Scindia Steam Navigation Co. Ltd. vs Union Of India (Uoi) on 31 August, 1961

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

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 31 August, 1961

Coram: K. Subba Rao, M. Hidayatullah, P.B. Gajendragadkar

The appeal was filed under a certificate issued by the Bombay High Court pursuant to Article 133(1)(a) of the Constitution. The certificate arose from a suit originally instituted on the original side of the Bombay High Court under Suit Number 232 of 1951. The suit had been brought by two companies, the Bombay Steam Navigation Company Limited, hereafter referred to as B.S.N., and the Eastern State Navigation Company Limited, hereafter referred to as E.S.N., against the respondent, the Union of India. The purpose of the suit was to recover a sum of Rs 64,699‑6‑0 claimed as freight charges for the carriage of logs of teakwood timber from the forests of Kanara to Karachi. In addition, a further sum of Rs 445‑4‑0 was claimed for storage charges incurred for those logs at Marmagoa. The claim for storage was abandoned during the hearing of the suit, and therefore the storage amount was not pursued further.

Subsequent to the filing of the suit, the Bombay Steam Navigation Company merged into the Scindia Steam Navigation Company Limited, which consequently substituted itself in the proceedings in place of B.S.N. The Scindia Steam Navigation Company therefore appeared as the first appellant before the Supreme Court. At the same time, the Eastern State Navigation Company was placed under liquidation. The liquidators of E.S.N. joined the litigation as plaintiff 2 and consequently were treated as the second appellant in the present appeal.

The Eastern State Navigation Company owned a vessel named Azadi. It appeared that the business affairs of E.S.N. were administered by B.S.N., which arranged freight on behalf of E.S.N. In the year 1947, an agreement was entered into between B.S.N., acting as the representative of E.S.N., and the Conservator of Forests for North Kanara, who acted on behalf of the North‑Western Railway. The agreement provided for the transportation of teakwood logs from the forests in Kanara, first by rail to the port of Marmagoa and subsequently by the steamer Azadi from Marmagoa to Karachi.

Under the terms of that agreement, a total of 636 tons of timber were loaded onto the steamer Azadi, which departed from Marmagoa on 23 July 1947. The conditions stipulated in the bill of lading granted the appellants the right to have the logs re‑measured upon arrival at Karachi. Nevertheless, the parties agreed that the freight would be calculated at a rate 70 percent higher than the measurements recorded by the forest department of South Kanara. In the original plaint, the freight claim was made on that basis. However, before the learned trial judge heard the case, the claim on that basis was withdrawn, and consequently the amount sought was reduced from Rs 64,699‑6‑0 to Rs 44,449. It was this reduced claim that formed the subject matter of the trial before the respondent, the Union of India.

Shortly after the steamer Azadi arrived at Karachi, the partition of India into the two Dominions of India and Pakistan took place on 15 August 1947, leading to a series of correspondences between the parties. The appellants were redirected from one authority to another, and ultimately their attempts to recover the amount due under the contract were unsuccessful, prompting the filing of the present suit against the respondent.

When the steamer reached Karachi, the political landscape changed because the partition of India into the two Dominions of India and Pakistan occurred on 15 August 1947. The partition triggered extensive written communication between the parties, which revealed that the appellants were repeatedly referred from one authority to another without receiving any assistance. Despite their repeated attempts, the appellants were unable to obtain the money that was due to them under the transportation contract. Consequently, they instituted the present suit against the respondent. The claim presented by the appellants relied primarily on Article 8(1)(b) of the Indian Independence (Rights, Property and Liabilities) Order, 1947, hereinafter referred to as “the Order”. In a secondary basis, the appellants also sought the same amount by invoking a Press Communique that they alleged the respondent had issued on 22 May 1948. The respondent denied the appellants’ claim on several grounds. First, it contended that the suit as drafted was not maintainable because the plaint did not disclose a cause of action. Second, the respondent argued that the suit was barred by the limitation period. On the merits, the respondent maintained that the appellants’ claim was not covered by the Press Communique and that the Communique could not give the appellants a valid cause of action. In addition, the respondent rejected the appellants’ contention that the relevant provision of the Order supported their claim, stating that such a justification was untenable.

The learned trial judge identified eleven substantive issues arising from the pleadings. The most important issue concerned whether Article 8(1)(b) of the Order applied to the appellants’ claim. After examining the facts, the judge concluded that the claim fell within the scope of that provision. In reaching this conclusion, the judge observed that on 15 August 1947 the North‑Western Railway, which had previously traversed provinces that later became part of Pakistan as well as provinces that remained in India, was split between the two Dominions. The portion allotted to Pakistan retained the name North‑Western Railway, while the portion that remained in India was redesignated as the Eastern Punjab Railway. The judge explained that if the timber shipped to Karachi was intended for the North‑Western Railway as a whole, then on the appointed date of 15 August 1947 the timber served the purposes of both the segment that became part of Pakistan and the segment that became part of India, now known as the Eastern Punjab Railway. Accordingly, the judge held that the contract could not be characterized as being exclusively for the purposes of the Dominion of Pakistan, a requirement for applying Article 8(1)(a). Therefore, the contract must be treated as one falling under Article 8(1)(b). Having resolved the principal issue, the judge then turned to consider the appellants’ alternative claim based on the Press Communique.

