PETITIONER: CHOUDHRY JAWAHARLAL & ORS. Vs. RESPONDENT: STATE OF MADHYA PRADESH DATE OF JUDGMENT: 30/10/1969 BENCH: REDDY, P. JAGANMOHAN BENCH: REDDY, P. JAGANMOHAN SIKRI, S.M. MITTER, G.K. CITATION: 1970 AIR 1430 1970 SCR (3) 208 1969 SCC (3) 682 ACT: Princely State-Construction of public buildings-Merger with Indian State-Liability of successor State to honour claim for for payment-Act of State: what is. HEADNOTE: The appellants constructed certain public buildings in a princely state and the Maharaja admitted the claim of the appellants and executed a promissory note for the amount claimed. The princely State was merged with State of Madhya Pradesh and the State Government (respondent) took over the possession of the public buildings. On the question of the liability of the respondent to pay the amount of the promissory note, HELD: (1) The fact that the appellants were asked by the respondent to supply details of their claim did not amount to an acceptance of the liability. It was open to the respondent to examine and satisfy itself whether it should honour the liability or not and it could not be said that the State had waived its defence. of Act of State. (2) An Act of State is an exercise of sovereign power over a territory which was not earlier subject to its sway. When such an event takes place and territory is merged, although the sovereign might allow the inhabitants to retain their old laws and customs or undertake to honour the liabilities, it could not be itself bound by them until it purported to act within the laws by bringing to an end the defence of Act of State. 'he rule applies even in case of a public property of the erstwhile State which the successor State takes over and retains as part of its public property. [212 A] Raja Rajender Chand v. Sukhi & Ors. [1956] 2 S.C.R. 889. State of Saurashtra v. Memon Haji Ismali, A. I.R. 1959 S.C.R. 1383 and Vaje Singh ji Joravar Singh & Ors. v. Secretary of State for India, 51 I.A. 357, referred to. JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 97 of 1966.
Appeal from the judgment and decree dated January 11, 1962
of the Madhya Pradesh High Court in First Appeal No. I 1 5
of 1958.
M. S. Gupta, for the appellants..
I. N. Shroff for respondent No.1 .
The Judgment of the Court was delivered by
P. Jaganmohan Reddy, J.-This appeal is by certificate
granted by the High Court of Madhya Pradesh under Article
133 (i) (a) of the Constitution of India against its
judgment and decree by which it reversed the judgment and
decree of the Addl.
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District Judge, Ambikapur. The High Court held that the
claim of the appellant on the promisory note executed by the
Maharaja of Surguja-an erstwhile Ruler whose state was
merged in Madhya Pradesh, could not be enforced against the
Ist Respondent the State of Madhya Pradesh because after the
cession of the erstwhile State, the new State had not
expressly or impliedly undertaken to meet that liability.
In other words, the plea of ‘an act of ‘State’ raised by the
1st respondent was accepted.
The circumstances in which the suit was filed by the
appellants and the array of parties may now be stated.
Appellants 1, 2, 3 and deceased Hira Lal were brothers and
members of a Joint Hindu family. Appellant 4 is the wife of
Hira Lal, appellants 5 to 7 are his sons and appellant 8 is
the grand-son. All these appellants along with appellants I
to 3 constitute a Joint Hindu family which was carrying on
business of construction of buildings under the name and
style of Hira Lal & Bros. at Ambikapur in the erstwhile
State of Surguja. The allegations in the suit filed by the
appellant against the respondent State was that they had
constructed buildings of the District Court and the
Secretariat at Ambikapur in 1936. The work was completed
but in so far as payment was concerned, there was a
difference of opinion about the measurements etc. but
ultimately it was decided to pay to the appellants Rs.
80,000 on account of the said construction and accordingly
the Maharaja of Surguja-2nd respondent executed a promisory
note in favour of the appellants on 27-9-1947 for Rs. 80,000
with interest @ Rs. 3 per annum. Thereafter the Madhya
Pradesh Government took over the administration of the State
of Surguja on 1-1-48 after the merger of the Chattisgarh
State and consequently the Court building -as well as
Secretariat building.were taken possession of by the
Government. When the appellants claimed the money -from the
State of Madhya Pradesh, it neither accepted the claim nor
paid them. The appellants after giving a notice u/s 80 of
the Code of Civil Procedure filed a suit.
