Introduction to Part XII
Part XII of the Indian Constitution primarily deals with Finance, Property, Contracts, and Suits, outlining the financial relations between the Union and States, and establishing the legal framework for the Government's economic and contractual activities.
While much of the financial aspects are covered under Centre-State relations, Articles 294 to 300A specifically address the succession to property, the vesting of ownerless property, the Union's control over maritime resources, the government's power to carry on trade and enter into contracts, its capacity to sue and be sued, and crucially, the 'Right to Property' as a constitutional right.
These provisions collectively define the legal personality and financial responsibilities of the Union and State governments, ensuring clarity and accountability in their operations.
General Financial Provisions
Article 264: Interpretation of "Finance Commission" (Omitted)
Originally defined 'Finance Commission' for Part XII as the commission constituted under Article 280. Its substance is now inherent in Article 280 itself, and the article was impacted by amendments related to tribunalization and subsequently omitted.
#OmittedArticleArticle 265: No Tax Save by Authority of Law
"No tax shall be levied or collected except by authority of law." This fundamental principle of public finance, rooted in "no taxation without representation," ensures the executive cannot impose any tax without specific legislative enactment.
#TaxationLawArticle 266: Consolidated Funds & Public Accounts
#GovernmentFundsArticle 267: Contingency Fund
Parliament (for Union) or State Legislature (for State) may establish a Contingency Fund.
#EmergencyFundsBorrowing by Government of India and States (Articles 292, 293)
These articles empower the Union and State governments to borrow money, both within India and from external sources, subject to limits set by Parliament. Detailed aspects of borrowing are typically covered under Centre-State Financial Relations.
Government's Legal Personality: Property & Suits
Articles 294, 295: Succession to Property & Assets
#StateSuccessionArticle 296: Property Accruing by Escheat, Lapse or Bona Vacantia
Any property accruing by Escheat (dying intestate without heirs), Lapse (rights termination), or as Bona Vacantia (ownerless property) vests in the State where it is situated. If outside a State (e.g., UT, outside India), it vests in the Union. This ensures ownerless property does not remain unaccounted for.
#OwnerlessPropertyArticle 297: Maritime Resources Vest in the Union
"All lands, minerals and other things of value underlying the ocean within the territorial waters, or the continental shelf, or the exclusive economic zone, of India shall vest in the Union and be held for the purposes of the Union."
Parliament's Power: The limits of these maritime zones and other matters related thereto are to be determined by Parliament by law (e.g., The Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976). This centralizes control over valuable offshore resources (e.g., oil, gas, minerals, fishing rights).
#MaritimeLaw #NaturalResourcesArticle 298: Power to Carry on Trade, etc.
"The executive power of the Union and of each State shall extend to the carrying on of any trade or business and to the acquisition, holding and disposal of property and the making of contracts for any purpose."
This article empowers the government (both Union and States) to engage in commercial activities (trade, business) and manage property and contracts, even outside their usual legislative domain, if such activities are not prohibited by existing law. This power is subject to legislation by Parliament (if Union trade) or State Legislature (if State trade), meaning Parliament/State Legislature can restrict or regulate such activities.
Article 299: Government Contracts
- Formal Requirements: All contracts made in the exercise of the executive power of the Union or a State shall be expressed to be made by the President or the Governor, as the case may be.
- Execution: Such contracts and assurances of property shall be executed on behalf of the President/Governor by such persons and in such manner as he may direct or authorise.
- Personal Immunity: Neither the President nor the Governor shall be personally liable in respect of any contract or assurance made or executed for the purposes of the Constitution.
- Essential for Validity: Compliance with these formal requirements is essential for the validity of a government contract. Absence of these may render the contract void and unenforceable against the government. This is to protect the government from unauthorized contracts and ensure accountability.
Article 300: Suits and Proceedings
This capacity to sue and be sued is subject to any provisions made by an Act of Parliament or a State Legislature.
Position regarding Suability of State for Torts (Civil Wrongs):
Under British rule, the Crown enjoyed sovereign immunity for torts committed by its servants while exercising sovereign functions. This distinction continued in early independent India, but judicial interpretations have significantly evolved towards greater state liability.
1861: P & O Steam Navigation Co. v. Secretary of State
Established the distinction between sovereign (immune) and non-sovereign (suable) functions for Crown's liability in tort.
1965: Kasturilal Ralia Ram Jain v. State of U.P.
Reaffirmed the sovereign/non-sovereign distinction, granting immunity for acts done in the exercise of sovereign powers.
1962: State of Rajasthan v. Vidyawati
State was held liable for tortious act of its employee while performing non-sovereign function, an early instance of state liability.
