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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.

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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. 209 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 210

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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. 211 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

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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. 213