The trial judge considered the claim advanced by the appellants that relied on the Press Communique and determined that the Communique failed to furnish a legitimate basis for the claim. He held that the Communique was not an agreement executed between the two Dominions and consequently could not invoke the provisions of Article 3(1) of the Order. The appellants argued that the Communique represented a bilateral agreement between the Dominions, thereby bringing the respondent within the ambit of Article 3(1) and rendering the respondent liable for the amount claimed. The trial judge rejected this contention. He also dismissed the respondent’s plea of limitation, reasoning that the claim was preserved by an acknowledgment made by the respondent. The judge recorded findings on other issues, but those matters were not material to the present appeal. As a result, the trial court referred the appellants’ claim for Rs 42,449 to the Commissioner for accounts so that the precise amount due could be ascertained in accordance with the terms of the contract.

The respondent challenged the decree by filing an appeal before the High Court’s Court of Appeal. The appellate court affirmed the trial judge’s dismissal of the alternative basis upon which the appellants had relied. However, the Appeal Court differed on the question of the applicable provision of the Order, holding that the contract fell within Article 8(1)(a) rather than Article 8(1)(b). The appellate court concluded that, from the appointed date, the contract was exclusively for the purposes of the Dominion of Pakistan, and therefore the respondent was not liable under it. Because of this conclusion, the appellate court deemed it unnecessary to address the limitation issue. The appellants attempted to raise two further grounds before the Appeal Court, contending that the respondent was estopped from denying the validity of the claim and that a novatio had occurred which made the respondent liable. The Appeal Court treated both submissions as factual pleas that could not be introduced for the first time on appeal. Consequently, the appellate court reversed the trial court’s decree, dismissed the appellants’ suit with costs, and also dismissed the appellants’ cross‑objections for additional relief with costs, since the principal claim had failed. The appellants subsequently obtained a certificate from the High Court and, relying on that certificate, brought the present appeal before this Court.

When representing the appellants, the Court found it necessary to examine the specific provisions of the Order issued on 14 August 1947. The Order had been made by the Governor‑General exercising the authority granted to him by section 9 of the Indian Independence Act and by all other powers that enabled him to act in that capacity. The Order designated 15 August 1947 as the appointed day. Article 3(1) of the Order stipulated that its provisions concerned the initial distribution of rights, property and liabilities that arose from the creation of the Dominions of India and Pakistan, and that these provisions would operate, among other things, subject to any agreement reached between the two Dominions. Articles 4 and 5 dealt respectively with the disposition of land and the vesting of such land in the two Dominions in the manner prescribed therein. Article 6 extended the application of Articles 4 and 5 to all goods, coins, bank‑notes and currency notes that, immediately before the appointed day, were vested in His Majesty for the purposes of the Governor‑General in Council or of a Province, treating them as if they were land that had been vested. The provision that was directly relevant to the present appeal was Article 8(1), which states that any contract made on behalf of the Governor‑General in Council before the appointed day shall, from that day onward, be treated as follows: (a) if the contract concerns purposes that, from that day, are exclusively the purposes of the Dominion of Pakistan, it shall be deemed to have been made on behalf of the Dominion of Pakistan instead of the Governor‑General in Council; and (b) in any other circumstance, it shall be deemed to have been made on behalf of the Dominion of India instead of the Governor‑General in Council. Moreover, all rights and liabilities that have accrued or may accrue under such a contract shall, to the extent that they would have been rights or liabilities of the Governor‑General in Council, become the rights or liabilities of the Dominion of Pakistan or the Dominion of India, as the case may be. The Court noted that it was not necessary to reproduce the remaining provisions of the Order for the purposes of this judgment.

The Court observed that the question concerning the scope and effect of the two sub‑clauses of Article 8(1), namely (a) and (b), had previously been considered by this Court in Union of India v. Chaman Lal Loona, reported in the 1957 volume of the Supreme Court Reports at page 1039. In that earlier decision, the Court expressly approved two earlier judgments of the High Courts, and it was appropriate to refer to those decisions before proceeding further. The first of the approved decisions was rendered by the Bombay High Court in the case of Union of India v. Chinubhai Jeshingbai, reported in the 1952 volume of the Bombay Law Reports at page 561. In that case the firm of Chinubhai Jeshingbai, which carried on its business at Baroda, executed three sale notes dated 10 March 1947 to purchase from the Government of India certain quantities of long‑cloth that were then located at the Ordinance Parachute Factory in Lahore. The sale notes formed the basis of the contractual relationship that became the subject of the litigation.

