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Shri Amar Chand Butail and anr. Vs. the Union of India (Uoi) and ors. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtHimachal Pradesh High Court
Decided On
Case NumberFirst Appeal Nos. 5 and 6 of 1959
Judge
Reported inAIR1962HP43
ActsContract Act, 1872 - Sections 69, 70 and 201 to 204; ;Code of Civil Procedure (CPC) , 1908 - Sections 11 and 34
AppellantShri Amar Chand Butail and anr.
RespondentThe Union of India (Uoi) and ors.
Appellant Advocate Chandu Lal, Adv. In No. 5 of 1959 and; Kedar Iswar, Govt. Adv. In No. 6 of 1959
Respondent Advocate Kedar Ishwar, Govt. Adv. for Respondent Nos. 1 and 2,; Rattan Chand Sud, Adv. for Respondent No. 3 In
DispositionAppeal partly allowed
Cases ReferredSatyadhyan Ghosal v. Smt. Deorajin Debi
Excerpt:
(i) contract - revocable - section 204 of contract act, 1872 - whether appellants had right to restrain respondent no. 2 from making payment of certain sum to respondent no. 1 - as per section 204 principal cannot revoke authority given to his agent after authority has been partly exercised - liability of respondent no. 2 to pay said sum to respondent no. 1 was to arise only when jubbal darbar gave credit to respondent no. 2 in his timber account - liability of respondent no. 2 to pay respondent no. 1 was conditional - no payment was made by respondent no. 2 to respondent no. 1 prior to revocation of authority and as such according to provisions of act authority to pay was revocable - respondent no. 1 did not act to his detriment as result of direction issued by jubbal darbar to.....c.b. capoor, j.c.1. this appeal by the union of india and the himachal pradesh administration and regular first appeal no. 5 of 1959 by amar chand butail arise out of the same judgment and decree of the senior subordinate judge mahasu and in order to facilitate matters i propose to dispose of both of them by this judgment.2. amar chand bufail filed a suit against (i) the union of india, (ii) himachal pradesh administration and (iii) jishan lal kuthiala for recovery of a sum of rs. 1,44,522/6/9 comprising the following items:--(1) rs. 70.000/-partsof an item of rs. 94,198/8/3 alleged to be due on accountof food-(zrains etc., supplied to the forest department of the then juhhal state(herein-after to be referred as 'jubbai state1).(2) rs. 1.818/15/-(3) rs. 37,669/3/6 alleged to be due on.....
Judgment:

C.B. Capoor, J.C.

1. This appeal by the Union of India and the Himachal Pradesh Administration and Regular First Appeal No. 5 of 1959 by Amar Chand Butail arise out of the same judgment and decree of the Senior Subordinate Judge Mahasu and in order to facilitate matters I propose to dispose of both of them by this judgment.

2. Amar Chand Bufail filed a suit against (i) the Union of India, (ii) Himachal Pradesh Administration and (iii) Jishan Lal Kuthiala for recovery of a sum of Rs. 1,44,522/6/9 comprising the following items:--

(1) Rs. 70.000/-

Partsof an item of Rs. 94,198/8/3 alleged to be due on accountof food-(Zrains etc., supplied to the Forest Department of the then Juhhal State(herein-after to be referred as 'Jubbai State1).

(2) Rs. 1.818/15/-

(3) Rs. 37,669/3/6 alleged to be due on account of supplies made to the Jubbal State under the Grain Procurement Scheme.

(4) Rs. 1,000/12/- alleged to be due on account of transport of the foodgrains etc., to the Government godowns and of rent for the year 1948.

(5) Rs. 34,033/8/3 alleged to be due on account of interest at the rate of 9 per cent per annum for the period prior to the institution of the suit.

3. It is not disputed that the plaintiff was a contractor for the supply of foodgrains etc., to the labourers engaged by the Jubbal State tor exploiting the forests and that he was also a supplier of foodgrains etc. to the Jubbal State under the Grain Procurement Scheme and held a storage godown at Sanjauli.

4. The plaintiffs case is as below:--

On 1st April 1948 the Jubbal State ceased to exploit the forests departmentally and a contract for the exploitation of the forests was given to one R. B. Jodha Mull Kuthiala. On that date food-grains etc., worth Rs. 94,198/8/3 were with the plaintiff for being supplied to the labourers engaged in the exploitation of the forests and under order of the Jubbal Darbar he transferred all those goods to the Conservator of Forests whodelivered them to the aforesaid Jodha Mull and the deposited a sum of Rs. 70,000/- to the credit of Jubbal State and drew a cheque dated 18-5-1948 for Rs. 24,198/8/3 in favour of the Chief Executive Officer Jubbal. The payee endorsed the cheque in favour of the Agent Imperial Bank of India Simla and the proceeds of the cheque were credited to the account of Raja Rana Sir Bhagat Chand of Jubbal. The plaintiff owed a sum of Rs. 21,746/1/6 to one Karori Mull Kuthiala and under the orders of Jubbal State the amount; of Rs. 21,746/1/6 out of the item of Rs. 94,198/8/3 was set off towards the sum due to L. Karori Mull. A sum of Rs. 633/7/9 was to be adjusted towards the aforesaid item of Rs. 94,198/8/3 on account of higher price inadvertently charged by plaintiff. Thus a sum of Rs. 71,818/l5/- was due to the plaintiff against the Jubbal State out of the aforesaid item of Rs. 94,198/8/3.

