Jagannath Agarwala Vs. State of Orissa
 INSC 84 (8 March 1961)
CITATION: 1961 AIR 1361 1962 SCR (1) 205
CITATOR INFO :
APL 1962 SC 445 (21,35) R 1962 SC1288 (7) R
1964 SC1043 (19,69,93,95,117,137) R 1971 SC 846 (7) RF 1981 SC1946 (18)
Act of State--Duration of--State allowing
claims to be preferred and enquired into--Act of State, if at an
end--Administration of Mayurbhanj State Order, 1949, cl. 9.
The appellant had two money claims against
the Maharaja of Mayurbhanj State. From January 1, 1949, the State merged with the Province of Orissa. Clause 9 of the Administration of Mayurbhanj State Order,
1949, promulgated by the Government of Orissa, provided for the issuing of a
notification for calling upon all persons having pecuniary claims against the
Maharaja to notify the same to an officer authorised in that behalf. After
issue of the notification the appellant preferred his two claims before
the-Claims Officer. The Claims Officer made a report substantially accepting
the claims. This report was submitted to the Member (third), Board of Revenue.
Without giving the appellant any hearing the claims were rejected on the ground
that they were barred by limitation. The appellant applied for a review and
submitted the documents on which he relied but again without giving the
appellant a hearing the Board of Revenue declined to review the matter. The
appellant contended 206 that there was a breach of the principles of natural
justice in the Board of Revenue deciding the matter without giving the
appellant a proper hearing. The respondent contended that the rejection of the
claims was an act of State, that the new Sovereign State could not be compelled
by the courts to accept the liability of the old Ruler, that though the new Sovereign State might make such enquiry as it chose it was not compelled to give a hearing
to the appellant. The appellant replied that the act of State was over when the
claims were invited and accepted by the Claims Officer.
Held, that the rejection of the claims was an
act of State and could not be challenged. Unless the new Sovereign, either
expressly or impliedly, admitted the claims, the municipal courts had no
jurisdiction in the matter. The act of State did not come to an end when
Government allowed the claims to be preferred or the Claims Officer made his
report. The enquiry was for the benefit of the State and not for conferring
rights on the claimants. Till there was an acceptance of the claims by the
Government or some officer who could be said to bind the Government, the act of
State was still open.
Dalmia, Dadri Cement Co. Ltd. v. Commissioner
of Income-tax,  S.C.R729 State of Saurashtra v. Mmemon Haji Ismail Haji,
 1 S.C.R. 537 and Vaje Singh ji joravar Singh v.
Secretary of State for India, (1924) L.R. 51 I.A. 357, relied on.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 666 and 667 of 1957.
N. C. Chatterjee and G. C. Mathur, for the
A. V. Viswanatha-Sastri, K. N. Rajagopala
Sastri and T. M. Sen, for the respondents.
1961. March 8. The judgment of the Court was
delivered by HIDAYATULLAH, J.-These two appeals raise a common question of law,
and it is convenient to deal with them together.
They have been filed (with certificate)
against a judgment of the High Court of Orissa, by Jagannath Agarwala, who
sought to enforce a claim he had against the former State of Mayurbhanj and the
ex-Ruler of Mayurbhanj. They arise out of two petitions under Art. 226 of the
Constitution, for writs of mandamus, etc., which the High Court of Orissa
dismissed by its order under appeal.
It appears that in the year 1943 the
Maharaja, of 207 Mayurbhanj entered into an agreement or arrangement with
Jagannath Agarwala for establishing a business for the manufacture of
industrial alcohol and essential oils and for purchases of wheat and barley in
the Punjab. Civil Appeal No. 666 of 1957 relates to the establishment of the
manufacturing business, and Civil Appeal No. 667 of 1957, to the purchases of
wheat and barley. With reference to the establishment of the business, the
appellant urges that it was agreed that the capital required would be
contributed by the parties in equal shares, and that the profit and loss would
also be shared equally. As regards the purchases, the appellant was to advance
such money as might be required, and the State of Mayurbhanj was to provide
necessary permits and facilities for transport.
In furtherance of this agreement, the
appellant urges that he established a factory and started the business, but the
Maharaja, instead of contributing his share of the capital, asked the appellant
to do so on his behalf, promising to pay him the amount. The factory was
constructed, and, it appears, it went into production, but later closed down,
suffering a total loss of Rs. 2,80,875-9-3. In the first case, therefore, the
claim of the appellant against the Maharaja and the State was Rs. 1,40,400 odd.
In the second case, the appellant advanced a sum of Rs. 50,000 and also
incurred a further expenditure of Rs. 3,741-7-9. The State of Mayurbhanj failed
in its promise of procuring the necessary permits and facilities for transport,
and the appellant was, therefore, required to sell the foodgrains in the
Punjab, and thus incurred a loss of Rs. 14,844-0-3. The appellant alleges that
the Maharaja promised to pay the 'amount.
From January 1, 1949, the Mayurbhanj State
merged with the Province of Orissa, and on the same day, the Government of
Orissa promulgated the Administration of Mayurbhanj State Order, 1949 under s.