In the case before the Bombay High Court, the plaintiff, the firm of Chinubhai Jeshingbai, had paid the sum of Rs 37,000 and a small additional amount to the defendant, the Union of India, under three sale notes dated 10 March 1947. One of the essential stipulations in those notes required that the goods identified as the subject of the contract be duly stamped. However, because serious communal riots broke out in Lahore in August 1947, the stamping could not be carried out and the goods remained unstamped even after the political division of the territory by the Independence Act of 15 August 1947. As a result, the plaintiff was unable either to obtain performance of the contract or to recover the amount it had paid, whether from the Government of India or from the Government of Pakistan. Consequently, the plaintiff instituted suit seeking the recovery of the payment. Justice Coyajee, who tried the suit at first instance, granted the plaintiff’s claim and entered a decree in its favour. On appeal, that decree was set aside and the appellate court remanded the matter for the determination of a specific issue that it had formulated. The issue put to the trial court was whether, on the appointed date of 15 August 1947, the goods referred to in the three sale notes were situated in the territory that became the Dominion of Pakistan under the Independence Act. In considering that question, the High Court examined the meaning of Article 8(1)(a) and Article 8(1)(b) of the Act and observed that the provisions prescribed an artificial test. The test, the Court explained, could be applied in two ways: first, if the contract had been entered into on 15 August 1947, one should ask whether the contract would have been for the purposes of the Dominion of Pakistan; second, if the Dominion of Pakistan already existed at the time the contract was made, one should ask whether the contract would have been for the purpose of Pakistan. The Court found the formulation of this test difficult to reconcile with the proposition that a State or Dominion could enter into a contract concerning its own property or goods and yet the contract would not be for the purposes of that State or Dominion. Accordingly, the Court held that, in applying the tests prescribed by Article 8, it was necessary to determine to whose ownership the property or goods forming the subject-matter of the contract belonged on the appointed day. In the present case, the trial court had not recorded any finding as to the location of the goods on the relevant date, and therefore the appellate court framed an issue to obtain that determination and remanded the matter for a finding. The Appeal Court expressed the view that if the goods were found to be located in Pakistan and thereby became property of Pakistan, the contract would unquestionably fall within the scope of Article 8(1)(a) and not within Article 8(1)(b). The Court then referred to another authority, the judgment of the Calcutta High Court in Krishna Ranjan Basu Ray v. Union of India, which dealt with a suit for compensation for non‑delivery of goods consigned to the Bengal and Assam Railway before 15 August 1947 for delivery at a place that had subsequently become part of Pakistan.

The High Court concluded that a claim for the carriage of goods that had fallen to Pakistan could not be maintained against the Union of India. In reaching this conclusion the High Court observed that it was erroneous to treat the earning of profit as the purpose of the contract. According to the court, the real purpose of the contract was the carriage of goods, and when the destination lay at a point in Pakistan it was reasonable to consider that the purpose of the contract was the purpose of the Dominion of Pakistan. Conversely, when the carriage was directed to a point that remained within the Indian Dominion, the purpose of the contract was deemed to be the purpose of the Dominion of India. The High Court’s opposite view in the case Union of India v. Loke Nath Saha was expressly dissenting from this reasoning.

The Court then turned to the judgment rendered by this Court in the case of Chaman Lal Loona ([1957] S.C.R. 1039). Justice S.K. Das, speaking for the Court, framed the question for determination as follows: “What is the proper meaning of the expression ‘a contract for the exclusive purposes of the Dominion of Pakistan’?” He answered that question by stating, “We assent to the view expressed by Chagla, C. J., in Union of India v. Chinubhai Jeshingbhai ((1952) 54 B.L.R. 561) and quoted with approval the tests to which we have already referred.” The learned judge further affirmed the decision in Krishna Ranjan Basu’s case and rejected the contrary view expressed in Union of India v. Loke Nath Saha.

In the Chaman Lal Loona case this Court examined a contract that had been entered into on behalf of the Governor‑General in Council for the supply of fodder to the Manager of Military Farms at Lahore Cantonment, a location that lay in Pakistan on the appointed day of 15 August 1947. The trial court had held that the contract could not be enforced against the Union of India. The High Court overturned that finding on the ground that the fodder constituted military stores under the exclusive control of the joint Defence Council on the appointed day and that, therefore, it could be transferred anywhere in India. This Court, however, held that even assuming the High Court’s view that the fodder was liable to be transferred anywhere in India, the contract must still be regarded as one exclusively for the purposes of Pakistan, and consequently the Union of India could not be held liable under it.

The Court’s conclusion rested on the principle that the purpose of a contract must not be confused with the ultimate disposal of the goods supplied under it, because such disposal cannot determine or modify the nature of the contract. Accordingly, when assessing the character of the contract in the present appeal, the Court indicated that one of the two artificial tests previously approved by this Court must be applied. The Court then posed the question whether the application of either of those tests would justify the answer given by the Appeal Court.

In this appeal the principal issue that the Court had to resolve was whether the contract in dispute was to be regarded as a contract for the Dominion of Pakistan. The Court observed that the identity of the official who signed the contract was irrelevant for the purpose of applying Article 8(1). The contract had been executed by the Conservator of Forests, Kanara, but that fact did not affect the character of the contract. Likewise, the fact that the contract had been made on behalf of the North‑Western Railway was not a determinative factor. The Court noted that all contracts entered into before the appointed day had been executed by officers of the Government of India or on its behalf, and both the trial court and the High Court had correctly held that the initial party who concluded the contract with the appellants was of no consequence in ascertaining its nature. The respondent’s argument that the contract was made on behalf of the North‑Western Railway, which had since been divided into a Pakistani section (still called North‑Western Railway) and an Indian section (now called Eastern Punjab Railway), was also rejected. Even if the railway that gave rise to the contract now operated solely in Pakistan, the Court said that this circumstance was hardly relevant to the character of the contract. The appropriate approach, according to the Court, was to examine the substance of the agreement rather than its formal labels or the identity of the parties that signed it.

