PETITIONER:
M/S. DALMIA DADRI CEMENT CO. LTD.
Vs.
RESPONDENT:
THE COMMISSIONER OF INCOME-TAX(and connected petition)
DATE OF JUDGMENT:
28/04/1958
BENCH:
AIYYAR, T.L. VENKATARAMA
BENCH:
AIYYAR, T.L. VENKATARAMA
BOSE, VIVIAN
DAS, SUDHI RANJAN (CJ)
DAS, S.K.
GAJENDRAGADKAR, P.B.
CITATION:
1958 AIR 816 1959 SCR 729
ACT:
Act of State-Covenant between States for merger-Rights of
subjects of the Covenanting States-Enforcement in municipal
courts of the New State-Income-tax-Concessional rates
granted by the Covenanting State-Whether binding on the New
State.
HEADNOTE:
The appellant company which was incorporated in 1938 in the
erstwhile State of Jind obtained certain concessions from
the Ruler of the State under an agreement dated April 1,
1938, -which, inter alia, provided that the State was to be
allotted certain shares in the company without any payment
and as regards income-tax the company was to be assessed at
concessional rates. On May 5, 1948, the Ruler of jind along
with the Rulers of seven other States entered into a
Covenant for the merger of their territories into one State,
Article VI of the Covenant provided, inter alia, that the
Ruler of the Covenanting State shall make over the
administration of his State to the Rajpramukh of the new
State and that all duties and obligations of the Ruler of
the Covenanting State shall devolve on the New State and
shall be discharged by it. In accordance with that Article
the Rajpramukh took over the administration of jind on
August 20, 1948, and immediately after assumption of office
promulgated Ordinance No. 1 Of S. 2005, by s. 3 of which all
laws in force in the State of Patiala were made applicable
mutatis mutandis to the territories of the New State and
that all laws in force in the Covenanting States stood
repealed. On November 24, 1949, the Rajpramukh issued a
proclamation accepting the Constitution of India and on
April 13, 1950, the New State became a taxable territory of
the Union of India.
730
The result of the constitutional changes was that the law
relating to income-tax applicable to the appellant, for the
period prior to August 20, 1948, was that of Jind, for the
period August 20, 1948, to April 13, 1950, that of the
Patiala Income-tax Act and after April 13, 1950, the Indian
Income-tax Act ; but the appellant contended that the
income-tax should be levied on him as provided in the
agreement entered into with the Ruler of jind, dated April
1, 1938:
Held, (1) that S. 3 Of the Ordinance No. 1 Of S. 2005 on its
true construction extinguished the right to tax concessions
conferred on the appellant under the agreement dated April
1, 1938, and that the appellant cannot rely on that
agreement after August 20, 1948.
(2)The Covenant dated May 5, 1948, entered into by the
Rulers of the States, is in whole and in parts an act of
State and Article VI cannot be relied on by the appellant
for the enforcement of the rights conferred on him under the
agreement with the Ruler of jind as against the Rajpramukh
of the new State,
Per S. R. Das C. J., Venkatarama Aiyar, S. K. Das and
Gajendragadkar JJ.-When a treaty is entered into by
sovereigns of independent States whereunder 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 the
municipal courts established by the new sovereign unless
those rights have been recognised by him.
Secretary of State for India v. Bai Ralbai, (1915) L. R. 42
I. A. 229, Vajasingji Joravarsingji and others v. Secretary
of State, (1924) L. R. 51 1. A. 357, Sccretary of State v.
Sardar Rustam Khan, (1941) L. R. 68 1. A. 109, Cook v.
Sprigg, [1899] A. C. 572 and Hoani Te Heuheu Tukino v. Aotea
District Maori Land Board [1941] A. C. 308, relied on.
Per Bose J.-International opinion is divided about the
effect that a change of sovereignty has on rights to
immoveable property and this decision must not be used as a
precedent in a case in which rights to immoveable property
are concerned.
JUDGMENT:
CIVIL APPELATE, JURISDICTION: Civil Appeal No.230 of 1954.
Petition No. 276 of 1953.
Appeal from the judgment and order dated June 7, 1954, of
the former Pepsu High Court in Civil Misc. No. 97 of 1953.
Petition under Article 32 of the Constitution of India for
the enforcement of fundamental rights.
731
G.S. Pathak, Veda Vyasa, S. K. Kapur and J. B.
Dadachanji, for the appellants-petitioners.
H. N. Sanyal, Additional Solicitor-General of
India,R.Ganapathi Iyer, Raj Gopal Sastri and R. H. Dhebar,
for the respondents.
1958. April 28. The judgment of S. R. Das C. J.,
Venkatarama Aiyar, S. K. Das and Gajendragadkar JJ. was
delivered by Venkatarama Aiyar J. Bose J. delivered a
separate judgment.
