To understand the clause, it is important to look at the clause in the light of the neighbouring provisions. Under section 227 if the agent exceeds their scope of authority, the principal will not be liable for such acts of the agent. Section 228 provides that in case the act that falls within the scope of authority of the agent can be separated from what is beyond it, the principal is only bound by that which is an authorised act; Section 229 on the other hand provides that in case the act that falls within the scope of authority and that which is beyond it cannot be separated the principal cannot be liable. So, a disclosed principal cannot be sued if the two acts are not separable as under Section 229 and Section 227 if the act of the agent isn’t authorised or is beyond his course of employment or the agent acts in personal capacity as under Section 236. Furthermore, if a person untruly represents himself as an authorised agent and deals with a third party in that respect and his alleged employer refuses to ratify his acts, such person, under Section 235 is personally liable, this is another instance when a disclosed principal cannot be sued.
In the case of Chatturbhuj Vithaldas Jasani v Moreshwar Parashram and Ors., the court held that the contract is not properly drafted and thus the principal cannot be sued and to ratify a government contract is up to the government if the same is for the benefit. If the government doesn’t ratify the same, the principal in that case though disclosed cannot be sued. The statutory provision in this case was seen as a means to safeguard the government from unauthorised contracts or those that are in excess of authority. The observations of the court in this case with respect to the application of Section 230(3) of the Indian Contract Act emanated from J.K. Gas Plant Manufacturing Co. Ltd. V King Emperor where the court opined that inconvenience and injustice to innocent persons and simultaneously safeguard the Government.
Thus, the essence of the third clause in the stated provision is in the neighbouring sections namely Section 227, 228, 229, 235, 236 of the Indian Contract Act.