5. Under the Grain Procurement Scheme a sum of Rs. 37,669/3/6 as price of foodgrain etc., and a sum of Rs. 1,000/12/- as the charges for the transport of the foodgrain stocks and as go-down rent for 1948 was due to the plaintiff. .He submitted his bills which were duly verified and the Jubbal Darbar sanctioned the payment of a sum of Rs. 1,08,669/15/6 comprising the following items:--

(a) Rs. 70,000/- out of the item of Rs. 94,198/8/3

(b) Rs. 37,689/3/6 and

Under the Grain Procure-ment Scheme.

(c) Rs. 1,000/12/-

and directed Jishan Lal Kuthiala, defendant No. 3 to pay the aforesaid amount to the plaintiff. Jishan Lal Kuthiala owed to the Jubbal State more than the aforesaid amount and he agreed to make the payment to the plaintiff as directed by the Jubbal State. A receipt for the aforesaid amount was executed by the plaintiff in favour of Jishan Lal Kuthiala and was handed over to the Conservator of Forests for the adjustment of the liability of Jishan Lal Kuthiala to the Jubbal State. Jubbal State had by then acceded to the Dominion of India and the State of Himachal Pradesh was formed and the Himachal Pradesh Government restrained Jishan Lal Kuthiala from making any payment to the plaintiff and directed him to deposit the sum due against him in the Government treasury. Accordingly, he deposited in the Government treasury more than Rs. 1,15,000 which he owed to the Jubbal State. The plaintiff preferred his claim to the Government of Himachal Pradesh and after a protracted inquiry the latter Government ultimately refused to recognize the claim and the plaintiff instituted the suit which has given rise to these appeals.

6. Jishan Lal Kuthiala admitted that he was directed by the Jubbal Darbar to pay a sum of Rs. 1,08,669/15/3 to the plaintiff, that a receipt was executed by the plaintiff in his favour for the aforesaid amount though no payment was made, that the receipt was handed over to the officers of the Jubbal State for adjusting the sum which he owed to the Jubbal State, that later on the Government of Himachal Pradesh asked him to deposit the sum due against him in the treasury and not to make any payment to the plaintiff. Incompliance with that direction he did not make any payment to the plaintiff and deposited the sum due against him in the Government treasury. It was also pleaded that he was not a necessary party to the suit.

7. The suit was contested by the Union of India and the Himachal Pradesh Administration. It was denied that the Jubbal Darbar owed any money to the plaintiff either on account of the supply of foodgrains to the labourers engaged in the exploitation of the forests or of the Grain Procurement Scheme. It was also denied that the plaintiff transferred any foodgrains etc., to the Conservator of Forests under the orders of the Jubbal Darbar or that R. B. Jodha Mull Kuthiala paid any money on account of the price of foodgrains etc. If was stated that the plaintiff delivered the foodgrains etc., directly to the said Jodha Mull. It was, however, not denied that a cheque for Rs. 24,198/8/3 was drawn by R. B. Jodha Mull in favour of the Chief Executive Officer Jubbal State and the proceeds of that cheque were credited to the account of the then ruler of Jubbal State.

Initially the stand taken was that the sum of Rs. 1,08,669/15/3 was paid to the plaintiff by Jishan Lal Kuthiala but later on that stand was given up and it is now not in dispute that no payment was made to the plaintiff by Jishan Lal Kuthiala and that the receipt executed by the plaintiff was without consideration. The main plea put forward was that the Union of India and the Himachal Pradesh Administration were not liable to liquidate the liability, if any, of the Jubbal State and that the municipal Courts had no jurisdiction to entertain a claim with regard to any such liability. It was also pleaded that the suit was barred by the law of limitation but in this Court the aforesaid plea has not been pressed. It was again pleaded that the answering defendants did not derive any benefit under the alleged transactions and that they were not liable to pay any sum of money either as principal or as Interest.

8. The learned Senior Sub Judge inter alia held that the plaintiff delivered foodgrains etc., worth Rs. 94,198/8/3 to the Conservator of Forests Chopal, that under the Grain Procurement Scheme a sum of Rs. 38,669/15/6 was due to the plaintiff against the Jubbal Darbar, that the Himachal Pradesh Administration, defendant No. 2 was not justified in restraining Jishan Lal Kuthihla defendant No. 3 from paying the aforesaid sum to the plaintiff, that defendant No. 2 derived benefit under aforesaid transactions and on the aforesaid findings he passed a decree against defendants Nos. 1 and 2 for recovery of the sum claimed. He, however did not allow future interest and ordered defendants Nos. 1 and 2 to pay costs of the suit not only to the plaintiff but also to defendant No. 3. Defendants Nos. 1 and 2 have filed this appeal and have challenged the findings recorded against them and in favour of the plaintiff. The other appeal has been filed by the plaintiff and is directed against that portion of the decree whereby the claim to future interest was refused. For the sake of convenience defendants Nos. 1 and 2 will hereafter be styled as the ap-pellants, the plaintiff as respondent No. 1 and defendant No. 3 as respondent No. 2.

