12 March 1964
Supreme Court


Case number: Appeal (civil) 884 of 1962






DATE OF JUDGMENT: 12/03/1964


CITATION:  1964 AIR 1495            1964 SCR  (7) 174  CITATOR INFO :  R          1964 SC1903  (24)  R          1966 SC 442  (1,4,6,7)  R          1971 SC 530  (44)

ACT: State-Liability   of-Merger  of  one  State   into   another Liability incurred before merger-Merger agreement  providing for taking over liability of the merging State- Whether suit against  new State maintainable-Constitution of India,  Art. 295(2).

HEADNOTE: In 1947, the Dholpur State acceded to the Dominion of India. Later on, it was merged with other States and as a result of that merger, the Matsya Union was formed on March 18,  1948. One  of the provisions of the merger agreement was that  the existing laws in the Covenanting States were to be continued till such time as they were modified or repealed by the  new State  and  that  all  the assets  and  liabilities  of  the Covenanting States were taken over by the new State.   Later on,  the  Matsya Union was merged with the United  State  of Rajasthan which had come into existence from April 7,  1949. A  similar provision with regard to the recognition  of  the liabilities  of the Covenanting States by the new State  was also  provided.   On  January  26, 1950,  Part  B  State  of Rajasthan came into existence. In the four appeals the respondents secured permits from the Dholpur State for the export of certain commodities and they had  to  pay export duties in advance.  As  the  respondents could  not  export  the full quantity  for  which  they  had secured  permits  they  asked the appellant  to  refund  the excess  export  duty and when the latter refused to  do  so, filed  suits  for  refund of the same  with  interest.   The defence taken up by the appellant was that it was not  bound by any liability which might have arisen against the  former State of Dholpur.  It was a new Sovereign and was not  bound by  any liability of the former State of Dholpur  unless  it chose to recognise the obligation but no such obligation was recognised  in the present case.  One suit was dismissed  by



the trial court and other three were decreed. The appeals of the State to the District Judge were substantially dismissed while  the  appeal in the first suit by  the  plaintiff  was substantially allowed.  The State filed appeals to the  High Court.   After  referring the matter to the  Full  Bench,  a Division  Ben-oh  of the High Court  dismissed  the  appeals filed by the State.  The Appellant came to this Court  after obtaining certificate of fitness from the High Court. The  only  question raised before this Court was  about  the liability of the State of Rajasthan under Art. 295(2) of the Constitution  in  respect of the obligations of  the  former State  of Dholpur which came to be included in the State  of Rajasthan.  Dismissing the appeals, Held, that the new State by continuing the old laws  without change  till they were repealed or altered, recognised  that it  was  liable in the same way as the merging  State  would have   been  in  any  case.   Throughout  the   process   of integration  from  1948 to 1950, the new Sovereign  must  be taken  to  have recognised the rights of  the  subjects  and undertaken the liabilities 175 of the old State. So under Art. 295(2) of the  Constitution, the State of Rajasthan was liable to meet the liabilities of all  old  States  which  eventually  were  merged  into  it. Moreover, there was nothing to show that the right to  claim the refund was taken away by any law competently passed. M/s  Dalmia Dadri Cement Co. Limited v. The Commissioner  of Income-tax [1959], S.C.R. 729 and Maharaja Shree Umaid  Mill Limited  v. Union of India, A.I.R. 1953, S.C.  953  referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 884-887  of 1962. Appeals  from the judgment and decree dated May 2, 1960,  of the Rajasthan High Court in Civil Second Appeal Nos. 268  of 1954, 203 of 1955, 4 of 1954 and 27 of 1954. S.   K. Kapur and B. R. G. K. Achar, for the appellant \’in allthe appeals). R.   P. Modi and R. K. Garg, for the respondents (in C.A. No.  887/1962). March 12, 1964.  The Judgment of the Court was delivered by WANCHOO,  J.-These  four appeals arise out  of  four  certi- ficates  granted by the High Court of Rajasthan and raise  a common question.  We therefore, propose to set out facts  in one of the present appeals (No. 887), as the facts in  other appeals are similar, except that the commodity involved  was different  and so was the amount in dispute.  The  suit  out ’of  which  appeal  No.  887 has arisen  was  filed  by  the respondent  against the State of Rajasthan.  The  respondent was  a resident of the former Dholpur State and the  dispute which led to the suit related to a time before the merger of former Dholpur State into the Matsya Union.  The case of the respondent  was that in 1947 certain  commodities  including chuni  with which appeal No. 887 is concerned could only  be exported  from  the former Dholpur State on  export  permits issued by the customs department of the said State.  It  was also the practice in that State that when permits for export were issued, export duties had to be paid in advance, though the  actual  export was made later.  Consequently,  in  June 1947 the respondent applied for and was granted a permit for export  of  15,000  maunds  of  chuni,  and  in   connection therewith he deposited Rs. 30,000/as export duty in advance.