VENKATARAMA AIYAR J.-Messrs. Dalmia Dadri Cement Co. Ltd.
which is the appellant in Civil Appeal No. 230 of 1954 and
the petitioner in Petition No. 276 of 1953, is a public
company engaged in the manufacture and sale of cement at a
place called Dadri situate in what was once the independent
State of Jind. On April 1, 1938, one Shanti Prasad Jain, a
promoter of the above company, obtained certain concessions
from the Ruler of Jind under an agreement, Ex. A, and as it
is this document that forms the basis of the present claim
of the appellant, it is necessary to refer to the, material
terms thereof. Clause (1) of the agreement grants to the
licensee, Shanti Prasad Jain, the sole and exclusive
monopoly right of manufacturing cement in the Jind State and
for that purpose he is authorised in Cl. (2) to win and work
all quarries, strata, seams and beds of kankar, rorey,
limestone or other like materials “. Under Cl. (7), the
licence is to last for a period of 25 years with option for
successive renewals. Clause (10) requires that a public
limited company should be formed before July 21, 1936, to
work the concessions, and that it should be registered in
the Jind State. Under Cl. (11), the State is to be allotted
6 per cent. cumulative preference shares fully paid up of
the face value of rupees one lack and ordinary shares fully
paid up of the total face value of Rs. 50,000 without any
payment whatsoever. Then there are provisions for the
payment of royalty to the State and sale of cement at
concession rates to local consumers. Clause (23) is very
material for the present dispute, and is as follows:
93
732
” The Company shall be assessed to income-tax in accordance
with the State procedure but the rate of income-tax shall
always be four per cent. up to a limit of the income of
rupees five lacs and five per cent. on such income as is in
excess of rupees five lacs……….. Clause (24) grants
exemption from export, import and other duties excepting
consmers. Clause (37) provides for settlement of all
disputes between the parties by arbitration.
In accordance with the terms set out above, the appellant
company was duly incorporated in the Jind State, and on May
27, 1938, Shanti Prasad Jain executed in its favour a deed
agreeing to transfer all ” his rights, privileges and
obligations ” under Ex. A. The appellant claims that it has
become in this wise entitled as assignee of the licensee to
all the benefits granted under Ex. A. The contention was
raised by the respondent that the deed dated May 27, 1938,
does not itself purport to assign the rights under the
license, Ex. A but merely agrees to do so, and that in the
absence of a further deed transferring those rights, the
appellant could not claim the rights of assignee. But Cl.
(35) expressly provides that ” the licensee shall transfer
his rights to the proposed Company on its formation “, and
after the appellant was incorporated, the State had
throughout recognised it as the person entitled to the
rights and subject to the obligations under the license and
realised royalty and levied income-tax in accordance with
the provisions of Ex. A. This objection was taken for the
first time only in the Writ Petition No. 276 of 1953 in this
Court. It is stated for the appellant-and that is not
controverted for the respondent-that under the law of Jind
State an assignment need not be in writing, and that being
so, it is open to us to infer such assignment from the
conduct of the parties. We must accordingly decide these
cases on the footing that the rights under the license, Ex.
A, dated April 1, 1938, had become vested in the appellant
by assignment.
On August 15, 1947, India became independent, and on the
same date, the Ruler of Jind signed an Instrument of
Accession ceding to the Government of India
733
power to legislate with respect to Defence, External Affairs
and Communications. On May 5, 1948, eight of the Rulers of
States in East Punjab including Jind entered into a Covenant
for the merger of their territories into one State, called
the Patiala and East Punjab States Union. For brevity, this
State will hereafter be referred to as the Patiala Union.
Article VI of the Covenant on which the appellant relies in
support of its claim is as follows:
” The Ruler of each Covenanting State shall, as soon as may
be practicable, and in any event not later than the 20th
August, 1948, make over the administration of his State to
the Raj Pramukh; and thereupon,
(a)all rights, authority and jurisdiction belonging to the
Ruler which appertain, or are incidental to the Government
of the Covenanting State shall vest in the Union and shall
hereafter be exercisable only as provided by this Covenant
or by the Constitution to be framed thereunder;
(b)all duties and obligations of the Ruler pertaining or
incidental to the Government of the Covenanting State shall
devolve on the Union and shall be discharged by it;
(c)all the assets and liabilities of the Covenanting State ”
shall be the assets and liabilities of the Union; and
(d)the military forces, if any, of the Covenanting State
shall become the military forces of the Union.”
Article X provides that a Constituent Assembly should be
formed as early as practicable, and that it should frame a
Constitution for the State, and that until the Constitution
is so framed, the Rajpramukh is to have power to make and
promulgate Ordinances for the peace and good government of
the Union. Under Art. XVI, the Union ” guarantees either
the continuance in service of the permanent members of the
public services of each of the Covenanting States on
conditions which will be not less advantageous than those on
which they were serving on the 1st February, 1948, or the
payment of reasonable compensation or retirement or
proportionate pension.”
