Choudhry Jawaharlal & Ors Vs.
State of Madhya Pradesh  INSC 319 (30 October 1969)
30/10/1969 REDDY, P. JAGANMOHAN REDDY, P.
JAGANMOHAN SIKRI, S.M.
CITATION: 1970 AIR 1430 1970 SCR (3) 208 1969
SCC (3) 682
Princely State-Construction of public
buildings-Merger with Indian State-Liability of successor State to honour claim
for payment-Act of State: what is.
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.  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,
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 97 of 1966.
Appeal from the judgment and decree dated
January 11, 1962 of the Madhya Pradesh High Court in First Appeal No. I 1 5 of
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
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 1st Respondent the State of Madhya
Pradesh because after the session 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 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 caseof 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 session 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)  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 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
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
R.K.P.S. Appeal dismissed.