The Court then turned to the factual matrix concerning the timber that had been shipped to Karachi under the contract. It was acknowledged that the timber was intended for the North‑Western Railway as an entity taken as a whole, and there was no evidence on record indicating that the timber was meant specifically for the portion of the railway that passed through Sind or Western Punjab, areas that later became part of Pakistan. Nonetheless, the Appeal Court had found that the timber remained in Karachi from 15 August 1947 until December 1947, and it was therefore established that the goods were situated in the Dominion of Pakistan on the relevant date and had actually been employed for the purposes of the North‑Western Railway operating in Pakistan. The Court reaffirmed the principle that the purpose of a contract should not be conflated with the eventual user or disposal of the goods. It observed that the trial judge appeared to have been somewhat influenced by the original intention that the timber would serve the North‑Western Railway as a whole, and because the railway’s operations were not confined solely to Pakistan, the contract could not be said to be exclusively for the purpose of Pakistan. In that context, the Court accepted the finding of the Appeal Court that there was no doubt the timber lying in Karachi between August 15 1947 and December 1947 had indeed been used by the North‑Western Railway, which at that time fell within the share of the Dominion of Pakistan.

In applying the tests that this Court has previously approved, the court first posed the hypothetical question: if the contract in dispute had been concluded on 15 August 1947, would that contract have been a contract made for the Dominion of Pakistan? The court examined the nature of the agreement and noted that it was a contract for the carriage of teak‑wood logs from the Kanara forests to Karachi, intended for use by the railway. The contract specified Karachi as the place of delivery, and the purpose of securing the timber was its use on the railway. From these facts, the court found it difficult to accept that, had the contract been made on the appointed date, it would have been exclusively for the purposes of the Dominion of Pakistan. The court held it would be inconceivable for a contract dated that day to provide for the shipment of goods to Karachi unless the contract were intended for the Dominion of Pakistan. Moreover, if the contract had even partially served Indian interests, the term requiring shipment of all the goods to Karachi would not have been part of the agreement. Applying the alternative test produced the same result: if Pakistan had existed on the date of the contract, the court concluded that the contract as formed would clearly have been for the purposes of Pakistan. The court observed that this aligns with the view of the Appeal Court and found no reason to depart from that conclusion.

The Appeal Court had taken into account that, by virtue of Article 6 of the Order, the goods in question had become the property of Pakistan, meaning that on the appointed day the goods whose shipment formed the subject matter of the contract belonged to Pakistan. The court therefore saw no way to avoid the conclusion that applying either of the two artificial tests prescribed by Article 8(1) would inevitably lead to the finding that the contract was made exclusively for the purposes of Pakistan. The court recalled that the tests articulated by the Bombay High Court in Chinubhai Jeshinghbai ((1952) 54 B.L.R. 561) had been expressly approved by this Court in Chaman Lal Loona ([1957] S.C.R. 1039). Although the significance of the vesting of title in the goods under Article 6, which the Bombay High Court had emphasized, was not expressly noted by this Court, the court regarded any argument that this omission meant the judgment was not approved as merely technical. Consequently, the court was inclined to hold that the alternative tests expressly approved by this Court are wholly consistent with the consideration of ownership highlighted by the Bombay High Court and remain relevant and material in applying those tests.

The Court observed that the approach taken by the Bombay High Court concerning the importance of ownership was fully consistent with the tests that this Court had previously approved. The Court emphasized that the question of who owned the goods was both relevant and material when applying those tests. Accordingly, the Court held that if the goods which formed the subject matter of the contract had, by the relevant date, become the property of Pakistan, then that fact would be a crucial consideration in determining whether the contract, if it had been concluded on the appointed day, would have been concluded by Pakistan, or whether Pakistan would have been the party to the contract if it had existed on the actual date of the contract. On the basis of that analysis, the Court concluded that the decision of the Appeal Court was correct. The Appeal Court had found that the contract in dispute fell within the ambit of Article 8(1)(a) of the Order. The Court further noted that the appellants’ assumption that Article 8(1)(b) could be invoked against the respondent was not supported by the facts or the legal principles, and therefore that assumption was not well‑founded.

The Court then turned to the next issue, namely whether the appellants could sustain their claim on the alternative ground of the Press Communique. The Press Communique, as reproduced by the Court, stated that the Government of India had been considering for some time the arrangement for speedy payment of outstanding claims for supplies and services rendered to the undivided Government of India before the partition. The Communique explained that at the time of partition the two Dominions had agreed that each would pay the claims arising in its own area, subject to later adjustment, especially for claims relating to territories that would become part of Pakistan. It further observed that many such claims remained unpaid because of disturbances in Punjab, large movements of population, and the cessation of payments by the Pakistan Government in mid‑December of the previous year due to a dispute over liability. To avoid hardship to suppliers and contractors, the Government of India, after careful consideration, decided to assume the initial liability for those payments and to recover Pakistan’s share through a debt‑settlement arrangement. Mr Purshottam argued that this Communique constituted a binding agreement between the two Dominions and that, under Article 3(1) of the Order, the appellants could rely on that agreement even if their claim under Article 8(1)(b) failed. The lower courts rejected that argument, holding that the appellants had not shown that the Communique was an agreement; instead, the courts interpreted it as a unilateral declaration by the Union, which could not invoke Article 3(1). Mr Purshottam contested that conclusion and, in support of his position, presented the entire relevant correspondence. The Court summarised the correspondence, noting that on 10 July 1948 the Director‑General of the Railway Department of the Government of Pakistan in Karachi wrote to the General Manager of the North‑Western Railway in Lahore concerning the disposal of pre‑partition claims, thereby setting out the contents of the Press Communique that the appellants relied upon.