This  permit had been granted on June 28, 1947 and  remained in force upto December 2, 1947.  The respondent however  was not able to export the entire quantity of 15,000 maunds  for which  the  permit was granted; he could only  export  4,572 maunds  and  20  seers of chuni  before  December  2,  1947. Thereafter he could not export further as his permit was not extended.   It was alleged on behalf of the respondent  that the reason why he failed to export the entire 176 quantity of the commodity before December 2, 1947 was due to market conditions and inability to get allotment of  railway wagons.  The respondent’s case further was that as he  could not export the entire quantity of 15,000 maunds for which he had  paid export duty in advance at the rate of Rs. 2/-  per maund, he was entitled to refund of the proportionate export duty  for the quantity of 10,427 maunds and 20 seers,  which he  could not export.  His case further was that  though  he asked  the State for refund of this advance duty, the  State did  not pay back the same to him.  In the  meantime,  rapid constitutional changes took place after August 15, 1947.  By May  15,  1949,  the United State of  Rajasthan  was  formed including  the Matsya Union into which the former  State  of Dholpur  had merged on March 17, 1948.  The United State  of Rajasthan eventually became the Part B State of Rajasthan on January  26,  1950 when the Constitution  came  into  force. Eventually when the State refused to refund the amount,  the suit  was filed, out of which appeal No. 887 has arisen,  in January 1952.  The respondent claimed refund of Rs. 20,855/- along with interest and costs. The suits were resisted by the State of Rajasthan on various grounds; but we are concerned now only with one ground which alone  has been urged before us, namely, that the  State  of Rajasthan  was not bound by any liability which  might  have arisen  against the former State of Dholpur.  It was  a  new sovereign  and was not bound by any obligation  against  the old sovereign of the former State of Dholpur unless it chose to  recognise the obligation.  As the United State of  Raja- sthan  into  which the former State of Dholpur  came  to  be merged  in  1949  never recognised the  obligations  of  the former  State  of  Dholpur it was not bound  to  refund  the amount due to the respondents. In  reply  to this contention of the State,  the  respondent relied  on  Art.  295(2)  of  the  Constitution  and   other provisions  made during the period when mergers were  taking place  after August 15, 1947 and contended that in  view  of Art.  295(2) of the Constitution the State of Rajasthan  was bound by the obligation of the former State of Dholpur. Before  we refer to the decisions of the courts  below  with regard  to this controversy it would be convenient to  clear the  ground  by  indicating  the  admitted  position,  which resulted  in the inclusion of the former Dholpur State  into the Part B State of Rajasthan, which came into existence  on January 26, 1950 and which would be bound by Art. 295(2)  of the  Constitution.   The  former Dholpur  State  remained  a separate  entity till March 17, 1948, though it had  acceded to the Dominion of India after August 15, 1947 with  respect to  three  subjects,  namely,  communications,  defence  and external  affairs.  In 1948, however, the process of  merger in Rajasthan began and the 177 first  merger  that took place was of the former  States  of Alwar,  Bharatpur,  Dholpur and Karauli,  which  formed  the Matsya Union as from March 18, 1948 by a Covenant entered on February  28,  1948.   It is not in  dispute  that  on  this merger,  provision was made for the continuance of the  laws



