Whether there can be valid contract when consideration is provided by third person?

Nihal Singh v. State of Punjab, (2013) 14 SCC 65

Employer-employee relationship

Determinant factors - Mere payment of wages - Relevance - On facts held, since the appointments of appellant Special

Police Officers were made by the State, and the disciplinary control vested with the State, relationship of master and

servant existed between the State and appellants - Mere fact that wages of appellants were paid by banks at whose

disposal their services were made available, did not render the appellants employees of the banks, 

Competent authority - Relevant considerations - Held, creation of cadre or sanctioning of posts for cadre is exclusively

within the authority of the State which is to be preceded by conscious choice on basis of some rational assessment of the

need - On facts held, fact that State did not choose to create the cadre but chose to make appointments of persons

creating contractual relationship and extracting work from such persons for decades clearly demonstrates arbitrary

exercise of power - Further held, creation or abolition of posts entails financial implications, and depending on priorities

allocation of finances is undoubtedly within the exclusive domain of the legislature - In instant case, creation of new posts

would not create any additional burden on the State since various bank at whose disposal services of appellants were

made available for providing security had agreed to bear the burden - Respondent State directed to create necessary

posts within stipulated time,

Formation of contract

Consideration by third party - Permissibility - Held, consideration for a contract need not always necessarily flow from

parties to the contract - Decision of SSP to reject claim of appellants only on the ground that appellants were paid by

banks concerned, thus rendering them disentitled to seek regularisation of their services from State, held, untenable,

Service Law

Regularisation

Initial appointments of appellants in accordance with statutory provisions taken at the highest level of State by

conscious choice to meet exigency i.e. to provide requisite police guards to banks in view of insufficiency of police

personnel to handle large-scale disturbance in State of Punjab in 1980s - SSP of District required to choose suitable ex-

servicemen or other able-bodied persons in the selection process, and priority given to those who already possessed

licensed weapon - Hence held, process of recruitment was consistent with Arts. 14 and 16 of the Constitution and

considering situation of militancy prevailing in Punjab at that time could not be said to be arbitrary or irrational devised to

eliminate other eligible candidates - State directed to regularise services of appellants and extend to them all benefits of

service attached to post, 

Service Law

Cadre

Judicial review/validity - Scope - Held, though assessment of need to employ number of persons for discharging

particular responsibility lies with the executive Government subject to overall control of legislature, but that does not bar

examination by constitutional court regarding accuracy of that assessment,