The correspondence concerning the disposal of pre‑partition claims that remained outstanding against the undivided Government of India began with a letter from the Director‑General of the Railway Department of the Government of Pakistan, Karachi. In that letter, dated July 10, 1948, the Director‑General set out the contents of the Press Communique on which the appellants relied. Subsequently, the Collector of Stores in Karachi drew the appellants’ attention to the same Communique by a letter dated July 19, 1948. In the course of their dealings with the railway authorities, the appellants sometimes described the Communique as a joint press notification. Likewise, in letters addressed to appellant 1, the railway authorities in Pakistan also referred to the Communique as a joint notification “said to have been issued by the Dominions of India and Pakistan.” The record also contains several letters from railway authorities in India that indicate the appellants’ claim was being examined by those authorities. For example, a letter from the Headquarters Officer at Delhi to the Stores Accounts Officer of the Eastern Punjab Railway in Delhi identified the appellants’ claim under serial numbers 4 and 5 and instructed the Stores Accounts Officer to deal with it. Later, the Administrative Officer of the Eastern Punjab Railway in Delhi wrote to appellant 1 informing that the claim had been entered into the register and that further action would be taken after the Railway Board issued its orders.

The appellants continued to remind the railway officers of their claim, and on August 5, 1950, their attorneys were informed that the claim was still under verification by the North‑Western Railway. They were told that the claim could not be finalised until it was verified by the Financial Accounts and Control Accountant Officer of the North‑Western Railway at Lahore. The appellants’ attorneys subsequently inquired how long the verification process would take, but they received no satisfactory response. As a result, the appellants instituted the present suit. It is evident, however, that attempts were made by the Indian railway authorities to obtain verification of the claim, but those attempts were unsuccessful. The learned Attorney‑General, on behalf of the respondent, filed an affidavit signed by Mr. R. L. Takyar, Legal Assistant of the Northern Railway, Baroda House, New Delhi. The affidavit states that, following assurances given by the learned Advocate‑General before the Bombay High Court, the respondent made efforts to have the claim verified, yet those efforts failed. The affidavit further observes that, in the absence of verification of the claim and without authorisation from the Government of Pakistan, the Union of India could not make any ex‑gratia payment to the appellants. While the Court sympathised with the appellants’ grievance—that they had been sent from one authority to another and had received no satisfaction of their claim from either the Government of Pakistan or the respondent—it noted that the statements in the cited correspondence did not substantiate the appellants’ contention that the Communique constituted an agreement between the two Dominions. The Court further observed that the appellants should have taken appropriate steps to prove the existence of such an agreement and should have called upon the respondent to produce all relevant documents concerning the alleged agreement.

It was observed that the appellants ought to have taken the appropriate steps to prove the alleged Communique and should have required the respondent to produce every document that related to the supposed agreement on which the appellants based their claim. Moreover, the very wording of the Communique itself contradicted the notion that the Communique constituted an agreement between the two Dominions. The Communique explicitly mentioned that the Pakistan Government had stopped making payments around the middle of December because of a difference of opinion between the two Governments regarding the liability for those payments. It further recorded the respondent’s decision that, in order to prevent hardship to suppliers and contractors, the respondent would initially assume responsibility for the payments and later recover Pakistan’s share through a debt‑settlement arrangement. Occasional references in the correspondence by Pakistani authorities to the Press Communique as a joint Communique did little to assist the appellants in demonstrating that the Communique resulted from a bilateral agreement. While it could not be ruled out that some form of understanding existed between the Dominions—since the conduct of Indian railway authorities could be explained only on the basis of some agreement—the appellants failed to produce sufficient or satisfactory evidence to prove that a specific agreement had been reached that would bring Article 3(1) of the Order into play. On the basis of the material placed before it, the lower courts had concurrently found that no such agreement had been proved. After reviewing the correspondence highlighted by the Court, it was concluded that the appellants could not successfully challenge the validity or correctness of that concurrent finding. Consequently, if the theory of a bilateral agreement collapsed, the Press Communique could not be used to support the appellants’ claim against the respondent, and the unilateral statement contained in the Press Communique did not, by itself, sustain the claim.

The appellant, Mr Purshottam, then attempted to argue that the respondent was estopped from denying its liability under the contract and also sought to rely on the doctrine of novatio. He contended that the factual basis required to plead estoppel and novatio was already present in the record and that, in the interest of justice, he should not be barred from raising those points merely because the appellants had not raised them before the trial court. The Court was not persuaded by this line of argument. It was made clear that both estoppel and novatio are pleas that can be effectively advanced only after the relevant and material facts have been pleaded, and no such material facts had been set out in the plaint on which either plea could rest. Moreover, no issue relating to either plea had been framed in the trial court. Accordingly, the appellate court was justified in refusing the appellants leave to raise those pleas for the first time on appeal. The Court therefore concluded that the appeal could not succeed and ordered its dismissal with costs.

