Case: State Of Gujarat Vs. Dr. R.B. Chandrachud

1. In January, 1948 in view of the imminent constitutional changes in the Baroda State, it was considered likely that the services of the Diwan Sri Sudhalkar, the appellant and Sri Gaekwad, three official members of the Executive Council of the State would be prematurely terminated. The respondent was then drawing a salary of Rs. 2000 per month and was to retire on February 14, l952 on reaching the superannuation age of 56 Years. On January 28, 1948, His Highness the Maharaja of Baroda enhanced the respondents salary to Rs. 2500/- per month. By separate orders the salaries of other official members also were enhanced. By a Huzur order dated February 8, 1948 the Maharaja fixed the pension and other retirement benefits of the respondent and Sri Gaekwad      2. The, order was in these terms: -"His Highness the Maharaja Saheb has been pleased to order that in the, event of premature retirement of the Government Members, Messrs D. V. Gaekwad and Chandrachud, they will get forthwith as compensation an amount equivalent to the total amount they would have received had they continued in service upto the date of retirement and a full pension of Rs. 500/- per month from the date of the premature retirement.      2. Mr. D. V. Gaekwads salary is raised to Rs. 2000/- from the date of his confirmation as Naib Dewan"On the same date the Maharaja by a separate order fixed the pension and retirement benefits of Sri Sudhalkar. On May 18, 1948, the Maharaja directed the compulsory retirement of the respondent with effect from June 1, 1948. Soon thereafter the respondent drew from the State Treasury Rs. 95196/4/- on account of compensation allowance. On June 1, 1948 he retired from service. On the same date Dr. Jivraj Mehta became the Diwan and President of the Executive Council in place of Sri Sudhalkar. On the representation of Dr. Jivraj Mehta the Maharaja passed another Huzur order on July 22, 1948 modifying his previous orders and directing that the respondent and the other officials would draw pension only as and when they would reach the age of retirement and that the respondent would in addition draw the salary to which he might be eligible under the account Rules. In October, 1948 there was correspondence touching the Huzur Orders between the Maharaja and Dr. Jivraj Mehta. On April 22, 1949 the Executive Council of the State of Baroda headed by Dr. Jivraj Mehta purported to review and set aside the Huzur Orders with respect to payment of compensation to the retiring officials and directed that (1) the respondent would get 4 months privilege leave salary and as from April 1, 1949 the pension of Rs. 500/- per month sanctioned by the Maharaja. (2) the amount received by the respondent as compensation be forfeited to the State and returned by him to the Treasury; (3) Rs. 77,416/- consequently due from him after taking into account his salary and pension up to March 31, 1949 be recovered from him under Section 148 of the Baroda Land Revenue Code. Pursuant to this order the respondents properties were attached on April 26, 1949. The respondent was compelled to refund to the State Treasury Rs. 55,000/- on April 27, 1949, and Rs. 10,000/- on April 29, 1949. On March 14, 1952 the Collector of Baroda sent a notice to the respondent demanding payment of the balance of Rs. 12,416/-. The respondent continued to draw pension at the rate of Rs. 500/- per month from April 1, 1949. On April 17, 1952 he gave notice of his intention to file the present suit under Section 80 of theCode of Civil Procedure. On June 23, 1952 he instituted the suit against the State of Bombay asking for a declaration that the Huzur order dated February 8, 1948 as modified by the Huzur order dated July 22, 1948 was valid and binding on the defendant a declaration that the order of the Executive Council dated April 22, 1949 was invalid, an injunction restraining the defendant from recovering Rupees 12,416/- and a decree for Rs. 65,000/-, and interest thereon totalling Rupees 77,300/-, future interest and costs. On August 31, 1955, the Trial Court decreed the suit. On appeal, the High Court held that the respondent was entitled to recover Rs. 65000/- only without interest and was liable to refund Rs. 17,250/- drawn on account of pension from April 1, 1949 upto February 14, 1952. Consequently the High Court reduced the money decree to Rs. 47,750/- gave proportionate costs, and confirmed the rest of the decree. The present appeal has been filed by the State of Gujarat after obtaining a certificate from the High Court.      