9. The following questions arise for determination:--

1.(a) Whether the respondent No. 1 delivered the stock of foodgrains etc., worth Rs. 94,198/8/3 to the Conservator of Forest Chopal and the latter passed on the same to R. B. Jodha Mull Kuthiala or the respondent No. 1 delivered the same directly to the aforesaid Jodha Mull Kuthiala?

(b) Whether a sum of Rs. 38,689/15/6 was due to respondent No. 1 against the Jubbal State on account of supplies made and transport charges under the Grain Procurement Scheme?

(c) Whether the Jubbal State had sanctioned payment of a sum of Rs. 1,08,669/15/6 to respondent No. 1 land had directed respondent No. 2 to pay the aforesaid amount to him?

2. Whether the appellants had the right to restrain respondent No. 2 from making payment of the sum of Rs. 1,08,669/15/6 to respondent No. 1?

3. Whether the appellants have derived any benefit under the transactions in suit. If so, to what extent and with what effect on the case.

4. (a) Whether the accession of the Jubbal State to the Dominion of India was an act of state:

(b) Whether the claim of respondent No. 1 can be entertained by the Municipal Courts. If so, in what circumstances?

(c) Whether the appellants expressly or 1m-pliedly recognized the claim of respondent No. 1.

5. Whether respondent No. 1 was entitled to fee awarded past and future interest? If so, at what rate?

10-12. (His Lordship after discussion of evidence recorded findings against the appellants on questions 1 (a) and 1 (b) and answered question No. 1(c) in favour of respondent No. 1. The Judgment then proceeded:)

13. Question No. 2. It appears from Ex. P1 that the Jubbal Darbar had directed respondent No. 2 to pay a sum of Rs. 1,08,669/15/6 to respondent No. 1. It is not disputed on behalf of the appellants that subsequently the Divisional Forest Officer Chopal wrote to respondent No. 1 not to pay the aforesaid sum to respondent No. 1 and directed him to deposit the same in the Government Treasury. Thereafter respondent No. 2 deposited the sum of Rs. 1,15,702/10/- in the Himachal Pradesh Government Treasury.

14. It has been contended on behalf of respondent No. 1 that the Jubbal State had authorised respondent No. 2 to pay the sum of Rs. 1,08, 669/15/6 to respondent No. 1 and thereafter it was not open to the appellants to revoke that authority and to direct respondent No. 2 to deposit the aforesaid amount and in support of that contention reliance has been placed upon the following passage in Sanjiwa Row's Commentary on the Indian Contract Act, 4th Edition, P. 602.

'A person cannot revoke an authority to his debtor to pay a debt to a third party, the creditor of the former, after the debtor has agreed with such third party to pay the money to him according to the authority. This agreement is said to be necessary in order to establish privity between them. And if the debtor afterwards pays the debt to the original creditor, such third party may recover the same from the latter in this action (i.e. the action of money had and received).'

15. The aforesaid statement of law is based On the English cases Hodgson v. Anderson, (1825)3 B and C 842; Hamiltan v. Spottiswoods, (1849)4 Ex 200, Pooly v. Goodwin, (1835) 4 Ad and El. 94. The learned counsel for respondent No. 1 did not make the aforesaid authorities available and I have not been able to lay my hands on them, and I am not in a position to say anything about those cases.

16. There is no provision, so far as I am aware, in the Indian Contract Act corresponding to the 1st portion of the statement of law in the Commentary referred to above. The relevant provisions of the Contract Act are contained in Sections 201 to 204. According to Section 201 an agency may be terminated by the principal revoking his authority. Section 202 provides that in the absence of an express contract any agency cannot be terminated to the prejudice of the agent where the agent has himself an interest in the property which forms the subject matter of agency. Section 203 says that, save as is otherwise provided by Section 202, the principal may revoke the authority given to his agent at any time before the authority has been exercised so as to bind the principal. According to Section 204, the principal cannot revoke the authority given to his agent after the authority has been partly exercised. In the instant case no payment was made by respondent No. 2 to respondent No. 1 prior to the revocation of authority and as such according to the provisions of the Indian Contract Act, the authority to pay was revocable.

17. Even if the first portion of the Rule to the aforesaid Commentary is held to be applicable to the instant case it will not be of any assistance to respondent No. 1, for the liability of respondent No. 2 to pay the sum of Rs. 1,08,669/15/6 to respondent No. 1 was to arise only when the Jubbal Darbar gave credit to respondent No. 2 in his timber account. Thus the liability of respondent No. 2 to pay to respondent No. 1 was a conditional one. As the Himachal Pradesh Government did not give credit to respondent No. 2 in his timber account on the basis of receipt executed by respondent No. 1 in favour of respondent No. 2 and required the latter to pay the amount in the Government Treasury, respondent No. 2 ceased to be liable to make any payment to respondent No. 1. In this connection it is significant that respondent No. 1 did not seek recovery of bis dues from respondent No. 2, It is again significant that the direction to pay the sum of Rs. 1,08,669/15/6 was given by Jubbal Darbar and not by the appellants and on this ground also the Rule of law enunciated in the Commentary, referred to above, cannot govern the instant case.