in  the  covenanting  State  till such  time  as  they  were modified  by the new State.  Provision was also made in  the Covenant  that  all  the  assets  and  liabilities  of   the covenanting  States shall be the assets and  liabilities  of the new State of Matsya.  Then came another union of certain other  Rulers  in  Rajasthan in March 1948  by  which  these Rulers united under the Ruler of Udaipur to form what  later came to be known as the Former State of Rajasthan.  In March 1949,  the United State of Rajasthan was formed by  Covenant entered  into  by fourteen Rulers  of  Rajasthan,  including these who had formed the Former State of Rajasthan. and this State  came  into existence from April 7. 1949.  It  may  be mentioned  here that when this State came into existence  on April  7, 1949, it provided for the continuance of all  laws till they were repealed or amended by the new State.   There was also a provision in the Covenant by which the assets and liabilities of the covenanting States became the assets  and liabilities of the new State.  In this State of United State of  Rajasthan, the State of Matsya, merged in May 1949,  and thus the former State of Dholpur came to be included in  the United  State of Rajasthan through the Matsya  Union.   When this  merger took place it is not in dispute that the  exis- ting  laws  were  to continue till  they  were  repealed  or altered  by the new State.  It is also not in  dispute  that the  assets and liabilities of the Matsya Union  were  taken over  as the assets and liabilities of the United  State  of Rajasthan  in  which the Matsya Union merged.   Finally  the United  State of Rajasthan in which the State of Sirohi  was also merged became the Part B State of Rajasthan on  January 26,  1950.  At this time also Art. 372 of  the  Constitution continued  the existing laws subject to their being  altered or repealed by the new State.  Further Art. 295(2)  provided that the Government of each State specified in Part B of the First  Schedule  shall,  as from  the  commencement  of  the Constitution,  be  the successor of the  Government  of  the corresponding  Indian  State  as regards  all  property  and assets and all rights, liabilities and obligations.  whether arising  out of any contract or otherwise, other than  those referred  to in cl. (1).  This was subject to any  agreement entered into in that behalf by the Government of India  with the  Government of the State concerned.  This completes  the narration of the political changes that took place till  the Constitution came into force on January 26, 1950. We  have  already indicated that a number of  defences  were raised  on  behalf of the State of Rajasthan and  these  de- fences  were  negatived by the trial court in  three  suits. One 178 of  the suits, out of which appeal No. 886 has  arisen,  was ismissed  by the trial Court.  The State went in  appeal  in two  of the suits to the District Judge and in one  (out  of which appeal No. 887 has arisen) to the High Court direct in view  of the valuation.  In the fourth suit,  the  plaintiff went  in appeal to the District Judge.  The appeals  of  the State  to  the District Judge were  substantially  dismissed while  the  appeal in the fourth suit by the  plaintiff  was substantially  allowed.  Then followed three second  appeals to the High Court by the State. These second appeals were heard along with the first  appeal in the High Court.  It seems that in the High Court for  the first  time  a point was raised that the  liability  of  the former  Dholpur  State  did  not  fasten  on  the  State  of Rajasthan as it emerged on January 26, 1950.  The High Court permitted  the point to be raised as it was a pure  question of law.  AU the appeals came before a Division Bench of  the



