state can no longer claim immunity from tortious liability solely on the ground of an act being done in discharge of sovereign functions. At the same time, certain primary functions like administration of justice and maintenance of law and order do enjoy some degree of immunity. Barring such exceptional cases, the general rule is that the state will be vicariously liable for torts committed by its employees under the misfeasance in public office doctrine.
A constitutional tort is one that involves violation of Fundamental Rights under the Constitution. The concept of sovereign immunity has no application to such torts. In Nilabati Behera v. State of Orissa, the Supreme Court awarded compensation against the State for custodial death caused due to its negligence. Such liability exists irrespective of whether the state action relates to a sovereign function or not.
Distinction between Sovereign and Non-Sovereign Functions
The classification of governmental functions into sovereign and non-sovereign functions was an important factor historically in determining the liability of the state.
Sovereign Functions refer to core, primary functions that are intrinsically connected with the state’s sovereign powers. These include:
- Functions related to external sovereignty like defense, war, foreign affairs etc.
- Maintenance of law and order
- Administration of justice
- Powers like taxation which represent sovereign attributes
Non-Sovereign Functions comprise the welfare, regulatory and commercial functions undertaken by the modern state as part of governance. These include:
- Running of public utilities likes railways, posts and telegraphs etc.
- Social welfare measures
- Public health
- Commerce and trade
The key distinction between the two was that traditionally, the doctrine of sovereign immunity protected the state from legal liability arising out of acts done in discharge of sovereign functions. So the state would be immune from tortious liability if a tort was committed by say, the armed forces during wartime operations. However, no such immunity would be available where the state undertaking was in the nature of a non-sovereign or commercial activity.
Post Constitutional Developments in the Sovereign Immunity
This demarcation was subjected to criticism over time. It was argued that most activities of the modern welfare state cannot be strictly classified into narrow traditional heads of sovereign and non-sovereign functions. Interpretational issues also plagued the classification exercise.
The Supreme Court noted this criticism in N. Nagendra Rao v. State of AP. It held that the distinction has largely lost relevance under modern notions of state responsibility. Instead, the crucial test is the nature and manner of exercise of power – if it involves political questions or falls under primary functions of governance like law and order, the scope for judicial intervention may be limited.
Barring such exceptional cases where some degree of immunity applies even now, the state is liable for torts committed by its employees under the misfeasance in public office doctrine. The state cannot escape liability merely on the sovereign functions defense.
Thus, post-constitutional developments in India have rendered the traditional sovereign-non sovereign classification largely redundant. The state’s liability today is determined on grounds like the degree of policy discretion available and not based on this functional distinction.
Creation of Statutory Corporations
The increasing liability imposed on the state paved the way for establishing statutory corporations with distinct legal personalities. Being independent corporate entities, they have better autonomy in decision making and are not subject to political interference. Moreover, they enjoy limited liability under law, unlike state governments that have unlimited fiscal liability. This has facilitated the state’s venture into commercial activities.
The privileged position of the state as enjoying sovereign immunity has substantially disappeared over time. This accords with the human rights framework of the Constitution. Effective remedies in contract and tort are now available against the Union and state governments to compensate for and prevent harm caused by abuse of state power. Certain core governance functions may still be accorded differential treatment, but the scope of such exceptions is very limited. Through wider liability as well as statutory corporations, administrative law in India has delineated an optimal balance between state autonomy and legal accountability towards citizens.