18. The second part of the statement of law enunciated in the Commentary, referred to above, purports to be based on the doctrine of money had and received to the plaintiffs use but it is difficult to follow as to how can that doctrine beinvoked unless money is paid to the plaintiffs use. If A is indebted to B and C is indebted to A and A asks C to pay to B the sum of money which he owes to B but later on revokes that authority and C pays the dues outstanding against him to A, C does so to wipe off his own liability and cannot be said to have paid any money to the use of B. B can of course claim his dues from A provided there is no other bar, but the basis of such claim will not be money had and received to his use. Thus the second portion of the Rule in the aforesaid Commentary is correct ta this extent that on revocation of authority by A to his debtor C to pay a certain sum of money to his creditor B, B can file a suit to enforce his claim against A provided there is no other bar but such a claim will not be for money had and received unless the payment by C is to the use of B.

19. Respondent No. 1 did not act to his detriment as a result of the direction issued by the Jubbal Darbar to respondent No. 2 to pay the sum of RS. 1,08,669/15/6 to him, and the appellants were thus not estopped from revoking the authority. For the foregoing reasons the question is answered in favour of the appellants.

20. Question No. 3: The case of respondent No. 1 as set out in the plaint runs as below:--

'In any case, the amount was deposited by defendant No. 3 in obedience to the orders of the Forest Department into the Government treasury and the Government has had benefit of the supplies made by the plaintiff to the Jubbal Forest Department. Hence the defendants Nos. 1 and 2 are liable.'

21. I will first advert to the transaction relating to the item of Rs. 94,198/8/3. It is not the case of respondent No. 1 that foodgrains of the aforesaid value were delivered by him to the appellants and it has already been seen that Rs. 60,000/- deposited by Rai Bahadur Jodha Mull in the treasury of Jubbal State were advanced to the then ruler of the State, that the sum of Rs. 10,000/- was in all probability paid by the aforesaid Jodha Mull directly to the then ruler of the Jubbal State and that the cheque dated 18-5-1948 for Rs. 24,198/8/3 drawn by the aforesaid Jodha Mull in favour of the Chief Executive Officer, Jubbal, was endorsed by the latter in favour of the Agent, Imperial Bank of India, Simla, and that the proceeds of the aforesaid cheque were credited to the account of Rana Raja Sir Bhagat Chand. It has not been disputed that after merger the aforesaid account was operated upon on behalf of the appellants. It would, thus, follow that the appellants did not derive any benefit directly from the aforesaid transaction and that it was only indirectly that they benefited to the tune of Rs. 24,198/8/3.

22. So far as item of Rs. 37,669/3/6 is concerned, the case of respondent No. 1 is that after the settlement of account he delivered foodgrains etc., of the aforesaid value to the Jubbal Darbar and the latter transferred them to the Himachal Pradesh Government (vide statement made by respondent No. 1, P. W. 13, page 610). Except for the sole testimony of respondent No. 1 there is noother evidence in support of the allegation that goods of the aforesaid value were handed over by respondent No 1 to the Jubbal Darbar. Shri J. N. Kapur (C. W. 2) has stated that stocks of wheat, rice and gram etc. worth about Rs. 1,32,000/- of the pre-merger time were to the Sanjauli godown. The witness did not have any register with him when he made the aforesaid statement but as he had audited the registers and accounts his statement cannot be ligltly, brushed aside and although it cannot be said with any degree of definiteness that respondent No. 1 did deliver to the Jubbal Darbar foodgrains etc. worth Rs. 37,669/3/6 the aforesaid foodgrains might have been in the Sanjauli godown at the time of merger and might have been transferred to Dominion of India. The appellants might thus well be held to have indirectly derived benefit from the aforesaid transaction.

23. The item of Rs. 1000/12/- represented the charges for the transport of foodgrains etc. during pre-merger period and the appellants cannot be said to have benefited even indirectly by that item.

24. It has next to be seen if the appellants are liable to compensate respondent No. 1 to the extent of the benefit derived by them in connection with the aforesaid transactions.

25. Section 70 of the Indian Contract Act runs as below:--

'Where a person lawfully does anything for another person, or delivers anything to him not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered.'

26. In order to attract the aforesaid section three conditions must be satisfied by the person seeking relief, (i) He must have lawfully done something for another or delivered something to him. (ii) He must not have intended to do so gratuitously, (iii) That other person must have enjoyed the benefit. The section will not apply It any of the aforesaid three conditions is not satisfied. Thus where a person merely derives a benefit without the person seeking compensation having done anything for him or having delivered anything to him, the section will not come into play. In the instant case respondent No. 1 did not deliver stocks of foodgrains or any money to the appellants in connection with the disputed transactions. The sums of money paid by R. B. Jodha Mull cannot be said to have been paid on behalf or for the use of respondent No. 1.

27. Respondent No. 1 was appointed agent by the appellants under the Grain Procurement Scheme and the sale proceeds of the foodgrains etc. used to be deposited by him in the Government treasury in accordance with the terms of agency. It was urged on behalf of respondent No. 1 that under Section 72 of the Indian Contract Act he had a right to recover back the sale proceeds qua the foodgrains etc. worth Rs. 37,669/ 3/6. Under that section a sum of money paid by mistake Or under coercion is recoverable. It has not been alleged much less proved that the sateproceeds were deposited by respondent No. 1 either by mistake or under coercion. That section also is, therefore, not applicable.

