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

1. These four appeals arise out of four certificates 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 4572 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 quantity of the commodity before December 2, 1947 was due to market conditions and inability to get allotment of railway wagons. The respondents 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 10427 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.2. 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 Rajasthan 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.3. 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.

Reasoning: 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 .