4 of the Extra Provincial Jurisdiction Act, 1947 (47 of 1947). That Order
allowed claims against the State of Mayurbhanj to be preferred to Government
for its 208 consideration. Clause 9 of the Order, in so far as it is material,
is as follows:
"9. Claims against Ruler of the State.
(a) The Administrator shall as soon as possible publish a notification in the
Gazette in English and in vernacular calling upon all persons having pecuniary
claims, whether immediately enforceable or not, against the State or the Ruler
of the State in his capacity as Ruler of that State, to notify the same in
writing to the officer authorised, by the Administrator in this behalf
(hereinafter called the said officer) within three months from the date of the
(b) The notice shall also be published at
such places and in such other manner as the Administrator may by special or
general order direct.
(c) Every such claimant shall, within the
period specified in sub-paragraph (a) notify to the said officer in writing his
claim. with full particulars thereof and any claim presented after the
expiration of such period shall be summarily rejected.
(d) Every document including entries. in
book.% of account in the possession of or under the control of the claimant on
which he bases his claim shall be produced before the said officer along with
the statement of the claim:
(f) Nothing in the preceding sub-paragraphs
shall apply to any pecuniary claim of Government or any local authority.
(g) The said officer shall after making such
enquiry as he may deem fit, decide which claims notified under sub-paragraph
(c) are to be allowed in whole or in part and which are to be disallowed, and
on his decision being confirmed by the Administrator, the said officer shall
give written notice of the same to the claimants. The decision of the
Administrator shall be final and shall not be liable. to be called into
question in any Court whatsoever..' (h) No court shall have jurisdiction to
investigate 209 any pecuniary claim against the State or against the Ruler of
the State in his capacity as Ruler of that State and such claim shall be
determined only in accordance with the provisions of this paragraph.
(i) The Administrator may delegate his powers
under this paragraph to any officer subordinate to him not below the rank of an
Additional District Magistrate.
(j) The provisions of this paragraph shall
not apply to any claim against the State based on a cause of action which arose
on or after the 1st January 1949 and such claim shall be disposed of in
accordance with the laws applied or continued in force under paragraph 5."
The appellant preferred his two claims for the consideration of the Claims
Officer, who was dealing with such claims on behalf of the Administrator. The
Claims Officer made a report to the Administrator on June 20, 1951 in respect
of the first claim, and after examining the merits, gave his conclusions as
"Considering the evidence laid by the
Claimant before me in support of his claim, I find that he is entitled to a sum
of Rs. 1,37,785-13-71/2. It has been urged by the Claimant that interest @ Rs.
4 per cent. per annum should be allowed to him till the date of repayment of
his dues. He has been allowed interest from 1-4-43 to 28-2-49 and,, I think, he
should get interest thereafter @ Rs. 4 per cent. per annum till the date of
repayment of his dues.
As regards the Claimant's demand for half
share of further advances made by the Claimant after filing of this claim case,
it cannot be entertained in this case.
Submitted to the Revenue Commissioner,
Orissa, Cuttack through the District Magistrate, Mayurbhanj as required under
Clause 9(g) of the Administration of Mayurbhanj State Order, 1949." In the
other case, he made a report on November 5, 1951 that the appellant had
substantiated his claim for Rs. 14,844-03, and was also liable to be paid
interest amounting to Rs.
5,303-14-0. This report was 27 210 submitted
to the Member (Third), Board of Revenue, Orissa, Cuttack, through the District
On June 28, 1952, the appellant received a
Memo randum from the Deputy Secretary, Board of Revenue, Orissa, Cuttack, which
read as' follows:
"Dear Sri Agarwalla, With reference to
your petitions dated 1-10-51 and 7-9-50.
I am directed to say that the claims have
been rejected as Government have been advised that they are barred by
Yours sincerely, Sd. Govind Tripathy".
It appears that the appellant applied for
review, and he was asked on November 8, 1952 to produce before the Board any
document or documents in his possession to show that these were continuing
businesses and also to point out the law that no claim of a continuing business
could be barred by limitation. The documents on which the appellant presumably
relied before the Board of Revenue have not been printed in the record of this
Court, but on April 2, 1953, the solicitors of the appellant were informed that
the Board of Revenue had declined to review the matter. It appears also that,
in the first case, even before the merger the Revenue Minister, Mayurbhanj
State, had rejected the claim put forward by the appellant by his order dated
October 26, 1948, to the following effect:
"The State need not recognise the claims
put forward by Mr. J. Agarwalla, as there was really no formation of any Joint
Stock Company nor any written agreement entered into and finally settled.
Sd. B. Mohapatra (Revenue Minister,
It was in these circumstances, that the two
petitions under Art. 226 of the Constitution were filed. The High Court
dismissed them. From the order of the High Court, it appears that two points
alone were urged before it. The first was that the decision of the 211 Claims
Officer should have gone to the Board of Revenue as a whole and not to a single
Member and the second was that the appellant should have been served with a
notice by the Board before the recommendations of the Claims Officer were
rejected, and, as has now been argued before this Court, allowed a hearing.