I, therefore, hold that the appellants were indirectly benefited to the extent of Rs. 24,198/8/3 and Rs. 37,669/3/6 but that by itself is not sufficient to clothe respondent No. 1 with the right to recover back the aforesaid sums of money from the appellants.

28. Question No. 4(a) and (b): The scope and limits of an Act of State were considered by their Lordships of the Judicial Committee in the cases of (i) Secy. of State v. Bai Rajbai, AIR 1915 PC 59, (ii) Vajesingji Jorawarsinghji v. Secy. of State, AIR 1924 PC 216 and (iii) Asrar Ahmed v. Durgah Committee Ajmer, AIR 1947 PC I. Observations made in the last two cases were as below:--

AIR 1924 PC 216.

'When a territory is acquired by a sovereign State for the first time that is an Act of State. It matters not how the acquisition was brought about. It may be by conquest, it may be by cession following on treaty, it may be by occupation of territory hitherto unoccupied by a recognized ruler. In all cases the result is the same. Any inhabitant of the territory can only make good in the municipal Court established by the new sovereign such rights as that sovereign has, through his officers; recognized. Such rights as he had under, the Rule of predecessors avail him nothing. Nay more, even if in a treaty of cession it is stipulated that certain inhabitants should enjoy certain rights, that does not give a title to these inhabitants to enforce these stipulations in the Municipal Courts. The right to enforce remains only with the High Contracting Parties.' AIR 1947 PC 1. 'Where a State has been ceded by a Native Ruler to the British Government the rights which the inhabitants of that State enjoyed against its former ruler avail them nothing against the British Government and cannot be asserted in the Courtsestablished by that Government except so far as they have been recognized by the new Sovereign Power. Such recognition may be by legislation or by agreement, express or implied.''

29. The question has come up for decision before the Hon'ble Supreme Court also. In the case of Dalmia Dadri Cement Co. Ltd. v. Commr. of Income Tax, AIR 1958 SC 816. The question as to what is an Act of State and as to what are the rights of the subjects of the ex-sovereign as against the new sovereign who has acquired the territory of the ex-sovereign was examined in detail and following the Privy Council cases, referred to above, the following observations were made:--

'When the sovereign of a State meaning by that expression, the authority in which the sovereignty of the State is vested -- enacts a law which creates, declares or recognizes rights in the subjects, any infraction of those rights would be actionable in the Courts of that State even when that infraction is by the State acting through its officers. It would be no defence to that action that the act complained of is an Act of State, because as between the sovereign and his subjectsthere is no such thing as an act of State, and it is incumbent on his officers to show that their action which is under challenge is within the authority conferred on them by law. Altogether different considerations arise when the act of the sovereign has reference not to the rights of his subjects but to acquisition of territories belonging to another sovereign. That is a matter between independent sovereigns and any dispute arising there from must be settled by recourse not to municipal law of either States but to diplomatic action, and that failing, to force. That is an act of State pure and simple, and that is its character until the process of acquisition is completed by conquest or cession. The status of the residents of the territories which are thus acquired is that until acquisition is completed as aforesaid they are the subjects of the ex-sovereign of those territories and thereafter they become the subjects of the new sovereign. In the new set up these residents do not carry with them the rights which they possessed as subjects of the ex-sovereign, and as subjects of the new sovereign, they have Only such rights as are granted or recognized by him. In law, therefore, the process of acquisition of new territories is one continuous act of State terminating on the assumption of sovereign powers de jure over them by the new sovereign and it is only thereafter that rights accrue to the residents of those territories as subjects of that sovereign. In other words, as regards the residents of territories which come under the dominion of a new sovereign, the right of citizenship commences when the act of State terminates and the two therefore cannot exist. It follows from this that no act done or declaration made by the new sovereign prior to his assumption of sovereign powers over acquired territories can quoad the residents of those territories be regarded as having the character of a law conferring on them rights such as could be agitated in his Courts. In accordance with this principle, Clauses in a treaty entered into by independent rulers providing for the recognition of the rights of the subjects of the ex-sovereign are incapable of enforcement in the Courts of the new sovereign. When a treaty is entered into by sovereigns of independent States where under sovereignty in territories passes from one to the other, Clauses therein providing for the recognition by the new sovereign of the existing rights of the residents of those territories must be regarded as invested with the character of an act of State and no claim based thereon could be enforced in a court of law.'

(Paras 13, 14, 17).

* * * * * * * 'The expression 'Act of State' is not limited to hostile action between rulers resulting in the occupation of territories. It includes all acquisitions of territory by la sovereign State for the first time, whether it be by conquest or cession. And On principle, it makes no difference as to the nature of the act, whether it is acquisition ot new territory by an existing State or as in the present case, formation of a new State out of territories belonging to quondum States. In either case, there is establishment of new sovereignty over the territory in question, and that therefore the covenant was an Act of the State. It was a treatyentered into by rulers of independent States, by which they gave up their sovereignty over their respective territories, and vested it in the ruler of a new State. (Paras 11, 17).'

