1964 Supreme(MP) 65

High Court Of Madhya Pradesh
T. P. Naik and S. P. Bhargava, JJ.
FIRM BHAGWANDAS SHOBHALAL JAIN, A REGISTERED FIRM - Appellant
Versus
STATE OF MADHYA PRADESH - Respondents
First Appeal 85 Of 1960
Decided On : 04/29/1964

An act of State is the taking over of sovereign powers by a State in respect of territory which was not till then a part of it, by conquest, treaty, cession or otherwise, and the municipal courts recognized by the new Sovereign have the power and jurisdiction to investigate and ascertain only such rights as the new sovereign has chosen to recognize or acknowledge by legislation, agreement or otherwise; and that such a recognition may be express or may be implied from circumstances.

Headnote:

CONTRACT - BREACH - LIABILITY OF NEW STATE FOR BREACH OF CONTRACT BY FORMER STATE - ACT OF STATE - RECOGNITION OF RIGHTS - DAMAGES - LIMITATION - SPLITTING OF CAUSE OF ACTION.

Fact of the Case:

The plaintiffs, a registered partnership firm, were lessees of the then Charkhari State for collecting tendu leaves from its Isanagar Pargana for the period ending 30-9-1949. After Independence, the State of Charkhari merged with the neighbouring States of Bundelkhand and Baghel-khand to form a United state of Vindhya Pradesh under a popular Government. On 4-12-1948 the plaintiffs applied to the Minister for Commerce and Industries for extension of the aforesaid lease by another five years on a consideration of Rs. 1,000/- per annum. On 11-12-1948, a lease was sanctioned in their favour as prayed for by them under the signature of Shri Mohanlal, Secretary, Commerce and Industries Department, Government of Vindhya Pradesh; and on 14-12-1948, on their paying Rs. 1,000/- in advance, a lease was executed in their favour by the conservator of Forests, in respect of the Isanagar Pargana of the old Charkhari state for the period 1-10-1949 to 30-9-1954. On 26-9-1949, the Government of the United State of Vindhya Pradesh unilaterally cancelled the lease on the ground that it had been granted 'without proper authority' and 'in contravention of past practice'. An application dated 8-10-1949 to the Chief Minister of United state of Vindhya Pradesh protesting against the aforesaid cancellation was rejected by him. The area comprising the forests of Isanagar Pargana of the old Charkhari State was redistributed into various forest circles which were then reauc-tioned on 19-11-1949 for the year 1949-50. Their civil suit against the then State Government of Vindhya Pradesh for injunction and damages was dismissed by the Judicial Commissioner, holding, inter alia, that though the lease in favour of the plaintiffs was valid, they had not been able to prove damages sustained by them. Of Die re-grouped circles, some were reauctioned on 2311-1950 for the year 1950-51, and thereafter again for three years on 22-101951, which the plaintiffs themselves purchased for a total consideration of Rs. 59,004/-. Of the rest of the circles, they were wrongfully deprived of the theka and the profits arising therefrom. The plaintiffs claimed damages amounting to Rs. 1,80,000/- from the defendant, Government of Vindhya Pradesh.

Finding of the Court:

The court held that the cancellation of the lease by the then Government of Vindhya pradesh was unauthorized, and consequently the defendant would be liable as on a breach of contract. The cancellation of the lease could not be called an act of State, and it could, therefore, be challenged in a Court of law. The suit was barred under Rule 2 of Order II of the Code of Civil procedure, as the cause of action for the suit as well as for the earlier suit of 1950 being one and the same, the plaintiff ought to have claimed all the reliefs flowing from it in the former suit. The suit was barred by time under Article 115 of the Limitation Act, as it was filed more than three years after the date on which the contract had been cancelled by the then United State of Vindhya pradesh.

Issues: 1. Whether the state of Madhya Pradesh could be held liable in damages for a breach of contract which admittedly was committed by the then United State of Vindhya Pradesh? 2. Whether the suit was barred under Rule 2 of Order II of the code of Civil Procedure? 3. Whether the suit was barred by time?

Ratio Decidendi: 1. The cancellation of the lease by the then Government of Vindhya pradesh was unauthorized, and consequently the defendant would be liable as on a breach of contract. 2. The cancellation of the lease could not be called an act of State, and it could, therefore, be challenged in a Court of law. 3. The suit was barred under Rule 2 of Order II of the Code of Civil procedure, as the cause of action for the suit as well as for the earlier suit of 1950 being one and the same, the plaintiff ought to have claimed all the reliefs flowing from it in the former suit. 4. The suit was barred by time under Article 115 of the Limitation Act, as it was filed more than three years after the date on which the contract had been cancelled by the then United State of Vindhya pradesh.

Final Decision: The appeal was dismissed with costs.