734
In accordance with Art. VI of the Covenant, the Rajpramukh
of the Patiala Union took over the administration of Jind on
August 20, 1948, and immediately after assumption of office,
he promulgated the Patiala and East Punjab States Union
Administration Ordinance No. 1 of S. 2005. Section 3 of the
Ordinance, which is material for the present discussion, is
as follows:
” As soon as the administration of any covenanting State
has been taken over by the Raj Pramukh as aforesaid all
Laws, Ordinances, Acts, Rules, Regulations, Notifications,
Hidayate Firman-i-Shahi, having force of law in Patiala
State on the date of commencement of this Ordinance shall
apply mutatis mutandis to the territories of the said State
and with effect from that date all laws in force in such
Covenanting State immediately before that date shall be
repealed:
Provided that proceedings of any nature whatsoever pending
on such date in the courts or offices of any such
Covenanting State shall, notwithstanding anything contained
in this Ordinance or any other Ordinance be disposed of in
accordance with the laws governing such proceedings in force
for the time being in any such Covenanting State.”
This Ordinance came into force on August 20, 1948. On
February 5, 1949, it was repealed and replaced by Ordinance
No. XVI of S. 2006, s. 3(a) whereof being in the same terms
as s. 3 of Ordinance No. 1 of 8. 2005.
Article X(1) of the Covenant provided, as has been
mentioned, for the framing of a Constitution for the Union
in the manner provided therein. That, however did not
materialise, and on November 24, 1949, the Rajpramukh issued
a proclamation accepting the Indian Constitution as that of
the Patiala Union, and thus, the Union became a Part B State
under the Constitution. On April 13, 1950, the Patiala
Union accepted the Federal Financial Integration Scheme, and
became a taxable territory of the Union of India and the
Indian Finance Act, 1950, became applicable to it from April
13, 1950. The position, therefore, is that as regards
liability to be assessed to income-tax
735
which is what we are concerned with in these proceedings,
the law applicable to the appellant for the period prior to
August 20, 1948, was the income-tax law of’ Jind, for the
period August 20, 1948, to April 13, 1950, the Patiala
Income-tax Act, S. 2001, which came into force under
Ordinance No. 1 of S. 2005 and after April 13, 1950, the
Indian Income-tax Act.
Civil Appeal No. 230 of 1954 arises out of proceedings for
assessment of income-tax for the year 1949-1950. By its
order dated November 11, 1952, the Appellate Tribunal has
found that the taxable profits of the appellant for the year
of account which is the calendar year 1948 was Rs. 1,94,265,
and that finding is not now in dispute. The substantial
point now in controversy is as to the rate at which tax
should be levied on that amount, whether it should be what
is enacted in the Patiala Income-tax Act as contended for
the respondent, or what is provided in Cl. (23) of the
agreement, Ex. A, as claimed by the appellant. On this
question, the Appellate Tribunal held that the Patiala Union
which was a new State that had come into existence as a
result of the Covenant was not bound by the agreements
entered into previously by the rulers of the Covenanting
States, that the appellant could claim the benefit of that
agreement only if the new State chose to recognise it, ”
that there had been, in fact, no such recognition, and that,
in consequence, the tax was leviable as prescribed in the
Patiala Income-tax Act, S. 2001. On the application of the
appellant, the Tribunal referred under s. 66(1) of the
Indian Income-tax Act, the following question for the
opinion of the High Court:
” Whether the asseessee’s profits and gains earned in the
calendar year 1948 were assessable for S. 2006 (1949-50) at
the rates in force according to the Patiala Income-Tax Act
of S. 2001 read with section 3 of the Patiala & East Punjab
States Union Administration Ordinance (No. 1 of S. 2005),
as repealed and re-enacted in section 3 of the Patiala &
East Punjab States Union General Provisions (Administration)
Ordinance (No. XVI of 2006), or in accordance with clause
(23) of the agreement of April, 1938 above referred to,”
736
By their judgment dated June 7, 1954, the learned ,Judges of
the High Court answered the question against the appellant,
but granted a certificate under s. 66(A)(2) of the Indian
Income-tax Act, and that is how Civil Appeal No. 230 of
1954 comes before us.
Meantime, proceedings were taken by the Income-tax
authorities for assessment of tax for years subsequent to
1949-1950, and the dispute again related to the question
whether the amount of tax should be determined in accordance
with Cl. (23) of Ex. A or the provisions of the Indian
Income-tax Act, 1922. The Income-tax Officer, Rohtak,
rejected the contention of the appellant that it was liable
to pay tax only in accordance with. Ex. A and passed
orders determining the tax under the provisions of the
Indian Incometax Act for the year 1950-1951 on April 28,
1952, for 1951-1952 on May 12, 1952, and for 1952-1953 on
March 17, 1953. Appeals against these orders have been
preferred by the appellant, and they are stated to be
pending before the Appellate Assistant Commissioner. On the
allegation that the tax as imposed in the orders aforesaid
is unauthorised, and that it constitutes an unlawful
interference with its rights to carry on business guaranteed
under Art. 19(1)(g), the appellant has filed Petition No.
