Jagannath Agarwala vs State Of Orissa

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 666 and 667 of 1957

Decision Date: 8 March, 1961

Coram: M. Hidayatullah, J.L. Kapur, J.C. Shah

In the matter titled Jagannath Agarwala versus State of Orissa, the decision was delivered on 8 March 1961 by the Supreme Court of India. The judgment was authored by Justice M. Hidayatullah, with Justices J. L. Kapur and J. C. Shah forming the bench. The case is reported as 1961 AIR 1361 and also appears in the Supreme Court Reporter as 1962 SCR (1) 205, with additional citations in various law reports. The issue concerned the operation and duration of an act of State, specifically whether the State could be compelled to entertain monetary claims against a former ruler after the State had merged with a province, according to Clause 9 of the Administration of Mayurbhanj State Order, 1949.

The petitioner, Jagannath Agarwala, asserted two monetary claims against the Maharaja of Mayurbhanj State. On 1 January 1949, the Mayurbhanj State was merged with the Province of Orissa, and the Government of Orissa issued an order that under Clause 9 a notification would be published calling upon all persons with pecuniary claims against the Maharaja to present those claims to an officer authorized for that purpose. After the notification was issued, the petitioner lodged his two claims with the designated Claims Officer. The Claims Officer prepared a report that essentially accepted the petitioner’s claims and forwarded that report to the third Member of the Board of Revenue. Without providing the petitioner any opportunity to be heard, the Board of Revenue rejected the claims on the ground that they were barred by the limitation period. The petitioner then applied for a review, submitting the documents on which he relied; nevertheless, the Board again declined to hear him and dismissed the review application.

The petitioner argued that the Board of Revenue’s refusal to grant a hearing violated the principles of natural justice. The respondent, the State of Orissa, contended that the rejection of the claims constituted an act of State and that the newly sovereign State could not be compelled by the courts to accept the liability of the former ruler. It further asserted that even if the new State chose to make an enquiry, it was not obligated to provide a hearing to the petitioner. The petitioner countered that the act of State ceased once the claims were invited and accepted by the Claims Officer. The Court held that the rejection of the claims remained an act of State and therefore could not be challenged in the courts. It further clarified that unless the new sovereign expressly or impliedly admitted the claims, the municipal courts possessed no jurisdiction to entertain them. The Court explained that the act of State does not terminate merely because the Government permits the filing of claims or because a Claims Officer issues a report; the enquiry serves the interests of the State rather than conferring rights upon claimants. Accordingly, the act of State remains open until such time as the Government or an officer with authority to bind the Government formally accepts the claims. The Court’s reasoning referred to earlier authorities, including Dalmia‑Dadri Cement Co. Ltd. v. Commissioner of Income‑Tax, [1959] SCR.