3. It is necessary at this stage to refer to the constitutional and political changes culminating in the merger of Baroda State in the Province of Bombay. The Maharaja of Baroda enjoyed internal sovereignty in the State under the suzerainty of the British Crown. In 1940 the Maharaja enacted the Government of Baroda Act, 1940 (Act No. VI of 1940). Section 3 provided that Baroda would continue to be governed by the Maharaja and that all rights, authority and jurisdiction appertaining, to its Government was exercisable by him except as provided in the Act or "as may be otherwise directed by His Highness". Section 4 preserved all the Maharajas powers, legislative, executive and judicial, in relation to the State and its Government and his right and prerogative to make laws, and issue proclamations, orders and ordinances by virtue of his inherent authority. Section 5 vested the executive authority of the State in an Executive Council consisting of the Dewan and other members chosen by the Maharaja and holding office during his pleasure subject to the other provisions of the Act and the directions given by the Maharaja. Section 18 (d) provided that no Bill affecting any order passed by the Maharaja in exercise of his prerogative could be moved in the Dhara Sabha without the previous sanction of the Maharaja. Section 32 (f) provided that pensions and gratuities sanctioned by the Maharaja would be expenditure charged on the revenues of the State. On August 15, 1947 the Indian Independence Act 1947 was passed and the paramountcy of the British Crown lapsed. On the same date the State of Baroda acceded to the Dominion, of India. Under the Instrument of Accession the Maharaja of Baroda ceded to the Dominion Legislature the power to legislate for the State of Baroda with respect to defence, external affairs and communications. The advent of independence in India gave momentum to the popular movement for transfer of power from the Maharaja to the people and for formation of a responsible government in the State. On January 9, 1948 the Maharaja issued a proclamation directing the formation of a body elected on the basis of adult franchise to frame a Constitution for the State subject to certain reservations and announcing his intention to appoint popular representatives to the Executive Council. By another proclamation dated August 25, 1948 the Maharaja announced that (1) the Constitution framing assembly would have full and unrestricted authority to frame a Constitution for the State in respect of all matters and subjects; (2) the entire executive authority of the State would immediately vest in the Executive Council. By Government of Baroda Act would stand amended accordingly and the words "or as may be otherwise directed by His Highness" occurring in Section 3 and the whole of Section 4 of the Act would be deemed to be omitted. On September 16, 1948 the Maharaja promulgated the Baroda State Executive Rules Rule 6 provided that "the Executive Council shall have the entire executive authority in regard to the administration of the State in all matters without any reservation". On March 21, 1949 the Maharaja executed the Baroda Merger Agreement where by he ceded to the Dominion Government full authority, jurisdiction and powers for and in relation to the governance of the State and agreed to transfer the administration of the State to the Dominion Government on May 1, 1949. On May 1, 1949 the administration of the State was made over to the Dominion Government. As from that date all sovereign powers of the Maharaja of Baroda ceased and the Dominion Government acquired full and exclusive extra provincial jurisdiction for and in relation to the governance of the State of Baroda. By a Notification No 101-P, dated May 1, 1949 the Central Government in exercise of its powers under Section 3 (2) of the Extra-provincial Jurisdiction Act, 1947 delegated to the Provincial Government of Bombay its aforesaid extra provincial jurisdiction including the powers conferred by Section 4 of that Act to make orders for the exercise of the jurisdiction. By Notification No. 4530/46 F of the same date the Government of Bombay in exercise of the powers conferred by Section 4 of the Extra-Provincial Jurisdiction Act, 1947 repealed the provisions of the Government of Baroda Act excepting Sections 1, 2 and 36 to 45 with immediate effect. On the same date the Government of Bombay promulgated the Administration of the Baroda State Order. Paragraph 3 of the order vested the executive authority of the State in a special commissioner subject to the supervision and control of the Bombay Government. Paragraph 4 (i) (b) provided for the continuance of (a) of any law, or (b) of any notification, order, scheme, rule, form or bye-law