On the pleadings, the Trial Court had framed several issues
but it is unnecessary to notice them in any great detail
except to say that the claim of Rs. 80,000 was held to be
valid, that this amount was payable on account of the
construction of the build,-, things known as Court, and
Secretariat buildings, that the promote was not without
consideration, that the first defendant was the successor in
interest of Surguja State and is liable to pay the claim
with interest and that the amount was not due to the
plaintiffs on -account of the personal obligation and
liability of the 2nd respondent. The Court also found
against the first respondent on the issue relating to
jurisdiction and negatived the defence that it is not liable
because of an act of State. In so far as the defendant the
Maharaja of Surguja was concerned, it held that the suit was
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not maintainable against him without the consent of the
Central Govt. as required under section 86 of the Civil
Procedure Code and that the liability was not a personal
obligation of the Maharaja but an obligation” incurred on
account of his State. In the result as we said earlier the
Court awarded a decree for Rs. 87,200 with full cost against
the first defendant and discharged the second defendant. In
appeal the High Court noticing that it is the admitted case-
of the parties that the District Court and the Secretariat
building were public property and were in the possession of
the first defendant as such and that that the liability in
respect thereof was incurred by the Maharaja was not merely
his personal liability but was a liability incurred on
behalf of the State of Surguja, however, reversed the
judgment of the Trial Court by holding “the the liability of
the State of Surguja under the- pronote was at best a
contractual liability and this liability could only be
enforced against the State of Madhya Pradesh if after the
cession of the erstwhile State of Surguja, the new State had
expressly or impliedly, undertaken to meet that liability”
which it had not done. When this appeal came up on an
earlier occasion, a Civil Miscellaneous Petition 429 of 1969
was filed by the appellant; that inasmuch -as the
petitioners had been advised to approach the State Govt.
again for making proper representation and to canvass their
claim before the appropriate authority on the basis of the
concurrent findings of the Courts below and or any other
appropriate orders, permission may be accorded to them to
pursue this course. The Respondents advocate did not oppose
this petition and accordingly the matter was adjourned. But
it would appear that no concrete results could be achieved.
In this appeal what we have to consider is whether the plea
of an act of State is sustainable having regard to the
concurrent findings of the Court namely that the Court and
Secretariat buildings were constructed by the appellants,
that the erstwhile Maharaja -the second respondent had
admitted the claim and executed a. promisory note, that the
liability was incurred in respect of public buildings -for
which the State of Surguja was liable. The fact that
appellants were asked to supply details of their claim and
the first respondent was prepared to consider it has been
urged as being tantamount to the acceptance of the
liability. In our view no such inference can be drawn. It
is open to the State to examine and to satisfy itself
whether it is going to honour the liability or not, but that
is not to say that it had waived its defence of an act of
State if such a defence was open to it. What constitutes an
act of State has been considered and the principles
enunciated in numerous cases both of the Privy Council and
of this Court have been stated. Many of these, decisions
were examined and discussed by the High Court in its
judgment and it is unnecessary for
(1) [1956] 2 S.C.R. 889.
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us to re-examine them in any great detail. These decisions
lay down clearly that when a territory is acquired by a
sovereign state for the first time that is an act of State.
As pointed out in Raja Rajender Chand v. Sukhi & other(‘)
that it matters not how the acquisition has been 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 recognised ruler. In all cases the
result is the same. Any inhabitant of the territory can
make good in the Municipal Courts established by the new
sovereign only such rights as that sovereign has, through
his officers, recognised. The principle upon which the
liability of an erstwhile ruler is contested by the plea of
an act of State “is an exercise of sovereign power against
an alien and neither intended nor purporting to be legally
founded. A defence of this kind does not seek to justify
the -action with reference to the law but questions the very
jurisdiction of the Courts to pronounce upon the legality or
justice of the Action’s vide State of Saurashtra v. Memon
Haji Ismail(‘). In Vaje Singh Ji Joravar Singh and others
v. Secretary of State for India in Council(‘), it was
observed :
“After a sovereign State has Acquired territory, either by
conquest, or by cession under treaty, or by the occupation
of territory theretofore unoccupied by a recognized ruler,
or otherwise, an inhabitant of the territory can enforce in
the -Municipal Courts only such -proprietary rights as the
sovereign has conferred or recognized. Even if a treaty of
cession stipulates that certain, inhabitants shall enjoy
certain rights that gives them no right which they can so
enforce. The meaning of a general statement in a
proclamation that existing rights will be recognized is that
the Government will recognize such rights as upon –
investigation it finds existed. The Government does not
thereby renounce its right to recognize only such titles as
it considers should be recognized, nor confer upon the
Municipal Courts any power to adjudicate in the matter”.
“It is the acceptance of the claim which would have bound
the new sovereign State and the act of State would then have
come to an end. But short of an acceptance, -either express
or implied, the time for the exercise of the Sovereign right
to reject a claim was still open”,
212
It appears to us that an act of State is an exercise of
sovereign power over a territory which was not earlier
subject to its sway. When such an event takes place, and
the territory is merged, although sovereign might allow the
inhabitants to retain their old laws and customs or
undertake to honour the liabilities etc., it could not be
itself bound by them until it purported to act within the
laws by bringing to an end the defence of ‘act of State’.
The learned advocate for the appellant was unable to refer
us to any authority which will justify any variation of this
rule, in the case of liability incurred in respect of a
public property of the erstwhile State which the successor
State has taken over and retains as part ,of its public
property. The judgment of the High Court is in accord with
the well recognized principles of law declared from time to
time by this Court. In our view the defence of ‘Act of
State’ however unreasonable and unjust it may appear to be
-can be successfully pleaded -and sustained by Ist
respondent to non suit the appellants. The appeal is
dismissed accordingly but without -costs.
R.K.P.S. Appeal dismissed.
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