Case: State of Rajasthan Vs. Shyam Lal &amp; Others

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 maintainable 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 Article 295 (2) include not only the United State of Rajasthan as it was just before January 26, 1950 but also the 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.11. In this connection we may also refer to S. 3 of the Rajasthan Administration Ordinance No. 1 of 1949, which continued 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 subject 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 enunciated in the Dalmia Dadri Cement Companys case, 1959 SCR 729 : (AIR 1958 SC 816 ).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 means 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 States of Rajasthan as it was on January 26, 1950.12. It only remains now to refer to another decision of this Court in Maharaja Shree Umaid Mills Ltd. v. Union of India, AIR 1963 SC 953 . 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 as whether the agreement was a law; and this Court held that 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 recognised 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 someafter. That Ordinance clearly applied to the Mills and there was no doubt as to the States 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 rights 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, AIR 1963 SC 953 .

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]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 repealed 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 Patiala laws were to continue in the entire territory giving rise to such rights only as the Patiala Laws recognised or conferred. But where as 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 view 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 Dalmia Dadri Cement Co.s case, 1959 SCR 729  : (AIR 1958 SC 816 ) 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 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 Dalmia Dadri Cement Companys case, 1959 SCR 729  : (AIR 1958 SC 816 ) 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 thereunder 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 the 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 maintainable 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 Article 295 (2) include not only the United State of Rajasthan as it was just before January 26, 1950 but also the 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 politicalthe 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 rights 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, AIR 1963 SC 953 .