# HARi CHAND MADAN GOPAL AND OTHERS v. STATE OF PUNJAB

- **Citation:** [1973] 2 S.C.R. 582
- **Court:** Supreme Court of India
- **Decided:** 1972-10-06
- **Bench:** J.M. Shela1, D. G. Palekar, K. K. Mathew, S. N. Dwivedi, Y. V. Chandrachud
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/hari-chand-madan-gopal-and-others-v-state-of-punjab-5877
- **Pages:** 16

## Headnote

The Indian Independence (Rights, PropfN'ty and Liabilities) Order,
1947, Cl. 8(3) and Punjab Partition (Comracts) Order, 1947, cl. 2(d)-
Scope of-Liability of appellant to respondent regarding contracts entered
into lVith tile p.rovince of P1111jah
Prior
to
pc.rtition-S. 63 Contract
Act-Re111ission of a part of the pro111ise hy the pron1issec effcc1ii·e even
ll'ithout consideration fron1 the pro111isor·.
Sometin1e in 1944 an agreen1ent was entered into bct\\'ecn the appel~
lant and the then Province of Punjab, whereby the appellant agreed to
act as a Clearing Agent (Foodgrains) for the sale a:!ld purchase of food.
grains on behalf of the Province on payment of a
qommission.
The
appellant obtained stock of rice from the Rationing Controllers .
On August 14, 1947, the Governor·Ge:neral issued, in exercise of his
power under s.9(1) (b) of the Indian lndep~ndence Act, 1947, the Indian
Independence (Rights, Property and Liabilities) Order,
1947. Clause
8(3) of the Order provided that any contract made o,r> behalf of the Province of Punjab, if it was not exclusively for the purpose of the Province
of East Punjab in India, was <le,111£d to have been made on behalf of
the Province of West Punjab in Pakistar"
On the same day, the Governor of the Prov(r.ce of Punjab also issued the Punjab Partition (Contracts)
Order, 1947.
Clause 2(d) of the Governor's Order provided that every
C:Ontract entered ink> on behalf of the Governor in accordance with s.175
of the Government of India Act, 1935, shall, in so far as it relates to
services to be rendered for-the benefit of areas \vithin the tV.'O new Pro·
v\r.ces of East Punjab and West Punjab, be deemed to have been entered
into with the t\\"O Provinces as t\vo sepa.ratc contracts having effect respectively in relation to the services to be rendered in each of the Provinces.
The Governor of Punjab also issued another Order, the Punjab Partitio.n (Apportionment of Assets and Liabilities) Order, 1947, for a gene·
ral financial settlement between the two new Provinces.
As the two new
Provinces did not arrive at any agreement, the Chief Justice of the Federal Court gave his a\vard according to which 60% of the total assets
were to go to the Province of West Punjab in Pakistan a.!ld 40% thereof
to the Province of East Punjab in India.
With respect to the stock supplied to the appellant, the appellant made
certain payments to the respondent, and the responde.rtt, State of Punjab,
sued the appellant for the balance.
The appellant, while denying liability, also contended that the liability if any, WM to the extent of 40%
only of the amount due.
The trial court substantially decreed the suit.
On appeal, the High Court reduced the amount payable by the appellant
to the respondent.
In appeal to this Court.
HELD : ( 1) It could not be contended by the appellant that the respondent had no right to sue on the basis that the rights under the contract accrued under cl. 8(3) of the Governor-General's Order, in favour
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HARi CHAND V. PUNJAB (Dwivedi, J.)
583
of the Government of West Punjab in Pakistan. It is qi. 2(a) of the
Governor's Order that applies to the contract. The clause deals with
contracts with continuing obligation'.
In the period when the contract of
agency was subsisting it created the relationship of principal and age'!t
between the contracting parties, and the relationship imposed mutual obhgations.
The appellant was bound to render the service of acting '!8 a
clearing agent and of purchasing and selling foodgrains for the Province
of Punjab.
The contract was not a completed contract, but one which
imposed th,e continuing obligation of rendering the service of an agent
on the appellant. Therefore, cl. 2(d) of the Governor's Order applied
and that clause itself provided for the bifurcation of a· single and indivisible contract into two separate contracts. [588C-F;" 591Al
(2) The fields of operation of the two Orders, the Governor-General's Order and the Governor's Or

## Text

_Characters 0–39,897 of 43,375. This is a partial read: ask again with offset=39897 for what follows._

582
HARi CHAND MADAN GOPAL AND OTHERS
A
v.