In this matter, the Court examined two civil appeals, numbered 666 and 667 of 1957, which were filed together because they raised the same question of law. Both appeals had been brought, with a certificate of fitness, against a decision of the High Court of Orissa that had dismissed writ petitions filed under article 226 of the Constitution. The petitions had sought mandamus and other reliefs, and the High Court’s order was the subject of the present appeals. The appellant, Jagannath Agarwala, claimed that he was owed money by the former State of Mayurbhanj and by its ex‑Ruler. The background of the dispute traced to an agreement made in 1943 between the Maharaja of Mayurbhanj and the appellant. Under that agreement the appellant was to set up a manufacturing concern for industrial alcohol and essential oils, and also to arrange for the purchase of wheat and barley in the Punjab. The first appeal (civil appeal 666) concerned the establishment of the manufacturing business, while the second appeal (civil appeal 667) dealt with the purchase of the grains. According to the appellant, the parties had agreed that the capital required for the factory would be contributed equally by each side and that profits and losses would be shared on an equal basis. In the grain‑purchase arrangement, the appellant was to advance any necessary funds, and the State of Mayurbhanj was to secure the requisite permits and transport facilities. The appellant asserted that he had complied with his obligations by constructing a factory and commencing production, but that the Maharaja had failed to provide his share of the capital. Instead, the Maharaja allegedly asked the appellant to pay the capital on his behalf, promising to reimburse the amount later. The factory was completed and, as the appellant claimed, began operating, but it eventually ceased production, resulting in a total loss of rupees two hundred and eighty thousand eight hundred seventy‑five and nine annas and three paise. Consequently, the appellant’s claim against the Maharaja and the former State in the manufacturing case amounted to approximately rupees one hundred and forty thousand four hundred. In the second case, the appellant contended that he had advanced fifty thousand rupees and incurred an additional expenditure of rupees three thousand seven hundred forty‑one and seven annas and nine paise. The State of Mayurbhanj had not fulfilled its promise to obtain the necessary permits and transport facilities, forcing the appellant to sell the grain in the Punjab and thereby suffering a loss of rupees fourteen thousand eight hundred forty‑four and zero annas and three paise. The appellant maintained that the Maharaja had promised to pay the amount due. On 1 January 1949, the State of Mayurbhanj merged with the Province of Orissa, and on that same day the Government of Orissa issued the Administration of Mayurbhanj State Order, 1949 under section 4 of the Extra‑Provincial Jurisdiction Act, 1947 (Act 47 of 1947). The order provided a mechanism for claims against the former State to be presented to the Government for consideration.

The Court noted that the Administration of Mayurbhanj State Order of 1949, issued under section 4 of the Extra‑Provincial Jurisdiction Act, 1947, permitted any monetary claims against the former State of Mayurbhanj to be presented to the Government for consideration. The Order contained a detailed provision labelled Clause 9, which dealt specifically with claims against the Ruler of the State. Clause 9 required the Administrator, as soon as practicable, to issue a notification in both English and the vernacular in the Gazette, inviting all persons who claimed a pecuniary right—whether immediately enforceable or not—against the State or against the Ruler in his official capacity to submit their claims in writing to an officer appointed by the Administrator (referred to as “the said officer”) within three months of the Gazette notice. The Clause further authorised the Administrator to publish the notice in additional locations or by any other method he deemed appropriate by special or general order. It mandated that each claimant, within the three‑month period, must provide the officer with a written statement of his claim, containing full particulars, and stipulated that any claim submitted after the prescribed period would be rejected summarily. Claimants were also required to produce every document, including ledger entries or account books in their possession or control on which the claim was based, together with a statement of the claim, before the officer. The provision expressly excluded any monetary claim of the Government or any local authority from these requirements. After conducting any enquiry it considered necessary, the officer was to decide which claims filed under the earlier sub‑paragraph were to be allowed wholly or partially and which were to be disallowed; the officer’s decision, once confirmed by the Administrator, had to be communicated in writing to the claimants. The Administrator’s decision was declared final and not subject to challenge in any court. The Clause also barred any court from acquiring jurisdiction to investigate a pecuniary claim against the State or the Ruler in his official capacity, directing that such claims could be determined only in accordance with the provisions of the Clause. The Administrator was permitted to delegate his powers under this Clause to any subordinate officer not below the rank of an Additional District Magistrate. Finally, the Clause stated that it would not apply to any claim against the State arising on or after 1 January 1949, such claims being to be dealt with according to the laws then in force under paragraph 5.

The appellant had preferred two separate monetary claims under the procedure outlined in Clause 9, and these were forwarded to the Claims Officer who was acting on behalf of the Administrator. The Claims Officer prepared a report addressed to the Administrator dated 20 June 1951 concerning the first of the appellant’s claims. After reviewing the evidence and assessing the merits of the claim, the officer set out his conclusions, stating: “Considering the evidence laid by the Claimant before…”.