30. In the case of the State of Saurashtra v. Memon Haji Ismail Haji Valimohammed, AIR 1959 SC 1383, the facts were as below:-- After the Nawab of Junagarh State left the country for Pakistan the administration of the State was taken over by the Dominion of India on 19-11-1947 and the State of Junagadh was not treated as Part of India till the administration of the State was taken over by the Saurashtra Government on 20-1-49. During the period intervening between 9-11-47 and 20th of January, 1949, the Administrator of Junagadh who was appointed by the Government of India resumed land granted to the respondent by the former Nawab and a question arose as to whether the resumption was an Act of State or not The question was answered in the affirmative, and in course of the judgment the following observations were made:--

'An act of State is an exercise of sovereignpower against an alien and neither intended norpurporting to be legally founded. A defence ofthis kind does not seek to justify the action withreference to the law but questions the very jurisdiction of the Courts to pronounce upon the legality or justice of the action. (Para 16)

The essence of an act of State is the exercise of sovereign power and that is done arbitrarily, on principles either outside or paramount to the municipal law. The fact that the sovereign allows the inhabitants to retain their old laws and customs does not make the sovereign subject to them and all rights under those laws are held at the pleasure of the sovereign. It is only when the sovereign can be said to have purported to act within the laws that the act of State ceases to afford a plea in defence. Before that stage is reached, Government may be influenced by the existing laws and rights and obligations but is not governed or bound by them.''

31. On behalf of respondent No, 1 it has been urged that the 1958 Supreme Court case supra is distinguishable on facts and as such the observations made therein have no binding force. The precise question that arose in that case was as to whether an agreement entered between the erstwhile Jind State and one Shanti Parshad Jain pro-motor of the appellant company providing that the company shall always be assessed to income-tax at rates specified therein was binding on the Government of India after the Patiala and the East Punjab States Union of which the erstwhile Jind State was a component part merged in the Union of India. The decision of that question depended upon the attributes and elements of an Act of State and as such the observations made by their Lordships of the Supreme Court as to the nature and extent of Act of State would be applicable to the instant case.

32. On behalf of respondent No. 1 reliance was also placed upon a ruling of this Court reported in Gajjan Singh v. Union of India, A.I.R 1956 Him Pra 9 where it was held that:--

'There, can be no Act of State against a citizen. Consequently, it is not open to the Union or State Government to contend that the suits brought by a citizen of a merged State for damages and rendition of accounts are barred by an Act of State.'

33. In arriving at the aforesaid conclusion this Court followed inter alia the decision of tne Supreme Court in the case of Virender Singh v. The Union of India, AIR 1954 SC 447.

34. The question that arose for decision in the aforesaid case was as to whether absolute muafi grants of lands made by the rulers of erstwhile States of Charkari and Sairola which were independent States under the paramountcy of the British Crown, before the integration of the States into United State of Vindhya Pradesh and their subsequent accession to the Indian Dominion, cannot be revoked as Act of State by the State (of Uttar Pradesh) in consultation with Government of India, after the coming into force of tne Constitution and it was answered in the affirmative. The ratio of the decision was that such revocation would amount to confiscation and would be a violation of the provisions of the Constitution of India. Such a question did not arise in the 1956 Himachal Pradesh case and does not arise in the instant ease. That apart there is no conflict between the 1954 and the 1958 Supreme Court cases referred to above on the question as to whether a premerger claim by a subject of a merged state can be enforced against the absorbing State.

35. In the former case the question as to whether the subjects of the acceding State could enforce their pre-accession claims as against the absorbing state, was, as would appear from the following extract from the judgment, left open.

'We think it is clear on a review of these authorities that--these petitioners who were in de facto possession of the disputed lands, had rights in them which they could have enforced upto 26-1-1950 in the Dominion Courts against all persons, except- possibly the Rulers who granted the land and except possibly the State. We do not by any means intend to suggest that they could not have enforced them against the Rulers and the Dominion of India as well, but it is not necessary to enter into that particular controversy.

36. The aforesaid 1954 Supreme Court case is, therefore, not an authority for the proposition that a pre-merger commitment can be enforced by the subject of an acceding state as against the absorbing State in its municipal Courts even though that claim has not been recognised either expressly or impliedly by the latter State. In view of the observations made in the 1958 Supreme Court case supra I, with great respect, find it rather difficult to follow the decision in the 1956 case of this Court.

37. When a State is acquired either by accession or conquest it is an act of State and it is implicit in that act that the rights and obligations which the subjects of the ceded State had against their ex-sovereign cannot be enforced against the new state unless the latter recognises the same either expressly or impliedly. On behalf of respondent No. 1 reliance was also placed upon.the memorandum on the personal privileges of the rulers of the merged and integrated states, in Support of the contention that the Government of India had undertaken the liability to honour the pre-merger commitments of the erstwhile rulers of the merged states. Paragraph 25 of the said memorandum runs as below:--

'25. Previous commitments of the Rulers:--While as a general principle there would be no objection to recognition of the previous commitments of the Rulers, it has come to the notice of the Government of India that the Rulers have entered into many transactions which cannot stand scrutiny, especially those that were entered just before the integration of the State, The Government of India are therefore of the opinion that the Provincial and Union Governments which are taking over the administration of the States and assuming their liabilities should not be saddled with all these commitments. The Provincial and Union Governments will, therefore, make enquiries and confirm such of them as are reasonable and bona fide.'

38. According to the aforesaid paragraph the pre-accession commitments made by the then rulers of Indian States were not to be honoured as a matter of course.