STATE OF PUNJAB
October 6, 1972
[J.M. SHELA1, D. G. PALEKAR, K. K. MATHEW, S. N. DWIVEDI
AND Y. V. CHANDRACHUD, JJ.)
The Indian Independence (Rights, PropfN'ty and Liabilities) Order,
1947, Cl. 8(3) and Punjab Partition (Comracts) Order, 1947, cl. 2(d)-
Scope of-Liability of appellant to respondent regarding contracts entered
into lVith tile p.rovince of P1111jah
Prior
to
pc.rtition-S. 63 Contract
Act-Re111ission of a part of the pro111ise hy the pron1issec effcc1ii·e even
ll'ithout consideration fron1 the pro111isor·.
Sometin1e in 1944 an agreen1ent was entered into bct\\'ecn the appel~
lant and the then Province of Punjab, whereby the appellant agreed to
act as a Clearing Agent (Foodgrains) for the sale a:!ld purchase of food.
grains on behalf of the Province on payment of a
qommission.
The
appellant obtained stock of rice from the Rationing Controllers .
On August 14, 1947, the Governor·Ge:neral issued, in exercise of his
power under s.9(1) (b) of the Indian lndep~ndence Act, 1947, the Indian
Independence (Rights, Property and Liabilities) Order,
1947. Clause
8(3) of the Order provided that any contract made o,r> behalf of the Province of Punjab, if it was not exclusively for the purpose of the Province
of East Punjab in India, was <le,111£d to have been made on behalf of
the Province of West Punjab in Pakistar"
On the same day, the Governor of the Prov(r.ce of Punjab also issued the Punjab Partition (Contracts)
Order, 1947.
Clause 2(d) of the Governor's Order provided that every
C:Ontract entered ink> on behalf of the Governor in accordance with s.175
of the Government of India Act, 1935, shall, in so far as it relates to
services to be rendered for-the benefit of areas \vithin the tV.'O new Pro·
v\r.ces of East Punjab and West Punjab, be deemed to have been entered
into with the t\\"O Provinces as t\vo sepa.ratc contracts having effect respectively in relation to the services to be rendered in each of the Provinces.
The Governor of Punjab also issued another Order, the Punjab Partitio.n (Apportionment of Assets and Liabilities) Order, 1947, for a gene·
ral financial settlement between the two new Provinces.
As the two new
Provinces did not arrive at any agreement, the Chief Justice of the Federal Court gave his a\vard according to which 60% of the total assets
were to go to the Province of West Punjab in Pakistan a.!ld 40% thereof
to the Province of East Punjab in India.
With respect to the stock supplied to the appellant, the appellant made
certain payments to the respondent, and the responde.rtt, State of Punjab,
sued the appellant for the balance.
The appellant, while denying liability, also contended that the liability if any, WM to the extent of 40%
only of the amount due.
The trial court substantially decreed the suit.
On appeal, the High Court reduced the amount payable by the appellant
to the respondent.
In appeal to this Court.
HELD : ( 1) It could not be contended by the appellant that the respondent had no right to sue on the basis that the rights under the contract accrued under cl. 8(3) of the Governor-General's Order, in favour
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HARi CHAND V. PUNJAB (Dwivedi, J.)
583
of the Government of West Punjab in Pakistan. It is qi. 2(a) of the
Governor's Order that applies to the contract. The clause deals with
contracts with continuing obligation'.
In the period when the contract of
agency was subsisting it created the relationship of principal and age'!t
between the contracting parties, and the relationship imposed mutual obhgations.
The appellant was bound to render the service of acting '!8 a
clearing agent and of purchasing and selling foodgrains for the Province
of Punjab.
The contract was not a completed contract, but one which
imposed th,e continuing obligation of rendering the service of an agent
on the appellant. Therefore, cl. 2(d) of the Governor's Order applied
and that clause itself provided for the bifurcation of a· single and indivisible contract into two separate contracts. [588C-F;" 591Al
(2) The fields of operation of the two Orders, the Governor-General's Order and the Governor's Order did not overlap and therefore the
question of one prevailing over the other did not arise .. [589GJ
(3) Clause 8(3) of the Governor'General's Order dealt with the don·
tracts which formed the subject-matter of s.177(1) of the Go~er\:iment
of India Act, 1935, that is, with contracts made by or on behalf of the
Secretary of State in Council for the purposes of the Province of Punjab
before the Government of India Act, 1935, was brought into force. It has
nothing to do with the contracts made by or on behalf of the Governor
of Punjab under s.175(3), Government of India Act, 1935, after March
1937. Clause 2(d) of the Governor's Order dealt with such contracts
made by or on behalf of the Governor under s. 175(3). [589A-GJ
State of Tripura v. The Province of East Bengal, [1951] S.C.R.