276 of 1953 for an appropriate writ directing the
respondents to levy tax in accordance with the agreement,
Ex. A, dated April 1, 1938. In support of this petition,
in addition to the contentions raised in Civil Appeal No.
230 of 1954 the petitioner also urges that even if the Union
of India is entitled to repudiate the agreement dated April
1, 1938, it has not, in fact, done so, and that it has, on
the other hand, recognised it as good and is therefore not
entitled now to go back upon it, and that the levy of tax in
accordance with the provisions of the Indian Income-tax Act
is accordingly illegal. As the contentions raised in the
appeal and in the petition are substantially identical, they
were heard together.
Before us, the validity of the assessment of incometax for
the year 1949-1950 was challenged by Mr. Pathak on the
following grounds:
737
(1)Ordinance No. 1 of S. 2005 under which the Patiala
Income-tax Act Act is sought to be applied -to the appellant
does not, on its true construction, annul’ the rights
granted under Ex. A.
(2)If the Ordinance in question is to be construed as
having that effect, then it is in contravention of Art. VI
of the Covenant, and is therefore unconstitutional and void.
(3)Even apart from the Covenant, the agreement, Ex. A, is
binding on the Patiala Union and the impugned Ordinance is
bad as infringing it; and
(4)the Patiala Union had, in fact, recognised the rights
granted under Ex. A and it is therefore binding on it, as
if it were a contract entered into by itself.
(1)On the first question, the argument of Mr. Pathak is
this: The Ruler of Jind was an absolute monarch, and his
word was law. The agreement, Ex. A, must therefore be held
to be a special law conferring rights on the licensee.
Section 3 of Ordinance No. 1 of S. 2005 is a general
provision extending all laws of the State of Patiala to the
territories of the Covenanting States. The rule of
construction is well established that general statutes
should be interpreted so as not to interfere with rights
created tinder special laws. Section 3 of the Ordinance
should therefore be construed as not intended to affect the
rights conferred under Ex. A. Reliance is placed on the
statement of the law in Maxwell’s Interpretation of
Statutes, 10th Edn., pp. 176 and 180, and on the
observations in Blackpool Corporation v. Starr Estate Co.
(1). Now the rule of construction expressed in the maxim
generalia specialibus non derogant is well settled
and we shall also assume in favour of the appellant that the
agreement, Ex. A, is a special law in the nature of a
private Act passed by the British Parliament, and that
accordingly s. 3 of the Ordinance should not be construed,
unless the contrary appears expressly or by necessary
implication, as repealing the provisions of Ex. A. But
ultimately, the question is what does the language of the
enactment mean ? Section 3 is quite explicit, and
(1)[1922] 1 A. C. 27, 34.
738
it provides that from the date of the commencement of the
Ordinance ” all laws in force in such Covenanting States
immediately before that date shall be repealed “, and the
proviso further enacts that pending proceedings are to be
disposed of in accordance with laws in force for the time
being, in the Covenanting States. In the face of this
language which is clear and unqualified, it is idle to
contend that Ordinance No. 1 of S. 2005 saves the rights of
the appellant to the tax concessions under Cl. (23) of Ex.
A.
(2)It is next contended by Mr. Pathak that if Ordinance No.
1 of S. 2005 is to be construed as extinguishing the right
to concessions conferred under Ex. A, then it must be held
to be unconstitutional and void. This contention is based
on Art. VI (b) of the Covenant, which provides that the
obligations of the rulers pertaining to or incidental to
government of the Covenanting State shall devolve on the
Union and be discharged by it. It is argued that the Ruler
of Jind had for good and valuable consideration undertaken
certain obligations under Cl. (23) of Ex. A with reference
to taxation which is a governmental function, that he had
himself scrupulously honoured them so long as he was a
Ruler, and then passed them on under Art. VI (b) to the new
State created under the Covenant, that the Rajpramukh who
was a party to the Covenant and claimed under it was bound
by that obligation, that his power to enact laws is subject
under Art. VI (a) to the obligations mentioned in Art. VI
(b), and that the impugned law is, if it is to be construed
as having the effect of abrogating those obligations, ultra
vires his powers under the Covenant and is, in consequence,
void. In answer to this, the respondent contends that the
Covenant entered into by the rulers is an act of State and
that any violation of its terms cannot form the subject of
any action in the municipal courts, that the obligations
mentioned in Art. VI (b) refer not to liabilities under
agreements for which there was special provision in Art. VI
(c) but to obligations of the character contemplated by the
Instrument of Accession, and that, in any event, the rights
granted to the – licensee under Ex. A were
739
terminable by the Ruler of Jind at will, and that, in
consequence, if the obligation under Cl. (23) devolved on
the Raj Pramukh under Art. VI (b) it did so subject’ to his
rights under Art. VI (a) to terminate it if he so willed,
and that, therefore, the impugned law did not violate Art.
