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Para 2.3 - Contract Authority | KartavyaDesk

Goods Manual

Original Rule Text

i) Contracts with Individuals: Individuals tender either in their own name or in the name and style of their business. If the tender is signed by any person other than the concerned individual, the authority of the person signing the tender on behalf of another must be verified and a proper power of attorney authorizing such person should be insisted on. In case, a tender is submitted in a business name and if it is a concern of an individual, the constitution of the business and the capacity of the individual must appear on the face of the contract and the tender signed by the individual himself as proprietor or by his duly authorized attorney. ii) Contracts with Partnerships: A partnership is an association of two or more individuals formed for the purpose of doing business jointly under a business name. It is also called a firm. It should be noted that a partnership is not a legal entity by itself, apart from the individuals constituting it. A partner is the implied authority to bind the firm in a contract coming in the purview of the usual business of the firm. The implied authority of a partner, however, does not extend to enter into arbitration agreement on behalf of the firm. While entering into a contract with partnership firm care should be taken to verify the existence of consent of all the partners to the arbitration agreement. iii) Contracts with Limited Companies: Companies are associations of individuals registered under Companies Act in which the liability of the members comprising the association is limited to the extent of the shares held by them in such companies. The company, after its incorporation or registration, is an artificial legal person which has an existence quite distinct and separate from the members of shareholders comprising the same. A company is not empowered to enter into a contract for purposes not covered by its memorandum of association; any such agreement more than power entered into the company is void and cannot be enforced. Therefore, in cases of doubt, the company must be asked to produce its memorandum for verification, or the position may be verified by an inspection of the memorandum from the office of the Registrar of Companies before entering into a contract. Normally, any one of the Directors of the company is empowered to present the company. Where persons other than Directors or authorized Managing Agents sign the tenders, it may be necessary to examine if the person signing the tender is authorized by the company to enter into contracts on its behalf. iv) Corporation other than Limited Companies: Associations of individuals incorporated under statutes such as Trade Union Act, CooperativeSocietiesActandSocietiesRegistrationActarealsoartificial persons in the eye of law and are entitled to enter into such contracts as are authorized by their memorandum of association. If any contract must be entered into with any one or such corporations or associations, the capacity of such associations to enter into contract should be verified and also the authority of the person coming forward to represent the said Association.

What This Means

Para 2.3 of the Manual for Procurement of Goods, 2017, is all about making sure the government is dealing with the right people when signing contracts. It lays out specific procedures for different types of entities – individuals, partnerships, limited companies, and other corporations. The main goal is to verify the authority of the person signing the contract on behalf of the entity and to ensure that the entity itself is legally capable of entering into the agreement. This prevents fraud and ensures the contract is legally binding.

For example, if you're contracting with an individual, you need to confirm their identity and that they're signing the contract themselves, or that their representative has a valid Power of Attorney. If it's a partnership, you need to be aware that all partners are generally bound by the contract, especially regarding arbitration. For companies, you need to check their Memorandum of Association to ensure the contract aligns with their permitted business activities. This rule applies to all government departments and agencies involved in procuring goods and services and affects anyone bidding for government contracts.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Key Points

  • •Verify the authority of the person signing the tender on behalf of another entity (Power of Attorney).
  • •Understand the legal structure of the contracting entity (individual, partnership, company, etc.).
  • •For partnerships, ensure all partners consent to arbitration agreements.
  • •For companies, check the Memorandum of Association to confirm the contract's alignment with the company's permitted activities.
  • •Corporations other than limited companies should also be checked for their capacity to enter into contracts.

Practical Example

The Ministry of Textiles is procuring cotton bales. A tender is submitted by 'Sharma & Sons,' a partnership firm. Before awarding the contract, the procurement officer, Mr. Verma, ensures that the tender is signed by a partner and verifies the partnership deed to confirm the signatory's authority. He also obtains written consent from all partners regarding the arbitration clause in the contract. Another tender is submitted by 'Textile Innovations Ltd.' Mr. Verma checks the company's Memorandum of Association to confirm that trading in cotton bales falls within the company's objectives. He also verifies that the person signing the tender is a Director or has the authority to sign on behalf of the company. If a person other than a Director signs, Mr. Verma requests a board resolution authorizing that person to enter into contracts on behalf of the company. This ensures that the Ministry is dealing with authorized representatives and that the contracts are legally sound. The contract value is INR 50,00,000.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Frequently Asked Questions

What is a Power of Attorney, and why is it important?▼
A Power of Attorney is a legal document authorizing someone to act on another person's behalf. It's crucial because it verifies that the person signing the tender has the legal right to bind the individual or entity they represent.
Why is it important to check the Memorandum of Association of a company?▼
The Memorandum of Association defines the scope of a company's activities. Entering into a contract outside this scope is considered 'ultra vires' and can render the contract void. Therefore, checking the Memorandum ensures the contract is legally enforceable.
What if a partner in a firm refuses to consent to the arbitration agreement?▼
Since a partner's implied authority doesn't extend to arbitration agreements, the absence of consent from all partners can invalidate the arbitration clause. The government department should seek legal advice on how to proceed, potentially requiring a revised contract or seeking an alternative supplier.
Does this rule apply to contracts for services as well as goods?▼
While the Manual is specifically for the Procurement of Goods, the principles of verifying authority and legal capacity are generally applicable to contracts for services as well. It's best practice to follow similar due diligence procedures.
What documents should I ask for to verify the authority of a signatory?▼
For individuals, a Power of Attorney. For partnerships, the partnership deed and consent from all partners for arbitration. For companies, the Memorandum of Association and a board resolution authorizing the signatory if they are not a Director.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Test Your Knowledge

Question 1 of 3

According to Para 2.3 of the Manual for Procurement of Goods, 2017, when contracting with an individual represented by another person, what document is essential to verify the representative's authority?

Related Rules

Para 9.4Manual for Procurement of Goods, 2024 - Para 9.4 - Chapter 9Para 9.5.5Manual for Procurement of Goods, 2024 - Para 9.5.5 - Chapter 9Para 1.8.2Manual for Procurement of Goods, 2024 - Para 1.8.2 - Chapter 1Para 2.2.2Manual for Procurement of Goods, 2024 - Para 2.2.2 - Chapter 2Para 2.2Manual for Procurement of Goods, 2024 - Para 2.2 - Chapter 2

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