1,
State of West ]Jengal v. Sh"ikh Serajuddin Batley [1954] S.C.R.
378,
Union of India v. Chaman Lal Leena, [1957] S.C.R. 1039, State of West
Bengal v. Brindaban Chandra Pramanik, A.LR. 1957 Oal. 44 and Scindic.
Steam Navigation Co. Ltd. v. Union of India, [1962] 3 S.C.R. 412. explained.
( 4) (a) The arbitration award which brought about a financial adjustment between East Punjab and West Punjab did not deal with the
liabilities of third parties, like the appella,'T>t, to one or the other of the
Provinces. It did not direct that any amount due by a third party could
be recovered only to the extent of 40% of his liability. [591F-GJ
(b) There was no settlement between the appellant and the respondent that the former ·should recover only 40% of the amount due from
the appellant. No such settleme:nt could be spelt out from the correspondence between the parties. There was only a propo'3l to the appellant for settlement of the claims of the respondent and the sellers but the
appellant, i"5tead of unconditionally accepting the proposal, made an
alternative proposal, with the result that there. was no settlement between
the parties. There was no progress beyond he slage of proposal
and
counter-proposal. [59JG-H; 592G; 593A-FJ
(c) The appellant could not raise the pleas that the respondent had
represented to the appellant that it would recover only 40% of the amount
debited to the account of the erstwhile Province of Punjab, and hence
was estopped from claiming a higher amount because no such plea was
raised in the written statemeint: nor was an i··sue framed, nor \Vere arguments advanced in the trial court and High Court. The plea was not
raised even in the statement of case in this Court. [593F-H; 594C-D]
(d) But the minutes of meeting held between the representatives o't
the appellant aind the respondent showed that the respondent had de<~ded
584
SUPREME COURT REPORTS
[1973] 2 S.C.R.
to claim only 40% of the amount debited lo the account of Province of
Punjab ~cfore March 1948.
The respondent could not contend that tl1e
decision to recover only 40'/b \\.'l:lS ~ubject to the condition that the appellant should pay the scller5.
The mi:nutes of the meeting can be split
i~to two parts: (I) limiting the appellants' liability to 40%, •nd (ii)
payment of the amounts due to the sellers by the appellant; but the first
part is not dependent on the performance ·of the second
part. The
letters c.:nd subsequent c;o;:rduct indk\ate that in
~pite of the aosen~ of
consent hy the iippellants the respondent was paying the sellers from the
amount with it to the credit of the appellant, showing, that instead
of
insisting upon payment to the sellers. the ie:pondent was acting accord•
ing to :he appellant's propo.al that the sellers should be. paid by
the
respondent from the money with it to the credit of the appellant. Therefore, the respondent had decided to recover only 40% and no more. It
amounted to a remission of a part of the debt due by the app~Jlant under
s.63 of the Contract Act, 1872 and it i; not necessary that su~h remi•·
eion should be supported by c'onsideration.
Since, admittedly more than
40% of the total liability had already been paid to the respondent, nothing w•s due from the nppcllant a:nd hence the appeal should be allowed.
[5>-5A·B, O·H; 596A·C, P·H; 597A-B]
CtvrL AP1•nr.1,.~1r. JURISDICTION :
Civil Appeal No.
909
of 1967.
. Appeal by certificate from the judgment and decree dated
April 1. 1966 of the Punjab High Court at Chandigarh in Regular Fir~t Appeal No. 216 of 1960.
D. V. Patel,. P. C. Bhartari, J. B. Dadachanji, 0. C. Mathur,
anci R,1\'inder Narain, for the appellant.
A
B
c
D]
V. M. Tc:rkunde, Harbans Singh and R. N. Sachthey, for the E
respondent8.