issued, made or prescribed under any law as were in force immediately before May 1, l949 in the Baroda State. On July 23, 1949 the Government of Bombay promulgated the Bombay State (Application of Laws) Order, 1949. Paragraph 3 of the Order provided for the extension and continuance of certain laws to the Baroda States. Paragraph 5 repealed Sections 1, 2 and 36 to 45 of the Government of Baroda Act and certain other enactments Paragraph 5 (iii) (a) provided that the repeal would not affect any right, title, obligation or liability already acquired, accrued or incurred, or any remedy or proceeding in respect thereof. On July 27, 1949 the Governor-General in exercise of his powers under Sec. 290A of the Government of India Act. 1935 promulgated the States Merger (Governors Provinces) Order, 1949 Paragraph 3 of the Order provided that Baroda would be merged in the province of Bombay and administered in all respects as if it formed part of that Province. Paragraph 4 provided for the continuance of laws then in force in the merged State. Paragraph 7 (1) provided that all liabilities in respect of such loans, guarantees and other financial obligations of the Dominion Government as arose out of the governance of a merged State, would as from August 1, 1949 be liabilities of the absorbing Province, unless the loan, guarantee or other financial obligation was relatable to central purposes. Paragraph 9 provided that any proceedings which if the order had not been passed might lawfully have been brought in the merged State against the Dominion might in the case of any liability arising before August 1, 1949 be brought (a) against the Dominion if the proceedings could have been brought against the Dominion had the liability arisen after that date and (b) otherwise against the absorbing Province.

Court's reasoning:
In view of Section 18 (d) of the Baroda Constitution Act, 1940 even a legislative bill affecting an order passed by the Maharaja in the exercise of his prerogative rights could not be moved in the Dhara Sabha without his previous sanction. Under Section 32 (f) pensions and gratuities sanctioned by the Maharaja were charged on the revenues of the State. The Huzur order was passed by the Maharaja on February 8, 1948 in the exercise of his prerogative and inherent powers. The order was executed and the monies were paid under it to the respondent. The Executive Council had no authority to revoke the Huzur order and to forfeit the monies. We hold that the order of the Executive Council dated April 22, 1949 was ultra vires its powers and was illegal and not binding upon the respondent6. It is now conceded that the direction in the order dated April 22, 1949 for the recovery of the monies under Section 148 of the Baroda Land Revenue Code was illegal. That section did not allow recovery of moneys payable under an order of the Executive Council. The attachment levied on the respondents properties was unlawful. The recovery of Rs. 65,000/- from the respondent under the invalid order of the Executive Council cannot be justified as an act of State.The Courts below rightly found that the respondent was compelled to pay Rs. 65,000/- under coercion. The result of the illegal recovery was that to the extent of Rs. 65,000/- the liability of the Baroda Government under the Huzur Order dated February 8,1948 remained outstanding12. Article VIII of the merger agreement thus furnishes strong evidence of recognition by the Government of India of the liability to pay retirement compensation under the Huzur order dated February 8, 1948. We have also noticed that the successor Governments continued the old laws of the Baroda State until they were repealed or altered. The successor Governments resisted the respondents claim on the ground that the order of forfeiture passed by the Executive Council on April 22, 1949 was lawful. There was no question of their disclaiming liability under the Huzur order of February 8, 1948 in case it was found that the order of the Executive Council dated April 22, 1949 was invalid. In the circumstances, we hold that the successor Governments recognized and took over the liability under the Huzur order dated February 8, 1948. If so, it is not disputed that the liability has now devolved on the State of Gujarat. It follows that the Courts below rightly decreed the suit13. This conclusion is sufficient to dispose of the appeal and we express no opinion whether the liability was also recognized by paragraph 4 (1) (b) of the Administration of Baroda State Order, paragraph 5 (iii) (a) of the Baroda State (Application of Laws) Order, 1949 or Paragraph 7 (1) of the States Merger (Governors Provinces) Order, 1949.