PART I / CHAPTER –2 (Section-I)
CANONS OF FINANCIAL PROPRIETY
In exercising financial powers, the sanctioning authority must pay due regard to the following: (i)
The expenditure should not prima facie be more than the occasion demands, and that
every Government Servant should exercise the same vigilance in respect of expenditure incurred
from public moneys as a person of ordinary prudence would exercise in respect of his own
money.
(ii)
No authority should exercise its powers of sanctioning expenditure pass an order, which
will be directly or indirectly to its own advantage.
(iii) Public moneys should not be utilised for the benefit of a particular person or section of
the community unless a)
The amount of expenditure involved is insignificant; or
b)
A claim for the amount could be enforced in a Court of Law;
c)
The expenditure is in pursuance of a recognised policy or custom;
(iv)
The amount of allowances, such as travelling allowances, granted to meet expenditure of
a particular type, should be so regulated that the allowances are not on the whole sources of
profit to the recipients.
(116F1 & 131-S)
Note: - All proposals involving financial implications except those which have been specifically
exempted for this purpose should be referred to Finance Branch for advice before these are
sanctioned.
Authority: 131-S
Board's letter No. 80/RS (G) 779/58 of 29.10.1980 – (Annexure I/2-01).
PART-I / CHAPTER-2 (Section-II)
LEGAL ASPECTS OF PURCHASING & ETHICS IN BUYING
2.1 Purchases made by the Railways are governed by the IRS terms and conditions of contract,
Special and General conditions of contract. In addition, they are governed by the Indian
Contract Act IX of 1872, Sales of Goods Act III of 1930, Insurance Laws, Sales Tax Act, Central
Excise Act, Laws relating to transport of goods and Arbitration, and other General Laws as
applicable from time to time.
2.2 Every purchase constitutes an agreement under Law and each purchase order signed by a
Purchase Officer of the Indian Railways on behalf of the President of India is the contract
document between the Organisation and the Supplier of Goods. It is therefore necessary that
every Purchase Officer should have a working knowledge of the various law/enactments, as
ignorance of law is no excuse.
2.3 The Indian Contract Act has defined Contract as "All agreements are contracts if they are
made by the free consent of parties, competent to contract for a lawful consideration and with a
lawful object and are not expressly declared to be void".
2.3.1. All contracts are agreements but all agreements need not be contract. An agreement, in
order to be a contract, must be enforceable at law i.e. a valid agreement.
2.3.2 A valid agreement is a contract and the essentials of the valid agreement or a contract are as
follows:
(i)A lawful offer accepted unconditionally.
(ii) The capacity of parties to enter into a contract.
(iii) Consent of the parties to the agreement.
(iv) A lawful object.
(v) Presence of consideration.
(vi) An agreement must be free of vagueness and ambiguity, which may render it
unascertainable for performance.
(vii) An agreement must not be to do an impossible thing but it must be capable of being
performed.
(vii) It must be in writing whenever the law so requires.
(ix) It must have been duly attested or registered if so required by the law.
(x) It must not be void otherwise on any respect, which shall render as unenforceable.
All these essential spring out of the provisions of the section 10 of the Indian Contracts Act 1872
and must be read carefully.
2.4 The essentials of a contract are: 2.4.1 Offer and acceptance: - In a contract to buy or, sell, there should be an offer to buy or sell
and the acceptance of such offer. They are complete when a quotation (which is an offer) is
submitted by the supplier and a Purchase Order is sent to him, within the specified period of
time, if time is stipulated or within a reasonable time, if no time is stipulated.
2.4.2. An acknowledgement of the order or proof from postal authorities that the communication
of acceptance (letter or telegram) has been despatched fulfils the requirements of law.
2.4.3. If the terms of Purchase Order differ from the quotation, there is no acceptance but only a
counter offer and it must be accepted by the party concerned to make the contract concluding and
binding on them.
2.4.4. Part supply against an order constitutes an acceptance by the supplier of the terms and
conditions of the order. Similarly acceptance of the goods by the buyer tantamount to acceptance
of the supplier's terms and conditions unless, he has protested at the time of receiving the goods.
2.5 Competent Parties: - A valid contract must be made by persons who are competent to
contract, A Purchase Officer exceeding his actual or apparent authority in making a contract, will
absolve his organisation from the implications of the contract, but he himself will be liable for
the consequences.