The Judgment of the Court was delivered by
DwIVEDI, J. The factual framework of this appeal is set spatically in the undivid.ed geography of India during the Brifoh
period and temporarily during-1944 to June
1947. There are
three Jppellants :
( 1 ) Messrs Hari Chand Madan Gopal and Co., (2) Hari
Chand and ( 3) Sri Ram. The first appellant is a partnership
fim1, of which the. other two appellants are partners. Some time
F
in 1944 there was concluded an agreement between the first appelG
!ant and the Government of the Province of Punjab (hereinafter
called the Undivided Punjab).
By that agreement,
the first
appellant agreed to act as a Clearing Agent (Foodgrains) for the
sale and purchast' of foodgrains on behalf of the Undivided Punjab on payment of a commission.
The first appellant obtained
stock of rice from the Rationing Controllers of the districts which H
were after the Partition of India in August 194 7 included in the
State of East Punjab and are now included h the St1te of Ptmjab.
According to the State of Punjab (the plaintiff-respondent)
the
HARi CHAND V. PUNJAB (D11'il'edi, J.)
585
A price of the stock supplied by the said Rationing Contru!lcrs was
Rs. i2,15,178/4/ll. The stock was supplied in May and June,
1947. The first ~ppellant sold the said stock to persons m Delhi
and the United Provinces (now
called
Uttar
Prad~sh). The
plaint admits the receipt of three amounts :
( 1) a
sum
of
Rs. 2,91.817/13/llt, (2) a sum of Rs. 2,67,963/10.'l, collected
B
fronr various purchasers in Delhi and Uttar Pradesh lo whom the
first appellant had sold the ~tock, and (3) a sum of Rs. 20,000/-
paid by th~ first appellant. The aggregate of receipts th1~s comes
to Rs. 5,79,841/8/ t. Deducting the aggregate amount from the
total >mn due, there still remains an outstanding of Rs. 6,03,897 I
-/9. It is alleged in paragraph 9 of th~ plaint that on Jtily 29,
c 1953. the appcJJants admitted their
liability to pay
tlfe
said
amotmt.
The third appellant did not enter appearan.:e. The case proceeded e~-parte against him in the trial court.
The appellants Nos. 1 and 2 filed their first joint written stateD
ment on June 15, 1957. They pleaded that all rights and liabilities under the r1greement of 1944 have accrued in faycur of the
Government of We.st Punjab which forms part of Pakis:an
and
the respondent has no right to sue. They also pleaded that in the
meeting held on July 28 and 29, 1953 between the reprcsentatiVP,S
of the respondent and the first appellant. it was admitted on be-
~ half of the respondent that the first appellant, was liable to pay
only 40ic of the total amount.
11 is alleged1 that according to
the respondent the 40% of the total liability was Rs. 5,00,085/12
but according to the first appellant it was only Rs. 47,327 /6/9.
As the plaintiff has admitted in the
plaint
to
have received
Rs. 5,79,841/8/t. from and on behalf of them, there was in crdit
F
in favour of the fir,_t appellant a sum of Rs. 59,695/12/J. Tbe
written statement adds that according to the first appellant the
credit amount would be Rs. 86,510/1/3. It is asserted in
the
written statement that nothing was due by the appellants. The
writteu statement denies that the appellants Nos. 1 and 2 admitted
their liability to pay any amount in the meeting held on July 29,
1953.
.
G
Tile appellants Nos. 1 and 2 filed another writt~n statement
on June 2, 1959. In this written statement they reiterated their
pleas in the first written
statement.
They also added that the
Award of the Chaimian of the Arbitration Tribunal, dated March
17, 1944 determined the ratio of financial adjustment between
H
East Punjab and West Punjab in respect of assets and liabilities
of the Undivided Punjab as 40 : 60 and that accordin!!ly the respondent was entitled only to 40% of the amount due
by
the
appe!lants.
586
SUPREME COURT REPORTS
[1973]'2 S.C.R.
The trial courl decreed the suit of the respondent for a sum A
of Rs. 5,53,897/-/9. On appeal.the High Court of Punjab
reduced the decretal amount to Rs. 3,23,897 /-/9. Not feeling
satisfied with the judgment and decree of the High Court the
appellants Nos. I and 2 have preferred this appeal.
It is now necessary to set out the legal background against
B
which two of the appellants' arguments need to be examined. On
July 18, 19.47, the British Parliament enacted the Indian Independence Ace, 1947.
Section 1 (2) defines the expression "appointed day" as the 15th of August, 194 7.