The first point was not argued before us, and
it seems that the appellant has accepted the decision of the High Court that
the Third Member was competent to hear and dispose of these cases. The second
point alone has been argued, and.
needs to be considered. The case was argued
by Mr. N. C. Chatterjee on behalf of the appellant as illustrating a patent
breach of the principles of natural justice. He contended that his client was
entitled to a proper hearing before the report in his favour was rejected, and
relied upon the following cases: Shivji Nathubai v. The Union of India (1), New
Prakash Transport Co. Ltd. v. New Suwarna Transport Co. Ltd. (2), Nagendra Nath
Bora v. The Commissioner of Hills Division and Appeals, Assam (3) and
Gullapalli Nageswara Rao v. Andhra Pradesh State, Road Transport Corporation
(4). In reply, Mr. A. V. Viswanatha Sastri contended that the rejection of the
claim was an act of State, and that the new Sovereign State could not be
compelled by a process of the municipal courts to accept a liability of the old
Ruler, and though the new Sovereign State might make such enquiry as it chose,
it was not compelled to give a hearing to the claimant. In his rejoinder,
Mr.Chatterjee contended that the act of State was over, when the new Sovereign
State invited claims under a law passed for the purpose, and proceeded to
consider the evidence tendered in support of the claim He also contended that
by the admission of the claim by the Claims Officer the act of State was over,
and that any further consideration of the report had to comply with the rules
of natural justice, laid down by this Court in the cases cited by him.
What is an act of State and when it ceases to
apply between a new Sovereign and the subjects of a State (1)  2 S.C.R.
(3)  S.C.R. 1240.
(2)  S.C.R. 98.
(4)  SUPP. 1 S.C.R. 319.
212 conquered, acquired or ceded to the new
Sovereign, has been the subject of several decisions of this Court. In M/s.
Dalmia Dadri Cement Co. Ltd. v. The
Commissioner of Incometax (1) and The State of Saurashtra v. Memon Haji Ismail
Haji (2), it has been held that unless the new Sovereign, either expressly or
impliedly admits the claim., the municipal courts have no jurisdiction in the
matter. The question to consider is whether such a stage had been reached in
the enquiry which had been commenced. No doubt, the plea that this was a part
of an act of State was not specifically raised before the High Court; but, as
pointed out by the Judicial Committee' in Vale Singh Ji Joravar Singh v.
Secretary of State for India (3), no plea is really needed. It is clear from
the Order, which was made under the Extra Provincial Jurisdiction Act, that
claims were being asked to be entertained only for investigation and not for
acceptance. 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. In Vaje Singh Ji's case (3),
enquiries were made by Captain Buckle and again in 1868, and the two enquiries
lasted 16 years before the rejection of the claims, and the rejection was still
upheld as an act of State. Vaje Singh Ji's case (3) has been relied upon by
this Court in the two cases referred to, in the argument of Mr. A. V.
Viswanatha Sastri. It would, therefore, appear that the act of State could not
be said to have come to an end, when the Government allowed claims to be
preferred, or when their own Officer made his report. The Claims Officer was
not a part of the municipal courts, and Government cannot be said to have
submitted itself to the jurisdiction of the municipal courts, when it entrusted
the enquiry to him. Nor can the investigation of claims be said to have
conferred a civil right upon the claimants to enforce their claims against the
State. In our opinion, enquiry was for the benefit of the State and not (1)
 S.C.R. 729. (2)  1 S.C.R. 537.
(3) (1924) L.R. 51 I.A. 357.
213 for conferring rights upon likely
claimants. It was always open to the Government to admit any claim, even though
reported adversely by the Claims Officer, though such a contingency might have
been very remote. Equally, therefore, the Government had the paramount right to
reject a claim, which its Claims Officer considered good but on which the
Government held a different opinion. In short, till there was an acceptance by
the Government or some officer of the Government, who could be said to bind the
Government, the act of State was still open, and, in our opinion, it was so
exercised in this case.
Mr. Chatterjee contended that at least within
the four corners of the Order, the appellant had a right to be heard, and that
he did not have a proper bearing. If the Member, Board of Revenue, entertained
some doubt about the claim being within time, he might have heard the party.
That this was an enquiry mainly to ascertain whether a claim should or should
not be recognised is obvious enough. It was in no sense a trial of any issue
between the appellant and the Government. To judge such an action with the same
rigour with which a judicial enquiry or trial is judged is to convert the
enquiry into a civil suit. The appellant was fully heard by the Claims Officer,
and the only question was whether the claim was within time. Even there, the
Member, Board of Revenue, asked the appellant to submit all documents and
arguments in support of his contention that the claim was within limitation,
and to that extent, the appellant had his say. Whether the Member, Board of
Revenue should have gone further and given a viva voce hearing was a matter
entirely for that Officer to choose, and there was nothing under the law to
compel him. Though we think that such an opportunity might have been afforded
to the appellant, we cannot say that this was a matter which entitled him to a
In this view of the matter, the appeals fail,
and are dismissed. But, in the circumstances of the case, there shall be no
order as to costs.