The Court observed that the appeal court had correctly refused permission for the appellants to introduce the pleas of estoppel and novatio for the first time at the appellate stage. The Court disagreed with Mr Purshottam’s contention that the appellate court had been excessively technical in denying leave. It noted that the pleadings before the trial judge contained as many as eleven distinct issues and that the plaint itself was a detailed and comprehensive document. Consequently, the Court held that the appellants could not justifiably claim prejudice for their failure to make adequate and precise pleadings at the trial level, and for that reason they could not be allowed to raise new pleas at the appeal. In the Court’s view, the appellate court was therefore right to deny the request to raise the said pleas. As a result, the appeal was dismissed and costs were awarded against the appellants. The judgment was delivered by Subba Rao, J.

Judge Subba Rao, J. further expressed that he could not concur with the application of Article 8(1) of the Indian Independence (Rights, Property and Liabilities) Order, 1947, to the facts of the present case. He referred to the full exposition of the facts in the earlier judgment of his colleague, Gajendragadkar, J., and chose to restate only those facts that were pertinent to the question raised under Article 8(1). According to those facts, the Eastern Steam Navigation Company owned a vessel named “Azadi.” In 1947 the Bombay Steam Navigation Company Limited, acting on behalf of the Eastern Steam Navigation Company, entered into an agreement with the Conservator of Forests, North Kanara, who acted on behalf of the North‑Western Railway. The agreement provided for the transport of teak‑wood logs from the forests of Kanara by rail and from Marmagoa by the steamer “Azadi” to Karachi. On 23 July 1947, a consignment of 636 tons of timber was shipped on the “Azadi” and arrived in Karachi on 27 July 1947. On 15 August 1947 the sub‑continent was partitioned into the Dominions of India and Pakistan. Prior to partition the North‑Western Railway, although headquartered at Lahore, operated trains across a region that after partition lay partly in India and partly in Pakistan. Following partition the railway was divided, with the Indian portion becoming the Eastern Punjab Railway and the Pakistani portion retaining the name North‑Western Railway. Subsequently the Eastern Steam Navigation Company went into liquidation, and the Bombay Steam Navigation Company merged with the Scindia Steam Navigation Company. The two resulting companies filed Original Suit No. 232 of 1951 in the High Court of Judicature at Bombay, exercising its ordinary original civil jurisdiction, against the Union of India to recover the freight due, originally claimed as Rs 64,699‑6‑0 and later reduced to Rs 44,449.

In the earlier proceedings, the trial judge had concluded that the contract whose performance was in question was intended for the purposes of the Dominion of Pakistan as defined by Article 8(1) of the Order, and therefore he held that the suit could be brought against the Union of India. On appeal, the Chief Justice and a puisne judge reversed that view. They reasoned that, because on the appointed day the goods covered by the contract were owned by Pakistan, the contract must be regarded as being exclusively for the purposes of the Dominion of Pakistan. Consequently, they disagreed with the trial judge’s analysis and dismissed the suit. The present appeal arose from that dismissal.

Counsel for the appellants argued that the phrase “purposes” in Article 8(1) should be interpreted to refer to the purpose of the contract itself – namely, the purpose of supplying goods to the North‑Western Railway – and not to the ownership status of the goods on the appointed day. They contended that the Bombay High Court division bench had erred in allowing the fact that the goods belonged to Pakistan at the appointed date to influence the determination of the contract’s purpose. In their view, because the contract was intended to supply the North‑Western Railway, and because the railway as a whole did not lie wholly within the Dominion of Pakistan on the appointed day, the contract could not be said to be exclusively for the purposes of that Dominion. The Attorney‑General, on the other hand, submitted that Article 6 of the Order provided that the goods which formed the subject‑matter of the contract vested in the Dominion of Pakistan on the appointed day, and therefore the contract must be treated as being for the purposes of Pakistan.

The Court noted that the dispute centred on the construction of Article 8(1) of the Order and therefore began by quoting its full text. Article 8(1) provided that any contract made on behalf of the Governor‑General in Council before the appointed day would, from that day forward, be deemed to have been made on behalf of the Dominion of Pakistan if, as of that day, the contract was for purposes that were exclusively those of Pakistan; otherwise, the contract would be deemed to have been made on behalf of the Dominion of India. The provision further stated that all rights and liabilities accruing under such a contract would, to the extent that they would have been rights or liabilities of the Governor‑General in Council, become the rights or liabilities of the Dominion of Pakistan or the Dominion of India, as appropriate.

The Court then referred to its earlier decision in Union of India v. Chaman Lal Loona, where it had explained the true scope and effect of Article 8(1). In that case, the Court had endorsed observations of the Chief Justice in Union of India v. Chinubhai Jeshingbhai, indicating that the appropriate test was an artificial one. The test required asking, if the contract had been entered into on 15 August 1947, whether it would have been a contract for the purposes of the Dominion of Pakistan, or, alternatively, whether the contract would have been for the purposes of Pakistan had that Dominion existed at the time the contract was made. This formulation of the test would guide the Court’s analysis of whether the contract in the present matter should be treated as one for the exclusive purposes of Pakistan or India.