High  Court.  The two learned Judges composing the  Division Bench  disagreed  on this question of the liability  of  the State  of  Rajasthan  under Art. 295(2) in  respect  of  the liability  of the former State of Dholpur.  Thereupon  there was a reference to a Full Bench on the question of liability which was formulated by the learned Judges thus: -               "Whether  the  expression ’Government  of  the               corresponding  State’ used in Art.  295(2)  of               the  Constitution with reference to  Rajasthan               properly  means the Government of  the  United               State  of Rajasthan which was the only  Indian               State   in  existence  at  the  time  of   the               commencement  of the Constitution or  it  also               includes   the  Government  of  any   of   the               Covenanting  States which had integrated  with               the United State before the Constitution  came               into operation." The  three  learned  Judges who  heard  the  reference  were unanimously  of the opinion that the expression  "Government of  the  corresponding  State" used in Art.  295(2)  of  the Constitution with reference to Rajasthan meant not only  the Government  of the United State of Rajasthan, but  also  the United  State  of Rajasthan including its  component  units. The matter then went back to the Division Bench.  The  three second appeals were dismissed by the High Court.  The  first appeal  out  of  which appeal No. 887 had  arisen  was  also dismissed except that no interest was allowed upto the  date of  decree and the amount was reduced to the  actual  excess export duty, which had been deposited in advance and it  was ordered to be refunded. The  only question that has been raised before us on  behalf of  the  appellant is about the liability of  the  State  of Rajasthan  under Art. 295(2) of the Constitution in  respect of  the  obligations of the former State of  Dholpur,  which came to be 179 included  in the State of Rajasthan on account of  political changes  to  which  we  have  already  referred.   In   this connection,  the  appellant relies on the decision  of  this Court  in  M/s.   Dalmia  Dadri  Cement  Co.  Ltd.  v.   The Commissioner  of  Incometax.  (1)That case  dealt  with  the Covenant  creating the State of Pepsu and particularly  Art. VI  thereof The covenant in the State of Pepsu was  more  or less similar in terms to the Covenant in the United State of Rajasthan.   This Court reviewed certain cases  relating  to the acquisition of territory by cession or by conquest,  and held  that it made no difference whether acquisition of  new territory was by an existing State by conquest or by cession or  a  new  State came into existence by  agreement  out  of territories  belonging  to some former  States.   In  either case, it was held that there was establishment of new  sove- reignty  over the territory in question and that was an  act of  State.  In consequence this Court further held that  the Covenant by which the new State of Pepsu came into existence was  in  its  entirety an act of State  and  that  Art.   VI therein could not operate to confer any right on the company as against the new State, for the principle was well settled that  clauses  in  treaties entered into  by  sovereigns  of independent  States  whereunder sovereignty  in  territories passed  from one to the other 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.   This  Court  also negatived  the  argument which was urged in that  case  that