VI (b).
The question that arises for our decision is whether the
Covenant was an act of State. On that, there can be no two
opinions. It was a treaty entered 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. The expression ” act of State ” is,
it is scarcely necessary to say, not limited to hostile
action between rulers resulting in the occupation of
territories. It includes all acquisitions of territory by a
sovereign State for the first time, whether it be by
conquest or cession. Vide Vajesingji Joravar Singji and
others v. Secretary of State (1) and Thakur Amar Singji v.
State of Rajasthan (2). And on principle, it makes no
difference as to the nature of the act, whether it is
acquisition of new territory by an existing State or as in
the present case, formation of a new State out of
territories belonging to quondam States. In either case,
there is establishment of new sovereignty over the territory
in question, and that is an act of State.
Mr. Pathak did not contest the position that the Covenant in
so far as it provided for the extinction of the sovereignty
of the rulers of the Covenanting States and the
establishment of a new State is an act of State. But he
contended that it was much more than that, that it was also
in the nature of a Constitution for the new State in the
sense that it is a law under which all the authorities of
the new State including the Raj Pramukh had to act. In
support of this contention he referred to Art. X, which
provided for the convening of a Constituent Assembly for the
framing of the Constitution, and argued that the Articles of
the Covenant which provided for the administration of the
State by the Rajpramukh were in the nature of an interin
(1)(1924) L. R. 51 I. A. 357, 360.
94
(2) [1955] 2 S.C.R. 303, 335.
740
Constitution. He also relied on Art. XVI, which guaranteed
the rights of the permanent members of the public services
in the Covenanting States to continuance in service, and
contended that this could not be regarded as an act of State
but only as a law relating to the administration of the new
State. In this view of the Covenant, he argued, Art. VI
must be held to be a constitutional provision enacted for
the protection of private rights, that it was, in conse-
quence, binding on the ruler of the new State, and that the
municipal courts were competent to grant appropriate reliefs
for the breach thereof.
This argument proceeds, in our view, on a misconception as
to what is an act of state and what is a law of the State
conferring rights on the subject, or, as the learned counsel
for the appellant termed it, Constitution of the State.
When the sovereign of a Statemeaning by that expression, the
authority in which the sovereignty of the State is vested,
enacts a law which creates, declares or recognises rights in
the subjects, any infraction of those rights would be action-
able 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 subjects
there 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 therefrom must be
settled byrecourse 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. Now, 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
741
and thereafter they become the subjects of the new
sovereign. It is also well established that in the new set-
up these residents do not carry with them the, rights which
they possessed as subjects of the ex-sovereign, and that as
subjects of the new sovereign, they: have only such rights
as are granted or recognised by him. Vide Secretary of
State for India v. Bai Rajbai (1), Vajesingji Joravar Singji
and others v. Secretary of State (2), Secretary of State v.
Sardar Rustam Khan (3) and Asrar Ahmed v. Durgah Committee,
Ajmer (4). 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 co-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, it has been
held over and over again that 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. In Cook
v. Sprigg (5), the facts were that the ruler of Pondoland in
Africa had granted certain concessions in favour of the
appellants and subsequently ceded those territories to the
British Government. The latter having declined to recognise
those concessions, the appellants sued for a declaration of
their rights thereunder, and the question was whether they
had a right of action in respect of what was an act of
State. One of the contentions
(1) (1015) L.R. 42 I.A. 229.
(3) (1941) L.R. 68 I.A. 109.
(2) (1924) L. R. 51 T.A. 357, 360.
(4) A.I.R. 1947 P.C. 1.
(5) [1899] A.C. 572,578.
742
urged on their behalf was that the ruler of Pondoland had at
the time of cession of his territories expressed his desire
to the British Government that the concessions in favour of
the appellants should be recognised and that, in
consequence, the appellants had the right to enforce them
against the new Government. In rejecting this contention,
the Lord Chancellor observed:
” The taking possession by Her Majesty, whether by cession
or by any other means by which sovereignty can be acquired,
was an act of state and treating Sigcau as an independent
sovereign-which the appellants are compelled to do in
deriving title from him. It is a well-established principle
of law that the transactions of independent States between
each other are governed by other laws than those which
municipal courts administer.”
“It is no answer to say that by the ordinary principles of
international law private property is respected by the
sovereign which accepts the cession and assumes the duties
and legal obligations of the former sovereign with respect
to such private property within the ceded territory. All
that can be properly meant by such a proposition is that
according to the well-understood rules of international law
a change of sovereignty by cession ought not to affect
private property, but no municipal tribunal has authority to
enforce such an obligation. And if there is either an
express or a well-understood bargain between the ceding
potentate and the Government to which the cession is made
that private property shall be respected, that is only a
bargain which can be enforced by sovereign against the
sovereign in the ordinary course of diplomatic pressure.”