In the earlier decision the Court explained that the test to be applied to a contract was whether, if the contract had been entered into on 15 August 1947, it would have been a contract exclusively for the purposes of the Dominion of Pakistan. In the case that was considered, the contract’s purpose was to supply fodder to the Manager of the Military Farms at Lahore Cantonment, and those farms were situated in Pakistan on the appointed day. Accordingly, the Court held that from the appointed day the contract was wholly for the purposes of the Dominion of Pakistan. The present dispute raises a different issue. It asks whether, irrespective of the original purpose of a contract, the purposes must be deemed to be exclusively those of Pakistan if, on the appointed day, the goods covered by the contract had statutorily vested in the Dominion of Pakistan. That question was not answered in the earlier case and now must be answered in the present matter. The test formulated by Article 8(1) of the Order, as interpreted by this Court, requires an enquiry as to whether, assuming the contract had been concluded on 15 August 1947, it would have been a contract solely for the purposes of Pakistan. Although, by legal fiction, the contract’s date is imagined to be 15 August 1947, that fiction does not alter the contractual terms, including the purpose for which the parties entered into the agreement. Consequently, the purpose of the contract must be determined from the language of the contract itself and not from any extraneous consideration, whether statutory or otherwise. The scope of the legal fiction cannot be extended beyond the limits set by the Article.

The Court further observed that Article 8 applies not only to contracts that have been fully executed but also to contracts that remain executory or that have been broken. The term “purposes” must retain the same meaning in all three contexts. If the test based on the statutory vesting of the goods located in the Dominion of Pakistan on the appointed day were applied to each of these situations, an obvious inconsistency would arise. For example, with the present contract, if the contract had not been performed and the plaintiffs were required to sue for specific performance, the suit would have to be filed in India. If the contract had been broken and the plaintiffs sought damages, that suit likewise would be filed in India. Yet, if the contract had been performed and all the goods had arrived in Pakistan on the appointed day, the suit would have to be filed in Pakistan. Moreover, if the contract had been performed but only part of the goods had reached Pakistan on the appointed day while the remaining portion stayed within Indian territory, the suit would have to be filed in India. Such an inconsistency disappears when “the purposes of the contract” is understood in its natural sense—that is, the purposes for which the parties actually entered into the contract, which in the present case was to supply goods to the North Western Railway.

In this case, the Court observed that the Union’s argument contained a logical flaw. It said that a clear distinction must be made between the purpose for which a contract was entered into and the statutory vesting of the goods covered by that contract in either of the two Dominions. The Court emphasized that the purpose of the contract was neither defined nor altered by the later statutory vesting of the goods in the Dominion of Pakistan; that statutory vesting formed part of a scheme that was separate from the scheme embodied in Article 8 of the Order. The Court then set out the relevant provisions of the Order. Article 6 of the Order states: “The provisions of Articles 4 and 5 of this Order shall apply, in relation to all goods, coins, bank notes and currency notes which immediately before the appointed day are vested in His Majesty for the purposes of the Governor‑General in Council or of a Province as they apply in relation to land so vested.” Article 5(2) provides: “All land which immediately before the appointed day is vested in His Majesty for the purposes of the Province of Bengal shall on that day in the case of land situated in the Province of East Bengal, vest in His Majesty for the purposes of that Province; in the case of land situated in the Province of West Bengal, vest in His Majesty for the purposes of that Province; and in any other case, vest in His Majesty for the joint purposes of those two Provinces.” The Court explained that these provisions have no connection with the rights and liabilities of the respective Dominions arising from contracts entered into on behalf of United India with its citizens; those rights and liabilities are dealt with separately in Article 8, and the Court must look to that article to determine their effect. Articles 5 and 6 were introduced as a quick method to prevent disputes between the various provinces concerning movable and immovable property situated in them on the appointed day, and they formed only a part of a broader scheme for allocating assets among the provinces. The Court further warned that if the respondent’s argument were accepted, it would create several incongruities. It asked what the result would be if the head office of the railway were located in Lahore while most of the railway lines lay in the part of United India that is now India. Although the goods were intended for the railway and the entire railway lay outside the Dominion of Pakistan, the theory of vesting would deem the purpose to belong exclusively to Pakistan. The Court also considered the hypothetical situation where the whole railway was situated in India, the goods were shipped via Karachi, and on the appointed day the goods were physically in Pakistan while en route to India. Under the respondent’s view, although the real purpose was wholly for the Dominion of India, the vesting rule would convert the purpose to be solely for Pakistan. Conversely, the Court noted that if the contract’s purpose was for a railway operating entirely within the area that now forms the Dominion of Pakistan, the same reasoning would lead to inconsistent outcomes.