part  of the Covenant was an interim Constitution  and  head that  the Covenant was in whole or in part an act  of  State and could not be treated as an interim Constitution.  Strong reliance  is  placed  on behalf of  the  appellant  on  that decision in support of the contention that even if there was any liability of the former State of Dholpur to; refund  the amount  of tax collected in advance for no export was  made, that  liability  did  not devolve on the  Part  B  State  of Rajasthan  under Art. 295(2) of the Constitution,  as  there was no recognition of this liability by the new State at any time  and in that respect the present case was on all  fours with that decision. After laying down the above principles, this Court proceeded to  consider  in that decision the particular  point  raised before  it.  That point was with respect to a clause  in  an agreement between the Ruler of the former Jind State and the Dalmia  Dadri Cement Company with respect to income-tax  and certain  concessions  given to the company in  that  behalf. The question that arose in that connection was whether there had  been  any  recognition of the concessions  by  the  new sovereign; and this Court held that there was no recognition of  the concessions.  In that connection reference was  made to  Pepsu Ordinance No. 1 of 2005, dated August 20, 1948  by s. 3 of which (1) [1959]  S. C. R. 729. 180 all  laws  in all Covenanting States were repealed  and  the laws in force in the State of Patiala were to apply  mutatis mutandis  to the entire territories of the new State.   This Ordinance  was  repealed and replaced by  Ordinance  XVI  of Samvat  2006 which came into force on February 5,  1949  and which  contained an exactly similar provision.   This  Court therefore  held  that  if the agreement  was  treated  as  a special law, it must be deemed to have been repealed by s. 3 of  Ordinance No. 1. It further held that the repeal of  all laws in the covenanting States other than Patiala and  their replacement  by  the  Patiala  laws  showed  that  the   new sovereign  did not recognise the rights of the  subjects  of the  covenanting  States  arising  from  any  law  in  force thereafter  the State of Pepsu came into existence.   There- fore  it was held in that case that the concessions  in  the agreement came to an end when Ordinance No. 1 was passed  as they  were never recognised by the new sovereign  and  could not be availed of by the company. It would be noticed that the decision that the new sovereign had  not recognised the rights in States other than  Patiala was based on the fact that Ordinance No. 1 repealed all laws in  all  States other than Patiala and applied  the  Patiala laws  to  the entire territory.  This was the basis  of  the particular decision arrived at in that case (apart from  the general principles laid down in connection with the  cession of  territory  to which we have already  referred),  and  we shall refer to it when dealing with the facts in the present case.  Further though in that case it was held that Art.  VI could not be enforced by citizens against the new  sovereign as  it was part of the Covenant, which was an act of  State, this  Court  went  on  to point out that  Art.   VI  of  the Covenant would be valuable evidence from which affirmance of the  rights  mentioned therein could be inferred  and  added that such inference must relate to act or conduct of the new State after it came into existence.  If there were any  acts of the new State which were equivocal in character, it would have  been possible to bold in the light of Art.  VI of  the Covenant  that its intention was to assume the  liabilities. In that case, however, this Court refused to treat Art.   VI



even  as evidence because it pointed out that the first  act of  the  new sovereign was the application  of  the  Patiala State  laws,  including the Patiala Income-tax Act,  to  the territories of Jind involving negation of the rights claimed in  that  case.  But apart from the particular  decision  in that  case, we have to proceed on the basis of  the  general proposition enunciated in that case as to the effect of  the coming  into existence of a new State even in the manner  in which  the State of Pepsu or the United State  of  Rajasthan came into existence after their respective Covenants, and it is to this aspect of the matter we shall now turn. We  have already indicated when dealing with the history  of the political changes which eventually culminated in the 181 Part B State of Rajasthan after the coming into force of the Constitution that two matters were always provided for there during all this process of merger.  The first was that  each time a merger took place the new State by a provision in the Covenant took over the assets and liabilities of the merging States.  This provision in the Covenant could not be availed of  by  the  subjects of the new State as, in  view  of  the decisions in Dalmia Dadri Cement Co.’s case(1) the  Covenant in  whole or in part was an act of State.  But according  to the  same  decision  the presence of such a  clause  in  the Covenant  throughout would be valuable evidence which  would show  that  the  new State assumed the  liabilities  of  the merging State, if there are any acts of the new State  which are equivocal in character.  Now we find from the history we have  already  narrated above that every time  there  was  a merger  and  formation  of a new State, the  old  laws  were always  to  continue  till they were  repealed,  amended  or altered  by the new State.  We are of opinion that when  the new State continued all the old laws till they were  altered or  repealed,  and  there was  specific  provision  in  each Covenant that the assets and liabilities of the  Covenanting States  were to be the assets and liabilities of  the  Union the  new State must have intended to respect all the  rights flowing  from laws so continued and assume  all  liabilities arising from the existence of those laws.  Otherwise we  see no sense or purpose in continuing the old laws till they are altered   or  repeated  if  the  intention  was   that   the obligations and liabilities flowing from the continuance  of the  old  laws  would notwithstanding the  Covenant  not  be assumed  by the new State.  If the intention was  otherwise, we  should  have found a provision similar to  that  in  the Pepsu  case by which all the old laws were repealed  in  the merging  States except Patiala and the Patila laws  were  to continue in the entire territory giving rise to such  rights only  as  the  Patiala Laws recognised  or  conferred.   But whereas  in the present case the old laws were  to  continue till they were repealed or altered it follows in our opinion that  the rights arising under the old laws in the  subjects of  the  merging States would continue  and  these  subjects would  have  the same rights against the new State  as  they would  have  under the old laws against the  merging  State. Thus  by  continuing the old laws, till they  are  repealed, altered  or modified, the new State in effect undertook  the liability  which  might arise against it by  virtue  of  the continuance  of the old laws, Even if there was  some  doubt about  the new State undertaking the liabilities of the  old State in view of the continuance of the old laws, we can  in accordance  with  the decision in the  Daltia  Dadri  Cement Co.’s  case(1) look to Art.  VI of the Covenant to  come  to the  conclusion that on continuing the old laws, until  they were altered, repealed or modified, the