1990s: Saheli (1990), Nilabati Behera (1993), Nagendra Rao (1994)
Judicial evolution: Shifted towards greater liability for tortious acts, blurring the distinction. Emphasized public law remedy for fundamental rights violations (Nilabati Behera). Trend towards narrowing sovereign immunity and expanding governmental liability for torts of its servants, especially for negligence or violation of fundamental rights.
The Evolving Right to Property (Article 300A)
The Core Statement
"No person shall be deprived of his property save by authority of law."
This simple yet profound statement is the current constitutional position of the right to property. It primarily protects individuals against arbitrary executive action without the backing of law.
Insertion by 44th Amendment Act, 1978
The 44th Constitutional Amendment Act, 1978, brought about a significant change by:
- Deleting Article 19(1)(f): Removed the 'right to acquire, hold and dispose of property' from the list of Fundamental Rights.
- Deleting Article 31: Removed the 'compulsory acquisition of property' as a Fundamental Right (which also contained provisions for compensation).
- Inserting Article 300A: Introduced this new article in Part XII of the Constitution.
Rationale for Change: The original Fundamental Right to Property was a source of frequent legal challenges to land reforms and other socio-economic legislation. The amendment aimed to overcome these judicial hurdles and facilitate land reforms.
Constitutional Right / Legal Right, Not a Fundamental Right
Pre-1978 (Fundamental Right):
Post-1978 (Constitutional/Legal Right):
Significance and Way Forward
Part XII of the Constitution intricately defines the financial and legal personality of the Union and State governments, outlining their powers and obligations concerning property, contracts, and legal proceedings. From the foundational principles of taxation and public funds to the specific rules governing government contracts and its suability, these provisions ensure accountability and legal certainty in the exercise of governmental authority.
The evolution of the 'Right to Property' from a fundamental right to a constitutional right signifies a pragmatic adaptation of the Constitution to facilitate socio-economic reforms, while still safeguarding individuals against arbitrary state action. The dynamic interpretation of state liability in torts reflects a continuous effort to align governmental responsibility with modern democratic expectations.
These articles continue to be vital for India's governance, impacting everything from major infrastructure projects and natural resource management to public accountability and financial discipline.
Quick Notes & Analytical Insights
Prelims-ready Notes
- Part XII: Finance, Property, Contracts, and Suits.
- Art 265: No tax save by authority of law ("no taxation without representation").
- Art 266: Consolidated Funds (all revenues, loans – requires appropriation) & Public Accounts (PF, savings – no appropriation).
- Art 267: Contingency Fund (unforeseen expenditure, President/Governor, ex-post facto approval).
- Art 294, 295: Succession to property/assets/liabilities of British India & Princely States to Union/States.
- Art 296: Property by Escheat (no heir), Lapse (rights termination), or Bona Vacantia (ownerless) vests in State (if within State) or Union (otherwise).
- Art 297: All lands, minerals, things of value in Territorial Waters, Continental Shelf, EEZ vest in the Union. Limits determined by Parliament by law (e.g., Maritime Zones Act, 1976).
- Art 298: Govt (Union/State) can carry on trade/business, acquire/hold/dispose of property, make contracts (subject to legislative law).
- Art 299 (Contracts): Must be in name of President/Governor; executed by authorised person; President/Governor not personally liable. Formal requirements are essential for validity.
- Art 300 (Suits): Govt of India: Sues/sued by Union of India. State Govt: Sues/sued by name of the State. Suability for Torts evolved from sovereign immunity to greater liability for non-sovereign functions (P&O, Kasturilal, Nagendra Rao cases).
- Art 300A (Right to Property): "No person shall be deprived of his property save by authority of law." Inserted by 44th Amendment Act, 1978. Deleted Art 19(1)(f) and Art 31 (as FRs). Now a Constitutional/Legal Right, NOT a Fundamental Right. Implications: No direct Art 32 writ to SC; can approach HC under Art 226. Not part of Basic Structure. Compensation: Law depriving property must provide for compensation (judicial interpretation, LARR Act, 2013).
Mains-ready Analytical Notes
Major Debates/Discussions:
- Right to Property - Evolution and Implications: Historical clash between FR and socio-economic reforms, 44th Amendment's role, ongoing compensation debate (illusory vs. fair), non-inclusion in Basic Structure.
- Sovereign Immunity vs. State Liability (Article 300): Archaic distinction in welfare state, judicial trend towards narrowing immunity and expanding liability (Saheli, Nilabati Behera), need for comprehensive legislation.
- Government Contracts (Article 299): Strict formalities vs. pragmatic judicial view, link to transparency and anti-corruption.
Historical/Long-term Trends, Continuity & Changes:
- Post-Independence: Integration challenges (Art 295), managing British legacy (Art 294).
- Socialist Era: Right to Property as hurdle, multiple amendments.
- Liberalization Era: Govt in trade (Art 298), focus on transparency in contracts (Art 299).
- Judicial Activism: Shaping interpretations of state liability (Art 300) and the right to property (Art 300A), pushing for accountability.
