# White Paper on Indian States (1950)/Part 12/Theory of Personal Contract

Theory of 'Personal Contract'
255. A striking illustration of this opportunistic approach to the whole question of the status of the Indian States was provided by the theory of 'personal contract' or 'personal obligation' as between the Crown and the Rulers which found expression in the Act of 1935. The increasing emphasis on the Crown in the field of relationship of the States with the Paramount Power, and the interposition of the Crown Representative between the Government of India and the States, were constitutional innovations calculated to deprive the successor Government at the Centre of its legitimate status vis-a-vis the States and to impede the evolution of an organic political and fiscal relationship between the Centre and the States.
The theory of personal contract disregarded not only historical facts but also usage and sufferance which had come to be recognised as the principal factors governing the relationship between the States and the Paramount Power.
256. It is a recognised historical fact that the East India Company had a juridic personality of its own not merely as a trading corporation but as a political power quite distinct from the British Crown. In entering into treaty relationship with the States, the Company acted not as agent of the King in Parliament at Westminster, but in theory as the agent of the Delhi Emperor from whom power and authority were supposed to be derived although he himself was an empty pageant. The attributes of a territorial sovereign, which, coupled with its pre-eminent position in India, enabled the Company to enter into treaties with the States, were acquired by the Company not from the British Crown but the Moghul Emperor. While the Parliament periodically considered Indian affairs when the Charter of the East India Company came up for discussion, the fact that the Company was functioning in India under the authority conferred on it by the Dewani grant of the Moghul Emperor excluded any direct involvement of the British Crown or Parliament in the affairs of the Company. Even as late as 1831, Metcalfe admitted having been a "dutiful subject" of the King at Delhi; "until 1835", writes Edward Thompson, "the Company had coins in the name of Shah Alam, the blind old man whom Lake had found sitting under a tattered canopy when he entered Delhi". Evidently, the British Crown and Parliament could not be fitted into this context. In no treaty does the Crown find a mention; the treaties usually run in the name of the East India Company, the British Government or the Government of India and the officer subscribing them ​does so, generally, in the name of the Governor-General. The Queen's Proclamation of 1858 refers to "all treaties made with them by or under the authority of the Hon'ble East India Company." The transfer by the East India Company of its Indian dominion to the British Crown did not involve a separate transfer of the Indian States apart from the rest of India. The Company did not obtain the consent of the States to the transfer of its rights and obligations in respect of the States to the Crown. The Crown acquired these rights as a matter of course and the change in no way involved the establishment of any special relationship between the States on the one hand, and the Crown and the British Parliament on the other. It is significant that under the provisions of the Government of India Act, 1858 (section 20), the revenues of India were to include all tributes in respect of territories which would have been receivable by, or in the name of, the East Indian Company, if the Act had not been passed. The States were thus an integral part of the system of the Government of India inherited by the Crown from the Company.
257. This relationship was 'real' in that the treaties imposed obligations on the Rulers for the time being of Indian States, in favour of the authorities for the time being of the Government of India and vice versa. Treaties or engagements concerning defence and security between heads of two States and binding on their successors could not be treated as personal contracts. The British Crown is an impersonal institution and there was little justification for the capital which was sought to be made of the personal loyalty of the Rulers to the King Emperor. It is clear that the term 'Crown', for purposes of determining the locus of paramountcy meant only the Crown as the Sovereign of India. The Crown could operate as Paramount Power vis-a-vis the Indian States only because of its sovereignty in British India.
258. The Committee appointed by the All Parties Conference in 1928, under the Chairmanship of the late Pandit Motilal Nehru, to draft a constitution for India, examining the theory of personal contract when it was first openly advocated on behalf of some of the Princes by their counsel in a letter to the Law Quarterly Review, expressed itself as follows:
"The fourth proposition is that the Princes in making these contracts gave their confidence to the British Crown and nation; and the Crown cannot assign the contracts to any third party. The British Government as paramount power has undertaken the defence of all the States, and therefore to remain in India ​with whatever military and naval forces may be requisite to enable it to discharge that obligation. It cannot hand over these forces to any other Government—to a foreign power such as France, or Japan; to a dominion Government such as Canada or Australia; nor even to British India".
Dealing with tho contention that British Government could not transfer their treaty obligations to any other power or even to British India, the Committee went on to say:
"The argument ignores the settled practice of the Government of India and, by invoking so-called first principles in determining the "legal relationship", it overlooks the hard and unchallengeable fact that from the early days of the Company it has been the Government of India and the Government of India alone which has dealt with Indian Princes and Indian States. It introduces an element of "personal confidence" between them and the British nation which is not easy to understand. It suggests that the past and present Governments of India which have so far exercised the power, said to he delegated from the Crown, were and are acceptable to the Indian Princes and Indian States; but that the future ​Government of India, if it is to be of the Dominion type, will not be so acceptable. This in plain English means that the past and present Governments of India were acceptable because they were essentially foreign in their composition and not responsible to the Indian electorate and that the future responsible Government of India would not be acceptable to the Indian Princes because it will consist of their own countrymen and because it will be responsible to all electorate of their own countrymen. But supposing that this is so, is there any authority for the proposition that when a "contract" may be performed by an agent the choice of that agent does not rest with the principal but with the other party to the "contract"?"
259. The theory that the head of a State could, in his personal capacity, enter into treaty engagements having far-reaching effect on the destinies of the people, is too anachronistic to be maintained in the 20th century. However, the theory came to stay; it further widened the cleavage between the Princes and the people and drove the Princes deeper into the Imperial fold.