(1)  [1959] S.C.R. 729. 182 new  State  intended to affirm the rights  of  the  subjects which  they  had  against the merging State  and  to  assume itself  the  liability if any arising  against  the  merging State.   This  is the basic difference  between  the  Dalmia Dadri  Cement Company case(1) and the present case,  for  in that case the old laws were repealed and thus repudiated  in areas other than Patiala State while in the present case the old laws were continued till they were repealed or  altered; and  in view of that basic difference between that case  and the present case we can legitimately call in aid Art.  VI of the  Covenant and similar provisions which were always  made throughout  this  process of merger in Rajasthan  and  treat them  as evidence from which to come to the conclusion  that the  new State, by continuing the old laws,  without  change till  they were repealed or altered, recognised that it  was liable in the same way as would have been the merging  State if  there was any liability on the merging State.  But  this was  of  course  subject to any law made by  the  new  State repealing  the old laws and the liabilities  arising  there- under or even otherwise, provided the law so made was within the  competence of the new State and after the  Constitution came  into  force it did not transgress  the  constitutional limitations.   The result would be that the new State  would be  bound  by the liabilities of the merging States  and  as similar  provisions  were there always  throughout  till  we reach  the Part B State of Rajasthan, it follows that  there was  always  recognition of the rights of the  subjects  and that  the  new State assumed liabilities of the  old  State, throughout this process.  This was of course subject to  any law passed by the New State provided that law was within its competence  and after the Constitution came into  force  did not transgress the limitations contained therein.  In  these circumstances  we  are  of opinion that  the  new  sovereign throughout  this  process of integration from 1948  to  1950 must be taken to have recognised the rights of the  subjects and undertaken the liability, if any, of the old States.  It follows therefore that the State of Rajasthan will be liable under   Art.  295(2)  of  the  Constitution  to   meet   the liabilities of all old States which eventually were included in  it subject always to this that if the new  State  passed any  law  repealing  the  old law  which  would  affect  the liability  or even otherwise that law would prevail and  the liability  may disappear provided the new law is within  the competence of the State legislature and does not  transgress the  constitutional limitations after the Constitution  came into  force.   We are therefore of opinion  that  there  was recognition  of liability by the new State  throughout  this process  and  under  the circumstances the  suit  was  main- tainable  against the Part B State of Rajasthan in  view  of Art. 295(2) of the Constitution.  In this view of the matter we  consider  that it is unnecessary to decide  whether  the particular  words used in Art. 295(2) include not  only  the United State of Rajasthan as it was just before January  26, 1950 but also the 183 old  States  which  came to be merged into  it  through  the process to which we have already referred.  Whether that  is so  or  not, it follows in view of the history to  which  we have  referred that there was always recognition by the  new State  of  its liability in the manner already  referred  to with  respect to the liabilities of the merging States,  and if there is any doubt about it that doubt in our opinion  is resolved  by the existence of Art.  VI or similar  provision