On the said
date
there were born two independent Dominions, the Dom.inion
of
India a11d the Dominion of Pakistan. The Undivided India was
partitioned between the two
Dominions.
Consequently,
the
C
Undivided Punjab was split up into two Provinces, one called the
Province of West Punjab and the other the Province of
East
Punjab. Section 9( 1) (b) enabled the Governor-GencrJl 10 make
Orders for dividin;i between the new Dominions, and between the
new Provinces 1 ights and liabilities of the Governor-General in
Council and the relevant Provinces which were to cease to exist."
D
Sub-section (2) of s. 9 provided that the power conforrcd on the
Govcrncr-General by s. 9(1) (b) could, in relation to their respective provinces, be exercised also by the Governors of the provinces which would cease to exist on the appointed date.
On August 14, 1947, the Governor-General issued, in exercise of his power tinders. 9(l)(b), an Order called the InJian E
Independence (Rights, Property and Liabilities)
Order,
1947
(hereinafter called the Governor-General's Order). It came into
force at once. Clause 3 ( 1) of the Order provided that the provisions of the Order related to the initial distribution of rights, property and liabilities consequential on the setting up of the Dominions of India and Pakistan. The Order would have effect subject
F
to any award that might be made by the Arbitration Tribunal.
Clauses 8 ( 3) is important for our purposes and is reproduced in
extenso:
"8 (3) Any contract made on behalf of the Province of
the Punjab before the appointed day shall, as
from that dayG
(a)
(b)
if the contract is for purposes which as from that
day are exclusively purposes of the Province of
East Pun jab, be dt:emed to have been made on
behalf of that Province instead of the Province
of the Punjab, and
in any other case be deemed to have been made
on behalf of the Province of West Punjab instead of the Province of the Punjab;
H
---,,.,
HARi CHAND v. PUNJAB (Dwivedi, /.)
587
A
and all rights and liabilities which have accrued or may
accrue under any such contract shall, to the extent to
which they would have been rights or liabilities of the
Province of East Punjab or the Province of West Punjab, as the case may be."
8 .
On the same day, the Governor of the Undivided Punjab
issued an Order under s. -9 ( 2). The Order is called the Punjab
Partition (Contracts) Order, 1947 (hereinafter called the Governor's Order). The second paragraph in the preamble to the
Order recited that "whereas it was necessary to make provision
for division between the two new Provinces of the rights and obligations of the Governor of the Punjab in respect of contra,t,
C
deed~ .• covenants and all other matters hereinafter r~fcrred to",
accordingly the Governor was making the Order. The material
part of Clause :? ( d) of the Order, which is important for
this
case is set out here :
D
E
F
"2. With effect from the appointed day every contract made, deed executed or covenant entered into,
by or on behalf of the Governor of the Punjab in accordance with section 175 of the Government of India
Act, 1935, shall, for all purposes, in so far as it relates
to :
( d) ~crvice; to be rendered, in or for the benefit of
areas situated, within both the new Provinces,
be deemed to have been made, executed or entered into with the West Punjab Province and
the East Punjab Province, as two separate contracts, deeds or covenants having effect respectively only in relation to such services as am to
be 1endered in, or for the benefit, of the West
Punjab Province or the East Punjab Province;
&nd .......... "
The Governor of the Undivided Punjab issued· another Order
called the Punjab Partition (Apportionment of Assets and Liabilities) Order, 1947. Clause 6 of the Order provided that there
G would be a general financial settlement between the two new
Provinces, West Punjab and East Punjab in regard to all assets
and liabilities of the Undivided Punjab as they stood immediately
before thP, appointed day. It further provided that any award of
the Arbitrator given under Cl. 3 or Cl. 4 of the Order would be
taken into account iP. making general financial settlement.
The
H
two new Provinces did not arrive at any agreement regarding
financial settlement.
So the Chief Justice of the Federal Court
was appointed the Arbitrator. He gave his Award on March 17,
1948. According to the Award, 60% of the total assets were to
588
SUPREME COURT REPORTS
[1973] 2 s.c.R.
go to the Province of West Punjab and 40/c thereof to th~ Pro'.
vince of East Punjab.
The hr>! agument of counsel for the appeliants is d~' c'iopd
in this way: Clause 2(d) of the Governor"s Order deals with a
contract with '' continuing obligation and not with a completed
contract. The contract of agency between the ;ipμcllants and the
Undivided Punjab was a completed -contract. Accordingiy it was
not governed by the Governor's Order. It was govcrne-i
Dy
cl. }:•:3) of the Governor-General's Order. Clause 2'.di 0t the
Governor·s Order dealt with any contract made for "'sen ices to
A
B
c
be rendered".