If, on the appointed day, the goods were situated in the Dominion of India, the Court said that the goods would be deemed to be for the purposes of India, even though the contract itself identified the purpose as being for the railway, which after partition is now entirely within the Dominion of Pakistan. The Court observed that in each of the hypothetical scenarios the original purpose of the contract was either for India or for Pakistan, yet to arrive at a conclusion that the purpose differed from the original intent would require the creation of another legal fiction, one that would assign a purpose based on the accidental location of the goods on the appointed day and also on the practical necessities of their transit. The Court then referred to the decision of a full bench of the Bombay High Court in The Union of India v. Chinubhai Jeshingbhai, reported at (1952) 54 Bom. L.R. 562. In that case, Chief Justice Chagla, at page 568, remarked that it was difficult to comprehend an argument that when a State or a Dominion executes a contract concerning property or goods that belong to it, such a contract is not a contract for the purposes of that State or Dominion. He noted that Sir Jamshedji had argued that the phrase “for the purposes” should be interpreted to mean a contract that benefits a particular Dominion. The Chief Justice rejected that test, stating that once it is accepted that the property belongs to a specific State or Dominion and that the State or Dominion enters into a contract with a third party concerning that property or goods, the contract is, by its very nature, for the purposes of that State or Dominion. He further observed that Article 8 creates a legal fiction that transforms, by operation of that fiction, a contract originally made by the Governor‑General in Council into a contract for the purposes of one Dominion or the other. The Court then described the facts of the Bombay High Court case. In March 1947, the Government of India possessed a quantity of long‑cloth that it intended to sell as surplus stock. Those cloth items were stored at the Ordnance Parachute Factory in Lahore. The plaintiffs, who were residents of Baroda, purchased the cloth by executing three sale notes on 10 March 1947. Consequently, the contract was expressly for the purchase of goods that were situated in Lahore. After the date of 15 August 1947, the goods remained under the control of the Dominion of Pakistan. The Court noted that, given those circumstances, the High Court could have been justified in holding that the contract was for the purposes of the Dominion of Pakistan, although the present judge did not express a definitive opinion on that point. One of the judges who participated in that decision expressed disagreement with the view that the original purpose of the contract should be displaced by the statutory location of the goods. He argued that irrespective of the contract’s original intent, the legal effect of the statutory situs of the goods upon which the contract was based would render the contract as being for the purpose of the Dominion in which the goods were situated on the appointed day; in the present case, that judge observed that although the goods were in Pakistan on the

On the appointed day the Court observed that the contract was not exclusively for the purposes of the Dominion of Pakistan. The issue had not been directly decided in Union of India v. Chaman Lal Loona ([1957] S.C.R. 1039, 1050), but the Court found that certain observations made in that case, although in a different context, were useful for this matter. In that earlier case the fodder had been supplied to the Military Farms at Lahore, while the Joint Defence Council possessed the power to control the fodder and to direct it to any location it chose. On that basis it had been contended that the purpose of the contract was not exclusively for the Dominion of Pakistan. The Court rejected that contention and explained, “We say this with great respect, but this line of reasoning appears to us to be due to a lack of proper appreciation of the distinction between the ‘purposes of the contract’ and the ‘ultimate disposal of the goods’ supplied under the contract. The purpose of the contract is not determined nor modified by the ultimate disposal of the goods supplied under the contract, nor even by the powers of control exercised over the goods after the contract had been performed by the respondent.” On the same reasoning the Court held that the purpose of a contract is distinct from the statutory vesting of the goods covered by the contract in any particular Dominion. Accordingly, after a fair reading of Article 8 of the Order, the Court held that the purposes of a contract must be those expressly mentioned in the contract, although either Dominion might have to be substituted for the Government of the United of India depending on whether those purposes could be said to be attributable exclusively to the Dominion of Pakistan. The Court then framed the simple question to be answered: what were the purposes of the contract? Once those purposes were ascertained, it was necessary to determine whether, on the appointed day, those purposes were exclusively for the Dominion of Pakistan. The Court examined the correspondence between the Conservator of Forests, who acted on behalf of the North Western Railway, and the appellants, together with the bill of lading, and found that the Company had agreed to carry the goods for the North Western Railway, Karachi, and that the freight was to be paid by that Railway. The original North Western Railway, the Court noted, had covered an area that today lay partly in Pakistan and partly in India. It was an accident that the portion of the Railway now in Pakistan continued to use the old name, while a new name had been given to the portion now in India; it was also possible that the Pakistani portion might later receive a new name. Consequently, the retention of the old name by the Pakistani sector did not affect the legal question. The Court emphasized that the substance of the arrangement, not its form, was the relevant consideration.

The Court observed that the decisive factor was the substance of the contract rather than its formal designation. It held that the objective of the agreement was to transport the merchandise to the railway that, after the partition, operated in both the Dominion of Pakistan and the Dominion of India. Consequently, the Court concluded that the contract’s purpose was not confined exclusively to the Dominion of Pakistan. Pursuant to Article 8(1)(b) of the Order, the Court explained that a contract whose purpose is not limited to one Dominion is to be treated as having been made on behalf of the Dominion of India instead of on behalf of the Governor‑General in Council, and that any liability arising under the contract therefore becomes the liability of the Dominion of India. In light of this reasoning, the Court set aside the decree issued by the High Court and restored the decree previously rendered by Justice Tendolkar. Accordingly, the appeal was allowed and costs were awarded throughout the parties. In a separate statement, the Court recorded that, in accordance with the judgment of the majority, the appeal fails and is dismissed, with costs accordingly awarded. The final order of the Court was that the appeal was dismissed.