In Vajesingji Joravar Singji and others v. Secretary Of
State for India (1), the dispute related to the title of the
appellants to certain lands situated in the Panch Mahals.
This area formed at one time part of the dominion of the
Scindias of Gwalior, and it was ceded to the British
Government by treaty on December 12, 1860. Clauses (2) and
(3) of the treaty provided for
(1)(1924) L.R. 51 I.A. 357, 360.
743
the recognition by the new sovereign of rights of the
residents under existing leases, jagirs and the like. The
complaint of the appellants was that in 1907 the British
Government had proposed to lease the lands to them on terms
which infringed their proprietary rights, and that this was
in violation of the rights which had been guaranteed under
Cls. (2) and (3) of the treaty, and was, in consequence,
bad. The answer of the Government was that the treaty in
question was an act of state and conferred no rights on the
appellants. In upholding this contention, Lord Dunedin
observed:
” 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 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, 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 those inhabitants to
enforce these stipulations in the municipal courts. The
right to enforce remains only with the high contracting
parties.”
In Hoani Te Heuheu Tukino v. Aotea District Maori Land Board
(1), the question arose with reference to the Treaty of
Waitangi entered into by the British Government with the
native chiefs of New Zealand in 1840. Under cl. (1) of the
Treaty, there was a complete cession by the chiefs of all
their rights and powers of sovereignty. Clause (2)
guaranteed to the chiefs, the tribes and the respective
families and individuals certain rights in lands, forests
and fisheries. In 1935, the Legislature of New Zealand
enacted a law, the provisions of which were impugned as
ultra vires on the ground that they infrigned the rights
(1) [1941] A.C. 308.
744
protected by cl. (2) of the Treaty of Waitangi. In holding
that the rights under the Treaty furnished no ground for
action in the civil courts, Viscount Simon L. C. referred to
the decision in Vajesingji Joravar Singji and others v.
Secretary of State (1) and observed :
” So far as the appellant invokes the assistance of the
court, it is clear that he cannot rest his claim on the
Treaty of Waitangi, and that he must refer the court to some
statutory recognition of the right claimed by him.”
The result of the authorities then is that when a treaty is
entered into by sovereigns of independent States whereunder
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. It must follow from this that
the Covenant in question entered into by the rulers of the
Covenanting States is in its entirety an act of state, and
that Art. VI therein cannot operate to confer on the
appellant any right as against the Patiala Union. This
conclusion becomes all the more impregnable when it is
remembered that the Covenant was signed by the rulers on May
5, 1948, whereas the new state came into being only on
August 20, 1948. In the decisions cited above, the
sovereign against whom the obligations created by the treaty
were sought to be enforced was the very sovereign who
entered into that treaty or his successor. But here, the
ruler of the Patiala Union against whom Art. VI is sought
to be enforced was not a party to the Covenant at all,
because that State had not come into existence on that date.
The person who signed the Covenant was the ruler of the
State of Patiala which was one of the Covenanting States,
but that State as well as the seven other States which
entered into the Covenant stood all of them dissolved on
August 20, 1948, when the new Patiala Union came into being.
The new State could not and did not enter into any covenant
before August 20, 1948, and therefore, in strictness, it
cannot be
(1) (1924) L.R. 511. A. 357, 360.
745
held to be bound by Art. VI, to which it was not a party.
Considerable emphasis was laid for the appellant on Art.
XVI of the Covenant under which the Union guaranteed the
continuance of the service of permanent members of public
services, and this ‘was relied on as showing that the rights
of the subjects of the quondam States were intended to be
protected. This argument is sufficiently answered by what
we have already observed, namely, that a clause in a treaty
between high contracting parties does not confer any right
on the subjects which could be made the subject-matter of
action in the courts, and that the Patiala Union is not
bound by it, because it was not a party to the Covenant. It
should, however, be mentioned that after the formation of
the new State oil August 20, 1948, the first legislative act
of the sovereign was the promulgation of Ordinance No. 1 of
S. 2005, and s. 4 thereof expressly recognises the rights of
the permanent members of public services. That undoubtedly
is a law enacted by the sovereign conferring rights on his
subjects and enforceable in a court of law, but at the same
time the enactment of such a law serves to emphasise that
the Articles have not in themselves the force of law and
were not intended to create or recognise rights. In this
connection, reference should also be made to cl. XVI of the
Ordinance which enacts that ” the provisions of articles XV
and XVII of the Covenant relating to the bar of certain
suits and proceedings shall have the force of law.”
In support of his contention that Art. VI of the Covenant
is to be regarded as a Constitutional provision, counsel for
the appellant relied on certain passages in the judgment of
this Court in Thakur Amar Singji v. State of Rajasthan (1)
at pp. 313 and 315 wherein a similar covenant entered into
by the rulers of Rajasthan was described as a Constitution.
Apart from the use of the word ” Constitution “, we find
nothing in these passages which has any bearing on the point
now under consideration. There, the question was as regards
the vires of a law enacted by
(1)[1955] 2 S.C.R. 303.