Obviously clause 2(d) dealt with contract.; with
continuing obligations. The written contract in the present case
is not on record, but it is admitted that the contract was subsisting during May and June, 1947 when the appellants took stock
of rice from the Rationing Controllers of the districts which !Jll
into the new Province o( East Punjab and are now comprised i11
the Province of Punjab. In the period when the contract of
agency was subsisting it created the relationship of principal alld
agent between the contracting parties. That relationship imposed
D
mutual obligations on them.
The appellants were
bound to
render the service of acting as a clearing agent and of purchasing
and selling foodgrains for the Undivided Punjab.
The s~rvices
\\ere to be performed as long as the contract _remained in force.
It cannot accordingly be said that the contract between th~ appellants and the Undivided Punjab was a completed contract. On
E
the other hand, it was a contract which imposed a continuing
obligation of rendering the services of an agent on the appellant~.
In the iesult, cl. 2(d) of the Governor's Order would apply to
the contract.
·
The next argument is that Governor-General's Order ~nd the
Governor's Order occupied the same field.
On the analogy of F
s. 107 of the Goverr.ment of India Act, 1935, the fonncr Order
would prevail over the latter Order.
Counsel has cited a nwnber of cases in support of this· argument. But it is not necessary
to refer to them as we are of opinion that the two Orders did not
over-lap.
They operated in different fields.
Clauses 8 (2), Cl)
and ( 4) of the Governor-General's Order dealt with any contract
G
1 made "on behalf of the Province of West Bengal", "the Province
cf Punjab" and th~ "Province of Assam" before the appointed
day. Clauses 2, 3, 4 and 7 of the Governor's order dealt with
various cont:acts "wade by or on behalf of the Governor oi Punjab in accordance \'.·ith s. 175 of the Government of Jndi:1 Act,
1935", or rights &ml obligations of the Governor arising under n
those contracts.
The aforesaid difference in the phraseology of ,,
the two Orders is purposive. The phrase "on 'behalf of the .Provmce of Punjab" in Cl. 8(3) of the Governor-General's Order
HARi CHAND v. PUNJAB (Dwivedi, /.}
589
A shows that the contracts dealt with in that ckuse were th~ contracts which fom1ed the subject-matter of s. 177 ( 1) of the Government of India Act, 1935. Section 177 (I) provided that :my
contract made before the commencement of Part III of the said
Act by er on behalf of the Secretary of State in Council, would
B
from that date, if made for purposes which would after the commencement of Part III of the Act be purposes of the Government
of 3 Province. have effect as if it had been made "on behalf of
that Province" and 1eference in any such contract to the Secretary
of State in Council·would be construed accordingly. According
c to s.179(1! of that Act, such a contract could be enforced in a
suit against the prnvince concerned. So clause 8 (3) of the Governor-General's Order dealt with contracts made by or on behalf
of the Secretary of State in Council for purposes of the Punjab
Province before March 1937 when Part III of the Government of
India Act, i 935 was brought into force. Clause 8 (3) has nothD
ing to do with the contracts made by or on behalf of the Governnor of Punjab under s. 175(3) of the Government of India Act,
1935, after March 1937. Clause 2(d) of the Governor's Order
dealt with the contracts made by or on behalf of the Governor
under s. 17 5 ( 3). It would thus appear that the fields of opera•
E tion of clause 8 ( 3) of the Governor-General's Order and cl. 2 ( d)
of the Governor's Order were distinct and dikrete. They <lid not
overlap and there was no conflict between them.
In the State of Tripura v. The Province of East Be11gal( 1},
this Court construed the phrase "any liability in respect of any
F
ar.tionable wrong other than breach of contract" in cl. ( 1) of the
Governor-General's Oriler as including a liability to be restrained
by injunction from completing wha~ was a wrongful or unauthorised act already commenced.
The question that we are called
upon to decide in this case was not considered in that case.
G Counsel laid &tress on the Court's remark that "a wide and liberal
construction, as far as the language used would admit. should be
placed upon the terms of the order so as to leave no gap er
lacuna in relation to the matters sought to be provided for." It
is difficult to understand how this remark help;; the appel!ant> on
account of the construction that we are putting on the language
H of clause 8(3) of the Governor.General's Order. In the Stat~ of
West Bengal v. Shaikh Setajuddin Batley("), the PrO\·incc of
(1) [1951! S. C. R. 1.