throughout the process of these political changes. In  this connection we may also refer to s. 3 of  the  Raja- sthan  Administration Ordinance No. 1 of 1949, which  conti- nued existing laws of the old States till they were  altered by the competent legislature or other competent authority in the  new  State.  Section 3 further said that the  old  laws will continue in force in the State concerned subject to the modification   that  reference  therein  to  the  Ruler   or Government  of that State shall be construed as a  reference to the Rajpramukh or, as the case may be, to the  Government of Rajasthan.  These words also indicate that whatever could be  enforced under the laws in force in a State against  the Ruler  or  the  Government of the  merging  State  could  be enforced against the Rajpramukh or the Government of the new State.   This further bears out the conclusion that the  new State  recognised  the  rights of the subjects  of  the  old States  flowing  from  the  old laws  and  was  prepared  to undertake  the liability that may lie on it  in  consequence thereof.   We therefore agree with the Full Bench  that  the liability lay upon the State of Rajasthan because there  was recognition   of  the  liability  even  on  the   principles enunciate in the Dalmia Dadri Cement Company’s case(1).   In this view of the matter we need not express any view on  the question   whether   the  expression  "Government   of   the corresponding  Indian State" used in Art 295(2)  would  mean only the United State of Rajasthan as it was on January  26, 1950 or would also include all the former States which  came to  be merged in the United State of Rajasthan as it was  on January 26,1950. It  only remains now to, refer to another decision  of  this Court in Maharaja Shree Umaid Mill Limited v. Union of India (2).  In that case there was an agreement between the  Ruler of the former State of Jodhpur and the Maharaja Shree  Umaid Mills  Limited by which certain exemptions  from  income-tax and  excise duty were granted to the Mills.   Two  questions arose  for  decision there.  The first  was  whether  excise could be levied on the cloth manufactured and the second was whether  income-tax  could be levied on the  income  of  the Mills,  in view of the agreement between the Mills  and  the former Ruler of Jodhpur.  The first question that was raised in  that case was whether the agreement was a law; and  this Court held that (1) [1959] S.C.R. 729. (2) A.I.R. 1963 S.C. 953. 184 the agreement was not a law.  With that aspect of the matter we  are  not  concerned in the present  appeals.   The  next question  that  arose  was whether the  agreement  had  been recognized  by the new sovereign and reliance was placed  on the continuance of laws and Art.  VI of the Covenant in that connection, and it was urged that in view of Art. 295 of the Constitution  the  exemption as provided  in  the  agreement continued.   In  that  case, however, there  was  one  vital difference; even though the old laws were continued for  the time  being  by Rajasthan Ordinance No. 1 of  1949  the  new State passed the Rajasthan Excise Duties Ordinance 1949 some time after.  That Ordinance clearly applied to the Mills and there was no doubt as to the State’s competence to enact it. In view of that law, the exemption in the agreement was held not  to  have been affirmed by the new State  of  Rajasthan. The facts of that case are thus different from the facts  in the  present  case,  for there was  a  competent  law  which clearly  negatived the recognition of such an agreement  and which clearly provided for excise duties.  So far as income- tax was concerned it was imposed as from April 1, 1950 after



the Constitution had come into force.  Here again we find  a law which was competently passed by Parliament and which did not transgress any of the constitutional limitations.   Such a  law therefore must prevail and in the presence of such  a law there can be no question of recognition by the Union  of the right to exemption, if any, under the agreement with the Ruler of the former Jodhpur State.  Therefore, with  respect to both the claims raised in that case there was a law which clearly applied to the Mills and it was held that there  was no recognition by the new sovereign.  In the present case we have  only the continuance of the old laws and the  valuable evidence  afforded by Art.  VI of the Covenant and there  is nothing  to  show that the right to claim refund  was  taken away  by  any law competently passed.  In this view  of  the matter  we are of opinion that the appellant can  derive  no assistance from the case of Maharaja Shree Umaid Mills(1). The  appeals therefore fail and are hereby dismissed.   Res- pondent in Appeal No. 887 will get his costs from the appel- lant. Appeals dismissed. (1)A.I.R. 1963 S.C. 953. 185