746
the Rajpramukh of Rajasthan, and that depended on whether he
was the authority in whom the legislative authority of the
State was vested within Art. 385. This Court held that
under the Covenant it was the Rajpramukh who had the power
to enact laws, and that the Ordinance issued by him was
therefore valid, and it was in that context that the
covenant was referred to as a Constitution. We had not to
consider there the question whether the Covenant was an act
of state, or whether it was a law conferring on the citizens
of the defunct States rights which were enforceable in a
court of law. No such question arose for decision, and
therefore the description of the Covenant as a Constitution
cannot be read as importing a decision that it is a law
conferring rights and not an act of state. In the result,
we hold that the Covenant is in whole and in parts an act of
state, that Art. VI therein does not operate to confer any
rights on the subjects of the Covenanting States as against
the sovereign of the new State constituted thereunder, and
that Ordinance No. 1 of S. 2005 is, in consequence, not open
to attack as being a violation of Art. VI.
(3)We shall now consider the contention of the appellant
that even apart from Art. VI of the Covenant, the impugned
Ordinance No. 1 of S. 2005 is bad in so far as it annuls
rights granted by the Ruler of Jind under the agreement
dated April 1, 1938. It was argued that Ex. A was not a
mere concession which could be withdrawn by the sovereign at
his will and pleasure, but that it was an agreement entered
into for valuable consideration and creating mutual rights
and obligations, that the appellant had, acting on the
agreement, allotted to the State shares of the value of Rs.
1,50,000 without payment and had incurred considerable
expense in working the concessions, and that, therefore, it
was not open to the Patiala Union to go back upon it. The
decisions in The Piqua Branch of the State Bank of Ohio v.
Knoop (1) and Home of the Friendless v. Rouse (2) were
relied on as authorities for the proposition that a State is
not competent to revoke a grant made by it for
consideration.
(1) (1853) 14 L. Ed. 977,
(2) (1869) 19 L. Ed- 495.
747
In The Piqua Branch of the State Bank of Ohio v. Knoop (1),
a law of the State of Ohio of the year 1845 had provided for
the incorporation of Banks and it contained provisions as to
the taxes payable by them to the State and the mode of
-payment. In 1851 another Act was passed, the effect of
which was to increase the tax payable and the validity of
this Act was questioned by a Bank incorporated under the Act
of 1845. It was held by the majority of the Court that the
Act of 1845 was a legislative contract, and that the State
Legislature was not competent to impair the rights which had
been acquired under that contract. In Home of the
Friendless V. Rouse (2), a Society called the Home of the
Friendless was established under a charter granted by the
State of Missouri. The charter had provided that the
properties of the Society shall be exempt from taxation.
Subsequently, the State proposed to withdraw the concession
and impose tax. It was held by the Supreme Court of the
United States that the charter was a contract entered into
between the State and the Society, and that there was no
power in the State to go behind it.
Now, it should be observed that the decisions cited above
were given on S. 10 of Art. 1 of the American Constitution
that ” no State shall pass a law impairing the obligations
of contracts “. There is, in our Constitution, no similar
provision protecting contractual rights, and it would
therefore be unsafe to rely on American authorities in
deciding on the validity of legislation which interferes
with rights under contracts. And moreover, we are dealing
with a contract entered into by a sovereign, whose powers
were not subject to any constitutional limitation, and whose
word was, as contended for the appellant, law. But apart
from this, there is an obvious reason why the above
decisions have no application to the present controversy.
The point for decision there was whether a State which had
entered into a contract with its subjects conferring rights
on them was entitled to enact a law abridging or abrogating
those rights,
(1) (1853) 14 L. Ed. 977.
(2) (1869) 19 L. Ed. 495.
95
748
and the answer was in the negative. But here, the ,impugned
law is that of the Patiala Union and the contract which it
affects is not a contract entered into by it but by the
Ruler of Jind and unless it can be established that the
obligations of the Ruler have devolved on the sovereign of
the Patiala Union, the question whether he could repudiate
obligations undertaken by him cannot arise. That would have
arisen for consideration if Art. VI had the effect of
imposing obligations on him. But on our finding that that
is not its effect, there is no scope for the contention that
the impugned Ordinance is bad as involving breach of
contractual obligations, which were entered into by the
Patiala Union, or which devolved on it.
(4)Lastly, we have to deal with the contention of Mr.
Pathak that the Patiala Union had affirmed the agreement,
Ex. A, that, in consequence, it was bound by it as if it
had itself entered into it, and that the liability of the
appellant to income-tax should therefore be determined in
accordance with Cl. (23) thereof. This contention would be
irrefragable if the Patiala Union had, as a fact, affirmed
the agreement. But has that been established ? It has been
already observed that the rights of the appellant under Ex.