39. It may, therefore, be safely concluded that (a) acquisition of territories by a sovereign State for the first time whether it be by conquest Or cession is an Act of State.

(b) that the pre-merger commitments marie by the ex-sovereign are not binding on the new sovereign even though by a treaty the latter may have agreed to honour such commitments,

(c) that a claim by the subjects of the ex-sovereign cannot be entertained by the municipalCourts of the new sovereign unless such claimhas either expressly or impliedly been recognisedby the new sovereign,

(d) that the non-recognition by the new sovereign of a pre-merger claim by the subjects against the ex-sovereign is not an Act of State rather the right not to recognise such a claim flows out of and is inherent in the antecedent Act of State. The principle that there cannot be an Act of State between a sovereign and his subject is not applicable when a claim in respect of a liability incurred by the ex-sovereign prior to the acquisition or cession of his territory is lodged by the subject against the new sovereign in his municipal Courts.

40. It, therefore, follows that when the Jubbal State acceded to the Dominion of India the accession was an Act of State, and the claim of respondent No. 1 which he had against the erstwhile ruler of that State cannot be entertained by the Courts in Himachal Pradesh unless such claim is found to have been recognised by the appellants either expressly or impliedly.

Question No. 4 (q). It has next to be determined as to whether the Union of India or the State of Himachal Pradesh expressly or impliedly recognised the claim of respondent No. 1. On behalf of respondent No. 1 much reliance has been placed upon the following letters:--

(i) Letter dated 6th of December, 1948 writ-ten by S.D.O. Jubbal to respondent No. 1 Ex-PW. 13/6.

(ii) Letter dated 26th of February, 1951, written by S.D.O. Jubbal to the Chief Conservator of Forests, Ex. PW. 13/82.

41. It appears from letter Ex. PW. 13/6 that the S.D.O. did not dispute that a sum of Rs. 1653/3 was payable to respondent No. 1 out of the item of Rs. 24,198/8/3. The S.D.O., however, did not admit that a sum of Rs. 70,000/- was due to respondent No. 1 and the reason for that was that the latter had acknowledged to have received the aforesaid sum from respondent No. 2. As for the item of Rs. 38,669/15/6 the S.D.O. said that he had no concern with the same.

42. It is not disputed that the item of Rs. 1653/3/- mentioned in the aforesaid letter was a mistake for Rs. 1818/15/-. Thus there can be no doubt that the S.D.O. recognized the claim of respondent No. 1 to the extent of Rs. 1818/15/-. It is now not in dispute that the sum of Rs. 70,000/-was not paid by respondent No. 2 to respondent No. 1, and it has been urged on behalf of the latter that as the reason assigned by the S.D.O. for repudiating the liability for the item of Rs. 70,000/- was not correct he should be held to have impliedly recognised his claim to that extent.

43. I do not think that the claim of respondent No. 1 qua the item of Rs. 70,000/- can be held to have been impliedly recognised merely because the reason assigned by the S.D.O. for repudiating the liability has not been found to be good for repudiation. It is a matter of a speculation as to whether the S.D.O. would have recognised the aforesaid claim if he had known that no actual payment was made when the receipt for Rs. 1,08,669/15/6 was executed by respondent No. 1 in favour of respondent No. 2.

44. Adverting to the letter Ex. P.W. 13/82 one finds that the S.D.O. Jubbal wrote to the Chief Conservator of Forests that in accordance with the orders of the then ruler of Jubbal State a sum of Rs. 1,08,669/15/6 was to be paid by respondent No. 2 to respondent No. 1, that the latter acknowledged to have received the amount from the former and as such the matter was entirely closed between the State Government and respondent No. 1 and it was not understood as to why the Divisional Forest Officer Chopal did not give credit to respondent No. 2 in his timber account to the extent of Rs. 1,08,669/15/6. A copy of the aforesaid letter was not endorsed to respondent No. 1, I do not think that the aforesaid letter can be construed to be a recognition of the claim put forward by respondent No. 1. At the outside it may be said that the claim of respondent No. 1 was not considered to be mala fide. There is a clear distinction between recognising a claim and recognising merely the bona fide of the claim. A claim which is bona fide need not necessarily be recognised by the successor State.

45. It has also been contended on behalf of respondent No. 1 that his claim should be deemed to have been impliedly recognised when the Chief Conservator of Forests took the receipt executed by him in favour of respondent No. 2and sent it on to the Treasury for making thenecessary adjustment in the timber account of respondent No. 2. The sum of Rs. 1,08,669/15/3 was to be paid by respondent No. 2 to respondent No. 1, if protanto credit was given to him in histimber account and so long as such credit wasnot given the claim of respondent No. 1 could not be said to have been recognised.

46. The respondent No. 1 had summoned from the appellants a number of documents and on behalf of the latter privilege was claimed and was allowed by the Court in respect of the following documents:--

(i) Original letter dated 20th of March 1951 from the Chief Conservator of Forests Himachal Pradesh to the A. G. Punjab and Himachal Pradesh States.

(ii) Original report of the Accountant JubbalSub-Treasury dated: 17-2-51.

(iii) Original report dated 28-11-48 of the Audit Officer Shri Dasondhi Ram to the S.D.O. Jubbal.

(iv) Office records relating to the report of the Minister Civil Supplies.