In the first report, the Claims Officer examined the evidence presented by the claimant and concluded that the claimant was entitled to a sum of Rs 1,37,785‑13‑7‑½. The claimant had argued that interest calculated at the rate of Rs 4 per cent per annum should be allowed from the date of the claim until the date the dues were actually paid. The officer noted that interest had already been permitted for the period from 1‑4‑43 to 28‑2‑49 and expressed the view that interest should continue to accrue at the same rate of Rs 4 per cent per annum for the balance of the period up to actual repayment. The officer also rejected the claimant’s request for a half‑share of additional advances that the claimant had received after the filing of the present claim, stating that such a demand could not be entertained. This report was forwarded, as required by Clause 9(g) of the Administration of Mayurbhanj State Order, 1949, to the Revenue Commissioner of Orissa, Cuttack, through the District Magistrate of Mayurbhanj. In a second report dated 5 November 1951, the officer found that the appellant had substantiated a claim for Rs 14,844‑0‑3 and was also liable to receive interest amounting to Rs 5,303‑14‑0. That second report was submitted to the Third Member of the Board of Revenue, Orissa, Cuttack, via the District Magistrate of Mayurbhanj.

On 28 June 1952, the appellant received a memorandum from the Deputy Secretary of the Board of Revenue, Orissa, Cuttack, which stated: “Dear Sri Agarwalla, With reference to your petitions dated 1‑10‑51 and 7‑9‑50, I am directed to say that the claims have been rejected as Government have been advised that they are barred by limitation. Yours sincerely, Sd. Govind Tripathy.” Following this rejection, the appellant applied for a review of the decision. On 8 November 1952, the Board directed the appellant to produce any document or documents in his possession that would demonstrate that the businesses involved were continuing enterprises, and also asked him to point out any legal principle that would prevent a claim relating to a continuing business from being barred by limitation. The documents that the appellant presumably relied upon were not included in the present Court’s record. Later, on 2 April 1953, the appellant’s solicitors were informed that the Board of Revenue had declined to undertake a review of the matter. In addition, it appears that, even before the merger of Mayurbhanj State, the Revenue Minister of Mayurbhanj State had rejected the appellant’s claim by an order dated 26 October 1948, stating: “The State need not recognise the claims put forward by Mr. J. Agarwalla, as there was really no formation of any Joint Stock Company nor any written agreement entered into and finally settled.” Sd. B. Mohapatra, Revenue Minister, Mayurbhanj. In these circumstances, the appellant filed two petitions under Article 226 of the Constitution. The High Court dismissed both petitions. According to the High Court’s order, the appellant raised two primary contentions: first, that the decision of the Claims Officer should have been transmitted to the Board of Revenue as a whole rather than to a single member; and second, that the appellant should have been served with a notice by the Board before the recommendations of the Claims Officer were rejected and should have been afforded a hearing.

In this matter, the Court observed that the Board of Revenue had served the appellant with a notice before the recommendations of the Claims Officer were rejected, and that, according to the submissions before the Court, the Board had also permitted a hearing on the claim. The first of the two questions raised by the appellant was not pressed before this Court, and the record shows that the appellant appears to have accepted the High Court’s finding that the Third Member of the Board possessed the authority to hear and dispose of the petitions. Consequently, only the second question—whether the appellant should have been given a hearing before the Board rejected the Claims Officer’s report—required detailed consideration.

The appellant’s case was presented by counsel who argued that the rejection of the claim amounted to a flagrant violation of the principles of natural justice. The counsel contended that the appellant was entitled to a proper hearing before a report favorable to him could be set aside, and he supported this stance by referring to the authorities Shivji Nathubai v. Union of India, New Prakash Transport Co. Ltd. v. New Suwarna Transport Co. Ltd., Nagendra Nath Bora v. Commissioner of Hills Division and Appeals, Assam, and Gullapalli Nageswara Rao v. Andhra Pradesh State Road Transport Corporation. In response, the respondent’s counsel argued that the rejection of the claim represented an act of State, and that the newly constituted Sovereign State could not be compelled by the municipal courts to assume the liabilities of the former ruler. He further submitted that, although the new Sovereign State might choose to investigate the claim, it was under no obligation to grant the claimant a hearing.