(2) [1954] S. C, R. 378.
590
SUPREME COURT REPORTS
[1973] 2 s.c.R.
Bengal took certain premises on lease on February 6, 194 7. It A
agreed to pay a monthly rent of Rs. 1800/-. The purposes for
which the lease was entered into were exclusively th!) purposes of
West Bengal after August 15, 1947. It was held that the liability
to pay the amount was not a "financial obligation" contemplated
by cl. 9 of the Governor-General's Order and the Government of B
West Bengal was liable under cl. 8(2)(a) of the said Order to
pay the rent which had accrued upto August 15, 1947. It does
not appear that the Governor of the Province of Bengal had made
an order of the nature of the Governor's Order in tho present
case. At any rate, the Court was not referred to any such order. C
On the contrary, at page 382 of the Report it is said that the
Advocate-General of West Bengal fairly and frankly conceded that
in the absence of anything else that case would be wholly covered
by article 8 ( 2 )(a), but cont<lnded that by virtue of article 8 ( 6)
that a11icle was to have effect subject to the provisions of article
9. It is th us clear that the case was decided on the concession D
made by the Advocate-General and the question that has arisen
before us did not arise there. In Union of India v. Chaman Lal
Loona('), the contract was made on behali of the GovernorGeneral in Council and the question arising before us could not
arise there.
In State of West Bengal v. Brindaban Chandra
E
Pramanik(2), certain paddy was requisitioned under the Defence
of India Rules during the Second World War by the Province of
West Bengal. 111e amount of compensation was assessed under
rule 75-A of !he Defence of India Rules. That amount was not
paid by the Province of Bengal. After partiti1>n a suit was instiF
luted against the Province of West Bengal. The High Court of
Calcutta held that by virtue of cl.
10(2) of the GovernorGeneral's Order, the Province of West Bengal was liable to pay
the amount to the plaintiff whose paddy had been requisitioned.
In that case also the High Court was not called upon to decide
the question that arises ·before us. In the judgment there is. no G
reference to any Order made by the Governor of the Province of
Bengal. In Scindia Steam Navigation Co. Ltd. v. Union of
India('), the contract was made by the Governor-General in
H
(1) (1957) S. C.R. 1039.
(2) A.I. R. 1957 Cal· 44.
(3) [1962] 3 S. C. R. 412. ,
A
B
HARi CHAND I', PUNJAB (Dwivedi, /.)
591
Council. There the questio.n that faces us could not arise. None
d the <1foresaid decisions assist the appellants in this case.
It is then ;ubmitted that the contract of agency between the
appellants and the respondent was a single and indivisible contract and could not be split up at the will of the Government for
the purpose of imtituting a suit against the
appellants.
This
argumen~ is completely negatived by cl. 2 ( d) of the Governor's
Order. Clause 2 «!) provided that any contract made by the
Governor of J'1mj:ib in accordance with s. 175 of the Government
of India Act, i 935, in so far as it related, inter alia, to services to
b~ rendered "in (•r for the benefit of areas situated within both
the new Provinces, would be deemed to have been made, executed
C
or entered into with the West Punjab Province and the East
Punjab Pri>vincc. as two separate contracts". Each such separate
contract would have effect only in relation to "such services as
are to be rendered in or for the benefit of the West Punjab or
East Punjab Province".
Obviously cl.
2 ( d) itself provided for
the bifurcation (If ri single and indivisible contract into two sepa·
rate contracts.
D
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L:istly, it is suhmittcd that the Government could recover only
40'1~ .of the. total liability from the appellants.
This
argument
had been put in ~cveraL.ways. Firstly, it is pointed out that the
arbitration award of the Chief Justice of India, dated March 7,
1948 had distributed the total assets of the Undivided Punjab
hetwecn the West Punjab and East Punjab in the ratio of 60 : 40.
Consequently. the Government can recover from the appellants
only 40~·c of the total dues found due by them. As admittedly
the Government has recovered more than 40%, nothing remains
due by the appellants.
The trial court and the High Court did
not accept this argument. We are also unable to accept it.