A would become enforceable only if the new State had
accorded recognition to them, and what is requisite,
therefore, is a declaration or conduct of the Patiala Union
subsequent to its formation which could be regarded as
amounting to affirmation of Ex. A. Of that, there is no
evidence whatsoever. On the other hand, the first act of
the Rajpramukh after assumption of office by him was the
promulgation of Ordinance No. 1 of S. 2005, the effect of
which was to sweep away the rights of the appellant under
Cl. (23) of Ex. A. It was argued that Art. VI of the
Covenant would at least be valuable evidence from which
affirmance of those rights could be inferred. That is so ;
but that inference must relate to act or conduct of the new
State, and that can only be after its formation on August
20, 1948. If there were any acts of the new State which
were equivocal in character, it would have been possible to
hold in the light of Art. VI of the
749
Covenant that its intention was to affirm the concessions in
Cl. (23) of Ex. A. But the act of the new. sovereign
immediately after he became in titulo was the application of
the Patiala State laws including the Patiala Income-tax Act
to the territories of Jind involving negation of those
rights. It was said that the levy of income-tax for 1948-
1949 was made in accordance with Ex. A, but that relates to
a period anterior to the formation of the new State and is
within the saving enacted in the proviso to s. 3 of the
Ordinance. The appellant has failed to substantiate his
plea that there has been affirmance of Cl. (23) of Ex. A by
the Patiala State Union, and this point also must be found
against it.
All the contentions urged in support of the appeal fail, and
it must therefore be dismissed with costs.
Coming next to Petition No. 276 of 1953, in addition to the
contentions already dealt with, the petitioner urged that
whatever its rights under the law prior to the Constitution,
when once it came into force it conferred on the citizens
certain fundamental rights, that the tax concessions which
the petitioner had under the agreement, Ex. A, were rights
to property and they were protected by Art. 19(1)(f), and
that it was entitled to seek redress under Art. 32 of the
Constitution when those rights were violated. The decision
in Virendra Singh and others v. The State of Uttar Pradesh
(1) is relied on in support of this position. This argument
assumes that there were in existence at the date when the
Constitution came into force, some rights in the petitioner
which are capable of being protected by Art. 19(1)(f). But
in the view which we have taken that the concessions under
Cl. (23) of Ex. A came to an end when Ordinance No. 1 of S.
2005 was promulgated, the petitioner had no rights sub-
sisting on the date of the Constitution and therefore there
was nothing on which the guarantees enacted in Art. 19(1)(f)
could operate. The petition must therefore be dismissed on
this short ground. In this view, it is unnecessary to
express any opinion on the soundness of the contention based
on Art. 295 which was
(1) [1955] I S.C.R. 415.
750
urged in support of the petition, or on the scope of Art.
363. The petitioner will pay the costs of the respondents.
BOSE J.-I agree, but want to reserve my opinion on a point
that does not arise here but which the ratio of my learned
brother’s judgment will cover unless the reservation that I
make is set out.
If I judge aright, international opinion is divided about
the effect that a change of sovereignty has on rights to
immoveable property. The English authorities hold that all
rights to property, including those in real estate, are lost
when a new sovereign takes over except in so far as the new
sovereign chooses to recognise them or confer new rights in
them. But that, I gather, is not the view of the
International Court of Justice. According to one of its
opinions, which I have quoted at p. 426 of Virendra Singh v.
State of Uttar Pradesh
private rights acquired under existing law do not cease on a
change of sovereignty.”
Certain American cases take the same view though they can be
distinguished on the facts. But this view, as I understand
it, does not extend to personal rights, such as those based
on contract, nor, in any event, does the new sovereign
assume any obligations of the old State in the absence of
express agreement. I have referred to this at p. 427. In
any event, whether I am right in thinking that that is what
I might call the international view, I would agree that for
our ,country that is, and should be, the law so far as per-
sonal rights are concerned.
In the present case, in so far as the right is claimed on
the basis of contract, it would fall to the ground on any
view; and in so far as it is not founded on contract, it is
an obligation that is sought to be fastened on the new
State. There is no contract between the new State and the
appellant, so there also he is out of court; and even if
there was some agreement or understanding between the high
contracting parties, it cannot be enquired into, or
enforced, by the municipal
(1)[1955] 1 S. C. R. 415.
751
courts of the new State. So I agree that, so far as this
case is concerned, the appellant must fail.
But my, learned brother’s judgment is grounded to’ a large
extent on the views of the English courts which do not draw
the distinction that I am drawing here. I therefore want to
make it clear that this decision must not be used as a
precedent in a case in which rights to immoveable property
are concerned. Without in any way committing myself to one
view or the other, as at present advised, I feel it may be a
pity for us to disregard the trend of modern international
thought and continue to follow a line of decisions based on
the views of an older Imperialism, when we are not bound by
them and are free to mould our own laws in the light of
modern thought and conceptions about rights to and in
immoveable property. But in so far as the present case is
concerned, I agree that the appeal and the petition under
Art. 32 should both be dismissed.
Appeal and petition dismissed.