The appellant’s counsel then replied that the act of State ceased when the new Sovereign State enacted legislation inviting claims and proceeded to examine the evidence offered in support of those claims. He also asserted that the admission of the claim by the Claims Officer marked the termination of the act of State, after which any further consideration of the report had to adhere to the rules of natural justice as laid down by this Court in the cited decisions. The Court noted that the concept of an act of State and the point at which it ceases to apply between a new Sovereign and the subjects of a transferred territory have been examined in several earlier decisions, including M/s Dalmia Dadri Cement Co. Ltd. v. Commissioner of Income‑Tax and The State of Saurashtra v. Memon Haji Ismail Haji, where it was held that, absent an express or implied acceptance of the claim by the new Sovereign, municipal courts lack jurisdiction.

The issue before the Court was therefore whether the enquiry into the claim had advanced to the stage at which the act of State was no longer operative. The Court observed that the argument that the matter formed part of an act of State had not been specifically raised before the High Court. Nevertheless, as the Judicial Committee had pointed out in Vale Singh Ji Joravar Singh v. Secretary of State for India, the mere invitation to submit claims does not itself terminate the act of State; the decisive factor is the acceptance of the claim, either expressly or impliedly, by the new Sovereign.

In this case the Court observed that the order made under the Extra Provincial Jurisdiction Act was intended solely to permit an investigation of the claims and not to accept them. Acceptance of a claim would have bound the new sovereign State and would therefore have terminated the act of State. However, because no acceptance—whether expressed or implied—had occurred, the sovereign retained the right to reject the claim, and that right remained exercisable. The Court referred to the authority in Vaje Singh Ji’s case, where Captain Buckle conducted enquiries in 1868 and the investigations continued for sixteen years before the claims were finally rejected; that rejection was upheld as an act of State. The Court noted that Vaje Singh Ji’s decision (3) had been relied upon in the two earlier cases cited by the learned counsel for the petitioner, Mr A V Viswanatha Sastri. Consequently, the Court concluded that the act of State could not be said to have ceased merely because the Government allowed the filing of claims or because its officer prepared a report. The Claims Officer was not a municipal court, and the Government did not submit itself to municipal‑court jurisdiction by entrusting the enquiry to him. Moreover, the investigation of the claims did not create a civil right for the claimants to enforce against the State. The enquiry, the Court held, was undertaken for the benefit of the State and not for conferring rights upon prospective claimants. The Government always retained the authority to admit any claim, even if the Claims Officer reported it adversely, although such a possibility might have been remote. Likewise, the Government possessed the paramount right to reject a claim that the Claims Officer considered satisfactory if the Government’s opinion differed. In short, until the Government or an officer capable of binding it formally accepted a claim, the act of State remained open, and the Court found that it was exercised in the present circumstances. Mr Chatterjee contended that, within the four corners of the order, the appellant was entitled to a hearing and that the Board of Revenue had not properly considered his case. The Court acknowledged that if the Member of the Board of Revenue entertained any doubt about the timeliness of the claim, he might have afforded a hearing. However, the enquiry’s purpose was merely to determine whether a claim should be recognised, not to conduct a trial between the appellant and the Government. To evaluate the enquiry with the same rigor as a judicial trial would effectively convert it into a civil suit. The Court noted that the appellant had been fully heard by the Claims Officer.

The only issue that remained for determination was whether the claim had been filed within the period prescribed by law. In any event, the Member of the Board of Revenue directed the appellant to furnish all relevant documents and to set out the arguments that he relied upon to demonstrate that his claim fell within the statutory limitation period, thereby giving the appellant an opportunity to present his case. The question of whether the Member of the Board of Revenue was required to proceed beyond this written submission and to conduct a live, oral hearing—often described as a viva voce hearing—was left to the discretion of that Officer, and no provision in the applicable law imposed a duty on him to do so. While the Court considered that granting such an oral hearing might have been a courteous measure for the appellant, the Court concluded that the absence of such a hearing did not create a ground for the issuance of a writ of mandamus or any other extraordinary remedy. Accordingly, the Court held that the appeals could not be sustained and ordered their dismissal. Furthermore, the Court decided that, given the circumstances, no costs would be awarded to either party. Thus, the appeals were dismissed.