2.6 Free Consent: - The agreement between the parties must be with free consent. The consent
of a person is said to be free when it is not obtained by (i) Coercion (ii) Undue influence (iii)
Fraud (iv) Misrepresentation or (v) Mistake.
2.7 Lawful consideration: - The consideration must be lawful. A contract by which only the
seller is obliged to supply certain goods, without consideration or price is not enforceable.
The consideration or object of an agreement is lawful, unless:-
it is forbidden by law; or
-
is of such nature that, if permitted, it would defeat the provision of any
law; or
-
is fraudulent or
-
involves or implies injury to the person or
-
Property of another; or the court regards it as immoral, or oppose to public
policy
In each of these cases, the consideration or object of an agreement is said to be
unlawful. Every agreement, of which the object or consideration is unlawful, is void.
2.8 Lawful object: - The subject matter of the transactions should not be illegal or opposed to
public policy, such as buying at prices higher than those fixed by the Government or trying from
unlawful sources, etc. Similarly an agreement to do an illegal act is void.
2.9 Title to Goods: - The general rule is that 'risk follows title'. Till the title of ownership
passes to the buyer, the goods remain at seller's risk.
2.9.1 Risk in the stores: - The Contractor shall, perform the contract in all respects in
accordance with the terms and conditions thereof. The stores and every constituent part thereof,
whether in possession or control of the Contractor, his agents or servants and the purchaser, his
agents or servants,, shall remain in every respect at the risk of the contractor until their actual
delivery to the consignee at the stipulated place or destination or., where so provided in the
acceptance of tender until their delivery to a person specified in the schedule as interim
consignee for the purpose of despatch to the consignee The contractor shall be responsible for
all loss, destruction, damage or deterioration of or- to the stores from any cause whatsoever
while the stores after approval by the Inspecting Officer are awaiting despatch or delivery or are
in the course of transit from the Contractor to the consignees or, as the case may be, interim
consignee. The contractor alone shall be responsible to make claim against a Railway
Administration or other Carrier. In respect of non-delivery, short delivery, misdelivery, loss,
destruction, damage or deterioration of the goods entrusted to such Carrier by the Contractor for
transmission to the consignee or interim consignee as the case may be.
(Clause 1501 of IRS Terms & Conditions of Contract)
2.10. Forfeiture of Earnest Money: - When the suppliers undertake to keep the offers open, for
a particular period and if the offer is withdrawn or revised within the validity period the
Administration gets a right to forfeit the Earnest Money Deposit.
2.11 Ethics in buying: -The following code of ethics for buyers has been drawn by the Indian
Association of Materials Management.
2.11.1 To consider first the total interest of the organisation, in all transactions.
2.11.2 To be receptive to competent counsel and to be guided by such Counsel without impairing
the dignity and responsibility of his office.
2.11.3 To buy without prejudice, seeking to obtain the maximum ultimate value for each rupee of
expenditure.
2.11.4 To strive consistently for knowledge of the materials and process of manufacture and to
establish practical methods for the conduct of office.
2.11.5 To abstain from malpractices.
2.11.6 To eschew anti-social practices.
2.11.7 To accord prompt and courteous reception, so far as conditions will permit, to all who call
upon him, on a legitimate business mission.
2.11.8 To respect his obligations and to require that obligation to him and his concern be
respected., consistent with good business practice.
ANNEXURE 1/2-01
Copy of letter No. 80/RS (G) 779/58 dated 10th November 1980 addressed to General Manager,
I.C.F. and others.
Sub : Canons of financial propriety .....Revision to Para 131-S to the Indian Railway
Code for Stores Department.
Ministry of Railways have decided to amend para 131-S as per Advance Correction Slip
No. 193 enclosed.
This issues with the concurrence of the Finance Directorate of the Ministry of Railways.
(Sd)
S.C.JAIN
Dy. Director, Railway Stores (G)
Railway Board
Advance Correction Slip No. 193
The following may be added as "Note" at the end of para No. 131-S (Canons of Financial
Propriety): Note- "All proposals involving financial implications except those which have been specifically
exempted for this purpose should be referred to Finance Branch for advice before these are
sanctioned."
(Aurhority : Ministry of Railway's letter No. 80/RS (G)/779/58 dated 29 October 1980 )