- Shift from Protection to Regulation: The change in status of Right to Property from FR to a legal right signifies a shift from absolute protection to regulation in public interest.
Contemporary Relevance/Significance/Impact:
- Infrastructure Development: Government's power to acquire property (Art 298, 300A) is critical for large-scale infrastructure projects (roads, railways, industries). The LARR Act, 2013, is the key legislation governing this process, providing for fair compensation and rehabilitation.
- Public Accountability: Articles 299 and 300 emphasize accountability of the government in contracts and torts, which is crucial for good governance and citizen trust.
- Natural Resource Management: Article 297 is vital for asserting Union's sovereign rights over valuable offshore resources, crucial for energy security and blue economy initiatives.
- Disaster Management: The Contingency Fund (Art 267) is critical for immediate relief during unforeseen calamities (e.g., floods, earthquakes, pandemics), providing quick financial response.
- Financial Discipline: Articles 265, 266, 267 underpin the principles of financial discipline, parliamentary control over spending, and fiscal prudence.
UPSC Previous Year Questions
Prelims MCQs
1. UPSC Prelims 2015: Which of the following constitutional amendments made the Right to Property a legal right?
- (a) 42nd Amendment Act
- (b) 44th Amendment Act
- (c) 73rd Amendment Act
- (d) 74th Amendment Act
Hint: The 44th Amendment Act, 1978, deleted the right to property from the list of Fundamental Rights and placed it under Article 300A.
2. UPSC Prelims 2017: Which of the following statements about the 'Contingency Fund of India' is/are correct?
- It is placed at the disposal of the President of India.
- It can be used to meet unforeseen expenditure.
- Expenditure from this fund requires ex-post facto approval of Parliament.
Select the correct code:
- (a) 1 only
- (b) 1 and 2 only
- (c) 2 and 3 only
- (d) 1, 2 and 3
Hint: All statements are correct descriptions of the Contingency Fund as per Article 267.
3. UPSC Prelims 2010: The authority to determine the limits of the territorial waters of India and its Exclusive Economic Zone lies with:
- (a) The President of India
- (b) The Parliament of India
- (c) The Supreme Court of India
- (d) The Ministry of External Affairs
Hint: Article 297 states that Parliament may by law determine these limits.
Mains Questions
1. UPSC Mains 2021 (GS Paper II): "No person shall be deprived of his property save by authority of law." Discuss the significance of Article 300A of the Constitution of India in protecting property rights in India. (10 marks)
Direction/Key Points
- Introduction: State current status (constitutional/legal right, not FR) after 44th Amendment.
- Significance of Art 300A: Protection against Executive Arbitrariness; Reinforces Rule of Law; Lays Foundation for Acquisition Law (e.g., LARR Act, 2013); Facilitates Socio-Economic Reforms (by removing FR status); Allows Judicial Scrutiny (if law is unconstitutional/arbitrary); Implied compensation requirement.
- Conclusion: Balances individual rights and state's public purpose, ensuring non-arbitrary deprivation.
2. UPSC Mains 2018 (GS Paper II): Critically examine the evolution of the concept of 'sovereign immunity' in India, particularly in the context of the State's liability for the tortious acts of its servants. (15 marks)
Direction/Key Points
- Introduction: Define sovereign immunity, historical basis (British Crown).
- Evolution (Judicial Decisions): P&O Steam Navigation Co. (1861 - sovereign/non-sovereign distinction), Kasturilal (1965 - reaffirmed immunity for sovereign acts), Shift Post-1970s/80s (Saheli, Nilabati Behera, Nagendra Rao - narrowing immunity, public law remedy for FR violations, strict liability).
- Arguments: For Abolition/Narrowing (welfare state accountability) vs. For Retention (protect from frivolous claims).
- Current Position: Trend towards greater state liability, but still ambiguity.
- Conclusion/Way Forward: Need for comprehensive legislation to abolish/clarify immunity.
3. UPSC Mains 2016 (GS Paper II): The constitutional provisions regarding the property of the Union and the States ensure clarity and a framework for resource management. Discuss the relevant articles in Part XII of the Constitution that deal with the property of the Government and its implications for fiscal federalism. (15 marks)
Direction/Key Points
- Introduction: Importance of clear property rules for federal system.
- Relevant Articles: Art 294, 295 (Succession), Art 296 (Escheat, Lapse, Bona Vacantia), Art 297 (Maritime Resources), Art 298 (Trade/Business), Art 300A (Right to Property).
- Implications for Fiscal Federalism: Resource Distribution (land, minerals, offshore), Union's Dominance (Art 297 over maritime resources), State Revenue (Art 296), Economic Activities (Art 298), Conflict Resolution.
- Conclusion: Provisions provide clarity for resource management, contributing to fiscal federalism while acknowledging Union's strategic control.