JEHANGIR B. PATEL Vs. UNION OF INDIA

JUDGEMENT

(1.) This is a suit filed by four individuals carrying on business in partnership in the name and style of Messrs. Premier Distillery and Chemical Works at Akalkot, a former Indian State, against the Union of India and the State of Bombay claiming against them jointly or in the alternative against defendant No. 2 several sums of money as damages for breach of a contract and also claiming the refund of a sum of rupees fifteen thousand being the amount of the license fees for the months of October, November and December 1948. The matter arises in this way.

(2.) BY an agreement dated February 21, 1946, made between His Highness Raja Saheb of Akalkot and plaintiffs Nos. 1 and 2, the two plaintiffs were granted in the State of Akalkot certain exclusive rights including the right to install a distillery, to manufacture, distribute and sell country liquor and Indian made foreign liquor, to cultivate, manufacture and prepare and sell ganja, bhang and sell opium. The plaintiffs were also given rights to instal, build and construct distilleries, stills, etc. and to prepare and manufacture country and foreign made liquor and to import duty free all materials required for the purpose. The consideration for the said agreement was the payment of Rs. 60,000 per annum by monthly instalment of Rs. 5,000 and the agreement was for a term of 20 years from August 1, 1946. On February 24, 1946, there was a second agreement between the same parties and it provided for the consequences of a breach of the first agreement, several sums having been mentioned as payable by way of damages by the Raja of Akalkot in the event of a breach. Pursuant to the agreement of February 21, the plaintiffs spent about Rs. 2,00,000 for putting up distilleries, plants and machinery in the said State. On August 15, 1947, the Indian Independence Act was passed and the Raja of Akalkot became free from his alliance to the then British India, Thereafter on August 16, 1947, Akalkot State acceded to the Dominion of India. The plaintiffs allege that at the time of such accession the Dominion Government agreed and gave assurances to the Raja of Akalkot that the agreements with plaintiffs Nos. 1 and 2 would be duly honoured. On February 22, 1948, the Rulers of Deccan State including the Raja of Akalkot executed a merger -agreement merging their respective States with the Province of Bombay. In the interval, on August 27, 1947, the extra Provincial Jurisdiction Act was passed, and acting under that Act on February 25, 1948, the Dominion of India delegated its jurisdiction over the merged States to the Province of Bombay subject to the control of the Dominion. On July 28, 1948, the Indian States (Application of Laws) Order of 1948 was passed, by which it was provided that with effect from September 15, 1948, all enactments specified in parts 1 and 2 of Schedule II would apply to the merged States including the State of Akalkot. One of such Acts was the Bombay Abkari Act, 1878. By the Administration of Indian States Order, 1948, the Commissioner of Excise, Bombay, was empowered to exercise the same powers, functions and jurisdiction in each of the merged States which he exercised in the Province of Bombay. On September 11, 1948, the Collector and Chief Administrator, Sholapur, wrote to the Premier Distillery and Chemical Works (which I shall hereafter refer to as 'the Premier Distillery') that all excise laws would come into force in all the merged States on September 15, 1948, and informed the Premier Distillery that they would have to apply for the requisite licence under the Bombay Abkari Act before that date in respect of liquor and that opium and Drug Shops would be closed from October 1, 1948. The Administrator also imposed certain restrictions on the working of the distilleries upto September 30, 1948. In the correspondence that ensued the Premier Distillery took up the step that the agreements of February 21 and 24, 1946, were binding on the Dominion of India as well as the Province of Bombay and that, therefore, they were not bound to take out any licence under the Bombay Abkari Act, although they were willing to apply for licence, if it was merely a formality to regularise their rights under the agreements. This position was not accepted by the Provincial Government with the result that the distillery had to be closed by the end of September 1948 and all the shops for selling opium and hemp drugs were also closed from October 1, 1948. The plaintiffs say that by requiring them to apply for a licence under the Bombay Abkari Act and imposing conditions on them not justified by the agreement of February 21, 1946, the defendants have committed a breach of the agreement and are liable to pay damages. It is the plaintiffs' case that the Provincial Government acted on behalf of the Dominion Government or under an authority delegated to them and the Dominion Government are liable for the acts and omissions of the Provincial Government. By the Constitution enacted by the Constituent Assembly of, India, the Dominion was constituted into the Union of India and the Province of Bombay was constituted into the State of Bombay, who are the defendants in this suit. The prayers in the plaint are for damages consisting of four different sums, one for Rs. 50,000 being general damages, the other for Rs. 17,83,332 being damages at the rate of Rs. 1 lac per year for the unexpired period of the agreement, this amount having been provided for by Clause 1 of the agreement of February 24, 1946, the third for a sum of Rs. 1,37,683 being the cost of the buildings, plant, machinery etc. which was agreed to be paid by Clause 2 of the agreement of February 24, 1946, and the fourth for a sum of Rs. 70,833 being the costs of country and foreign liquor, bhang, ganja, opium, mhowra, essences, colours, bottles and packing materials etc. which was also payable under Clause 2 of the agreement of February 24. In addition to these claims for damages, the plaintiffs also claim a sum of Rs. 15,000 being the amount of refund of licence fees for the months of October, November and December 1948 which they duly paid but during which period they were not allowed to exercise any of the rights under the agreement of February 21.

(3.) THE written statement of defendant No. 2, in addition to raising the same pleas which had been raised by defendant No. 1, further states that the agreements were not entered into bona fide and were entered into in anticipation of the merger of the State with the State of Bombay and are, therefore, in any event not binding on the State of Bombay. The State of Bombay further says that by virtue of the provisions of the Indian States (Application of Laws) Order, 1948, the privileges if any acquired by the plaintiffs from the Raja of Akalkot continued to be valid only in so far as they were not inconsistent with the provisions of law which were made applicable to the State after its merger, and as the terms of the agreement of February 21 were inconsistent with the terms and conditions of the licence granted by the State of Bombay under the Abkari Act, the said agreement could not in any event have any validity after the Bombay Abkari Act was made applicable to the merged State of Akalkot. With regard to the claim for the refund of Rs. 15,000, the State of Bombay by their written statement admitted their liability to pay Rs. 10,000 being the amount of premium for October and November, but at the hearing, after proof of the fact that a further instalment of Rs. 5,000 for December had also been paid, Mr. Joshi on behalf of the State of Bombay indicated that the State accepted its liability for refund of the sum of Rs. 15,000.