(v) Report of the S.D.O. Jubbal to the ChiefConservator of Forests, sometime in the 4th week of February, 1951.

47. On behalf of the respondent it has been urged that the learned trial Court erred in allowing privilege in respect of the aforesaid documents in as much as they did not relate to the affairs of the State and the affidavit claiming privilege was not duly sworn.

48. On behalf of the appellants on the other hand it has been urged that respondent No. 1 had filed an application in revision against the order allowing privilege which was dismissed and as such it was not open to him to challenge again the aforesaid order. Respondent No. 1 had filed an application in revision against the order of the trial Court allowing privilege. He had also filed an appeal against another order of the trial Court refusing to strike out the defence under Order 11 Rule 21 of C.P.C. On the date fixed for the hearing of the application in revision thecounsel for the applicant (now respondent No. 1.) made a statement that he did not want to press the application and would argue the question of privilege at the time of the hearing of the appeal.

The counsel for the respondent (now appellants) stated that the applicant can argue the point if legally such a right will be available to him. At the time of the hearing of the appeal an attempt was made On behalf of the applicant to argue the question of privilege but my learned predecessor in office, Shri T. Ramabhadran, did not permit him to argue the point as in his opinion the matter was concluded by the dismissal of the application in revision. During the course of his order he observed as follows:--

'In this connection, he invited my attention to the fact that a revision petition, filed by the plaintiff against the order of the lower Court upholding privilege, was rejected by this Court on 25-6-1950, since it was not pressed. During arguments, when this fact was brought to my notice, I upheld the learned Government Advocate'scontention that the question of privilege could not be agitated in this Court, under the circumstance.'

Vide AIR 1958 Him Pra 11, at p. 13, Amar Chand Butail v. Union of India.

49. It has been held in Satyadhyan Ghosal v. Smt. Deorajin Debi, reported in AIR l960 SC 941.

'that the principle of res judicata applies also as between two stages in the same litigation to this extent that a Court, whether the trial Court pr a higher Court having at an earlier stage decided a matter in one way will not allow the parties to re-agitate the matter again at a subsequent stage of the same proceedings.'

50. It would that appear that even though the application in revision against the order allowing privilege was not pressed, the finding of my learned predecessor in office that the dismissal of that application operated as res judicata cannot be questioned by me and I cannot go into the question whether privilege was rightly allowed in respect of the documents and reports mentioned above.

51. Respondent No. 1 has stated that the officers of the Himachal Pradesh Government assured him that his claim has been settled and that payment would be made to him shortly. No officer of the Himachal Pradesh Government was, however, examined in support of the aforesaid allegation.

52. It would thus appear that of the officers of Himachal Pradesh Government the SDO Jubbal only recognised the claim of respondent No. 1 to the extent of Rs. 1818/15/-. The recognition by the SDO was contained in a letter addressed to respondent No. 1, and it may well be held that the SDO had authority to recognise the claim.

53. It has already been noticed that according to the case reported in AIR 1924 PC 216 supra the new sovereign may through his officers recognise the rights of an inhabitant of the ceded or acquired territory and the recognition by the SDO of the claim of respondent No. 1 to the tune of Rs. 1818/15/- may well be regarded as recognition on behalf of the appellants. I, therefore, hold that the appellants have recognised the claim of respondent No. 1, to the extent of Rs. 1818/15/-and to that extent the claim is entertainable in, the Municipal Courts of the land.

Question No. 5, Mansa Ram P. W. 2 the then Secretary of the Simla Arhtiya Association, Bansi Lal PW. 5 who had been carrying on trade in Jubbai area for the last 20 or 25 years, Bishesh Chand PW 6, who was Minister for Civil Supplies and Labour in the Jubbai State, Durga Singh PW. 7 who was a Range Officer in Jubbal State from 1917 to 1951 and respondents Nos. 1 and 2 have stated that according to the usage of trade interest at the rate of -/12/- per cent per mensem used to be charged on outstandings. According to Rishesh Chand, P. W. 6 such interest used to be charged if the dues remained outstanding for more than two or four months. No evidence was led on behalf of the appellants in rebuttal. Respondent No. 1 was thus entitled to recover interest at therate of 9 per cent per year for the period priorto the institution of the suit. Interest on the sumof Rs. 1818/15/- at the rate of 9 per cent peryear amounts to Rs. 518/6/-. The award of future interest is discretionary with a Court. Thelearned Senior Subordinate Judge, however, didnot assign any reason for not awarding future Interest. Normally if interest is awarded to a plaintiff for the period prior to the institution of thesuit future interest should also be awarded. I,therefore, hold that respondent No. 1 is entitledto get future interest at the rate of 4 per cent peryear.

54. In conclusion the appeals are accepted in part and the judgment and decree of the lower Court are modified to this extent only that the suit of plaintiff respondent No. 1 is decreed against the appellants for recovery of a sum of Rs. 2,337/5 and pendente life and future interest at the rate of 4 per cent per year. Respondent No. 1 and the appellants shall receive and pay costs of the suit and of appeal No. 6/59 in proportion to success and failure. Respondent No. 2 will bear his own costs or the aforesaid appeal. The costs of appeal No. 5/59 shall be borne by the parties themselves.

55. Let a copy of this judgment be placed onthe record of appeal No. 5 of 1959.


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