The
arbitration award brought about a financial adjustment between
the West Punjab mid East Punjab. It did not deal with the liabilities of third parties like the appellants to one or the other Province. rt did not direct that an amount due by a
third
party
could be recovered only to the extent of 40% of his total liability.
According to the award. if more than 40% is recovered from the
appellants. the excess over 40% would become pay:1ole by the
Government to the West Punjab. Secondly, it is said that by
virtue of a settlement between the Government and the appellant~.
the former can. recover only 40% .of the amount found due by the
latter. The tnal court and the High Court have found that there
was no settlement between the parties, and we agree with them.
The so-ca1led settlement. is spelt out by the appellants from two
letters, dated.January 17, 1951.
One of the letters \~'as'written
by rhe Director of Food. Civil Supplies, Punjab to the first appellant and the other was a reply to it by the se~ond appellant on
3-L499 Sup. Cl/73
592
SUPREME COURT REPORTS
[1973] 4 s.c.R.
behalf of the first appellant. The subject-matter of lhe Director's
letter is "settlement of accounts". The Jetter opens with the state·
ment that "the auestion of settlement of claims of Government
and all sellers against your agency has been discussed at length'',
in the presence of certain Government representatives and Harl
Chand, the second appellant. The second paragraph of the letter
pertinently states : "lt appears that a settlement of these claims
will be possible in the following manner :
(a) This Government should realise only 40%
of
the amcunt debited to the Joint Punjab account
prior to March 1948 and the sellers on whose
behalf the amounts have been realised by Government should be paid by the Clearing Agents
through the Controller of Food Accounts and
the balance amount adjudged by the Committre
against the Clearing Agents may be paid by the
Clearing Agents direct."
Paragraph 3 requests : "kindly confirm if you are agreeable to
•this method of settlement". It is stated that the actual details of
the amounts due to the, Government and to the sellers would be
•urplied to the <•.ppellants later "on receivi,ng your acceptance as
:J.bove".
The second appellant in his reply letter said : "We
hereby confirm the arrangements embodied in your letter ..... .
subject to the following amendments .............. ( l) you
shall be entitled to a realisation on the basis of 40% out of the
amount realised by us on account of rice supplied by Rationing
Controllers; (2) after disbursing the balance to sellers for whose
supplies the amounts have been realised by you in our account,
the balance shall be utilised for the settlement of the claims of
other sellers against our agency."
It may be noted that in paragraph 3 of the written statement
the appellants had taken the plea that the settlement of January
17, 1951 was •·without prejudice".
The phrase "without prejudice" suggests that they had accepted the settlement without
prejudice to their rights. It is not a pleading that there was a
firm settlement between the parties:
It is
evi'Jent from the
Director's letter that he had only made a proposal to the appellants for the settlement of the claims of the Government and
sellers.
The proposal contained two essential and inseverable
terms. The inference that the letter made a proposal to the appeJ-,
!ant is supported by such phrases in the letter as "kindly confirm
if you are agreeable to this method of settlement", and "on receiving your acceptance as above". !The inseverable character of
the two terms follows from such expressions as "the question of
settlement of claims of Government and of sellers against your
agency has been discussed,"~'and" a settlement of these claims will
A
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HAR! CHAND v. PUNJAB (Dwivedi, J.)
593
A
be possible in the following mann<:r'',
Hari Chand's reply letter
did not uncondJtionaJly accept the Director's proposal. Instead,
he made an alternative proposGl.
According to the
Director's
letter, the Govenunent could recover ·lu;lo of the amount debited
to the Joint P~111j"n account prior to Marci1 1948 : according to
Hari Chand's reply the Government could recover 40'/o of
the
B
amounts realised by the appellants on account of rice supplied by
the Rationing Controllers. According to the Director's proposal,
the appellants should pay the sellers on whose
behalf certain
amounts had been realised from purchasers by the Government.
They should also pa) the sellers to whom payments were to be
made according to the decision of the Dellii Committee.
Hari
c
D
E
E
Chand, on the other hand, suggested that excess over 40%
recovered by the Government should be paid to the sellers for whom
the Government has recovered the amounts and that the balance,
if any, should be utilised in paying the remaining sellers.
There
is plainly substantial difference between the terms proposed by
the Director and the alternative term proposed by H<lri Chand.
lt has not been argued that the Government accepted the altern:itive proposal of Hari Chand. In the result, we are of opinion,
that there was no settlement between the parties. The things did
not move beyond the sfage of proposal
and
counter·proposal.
This inference is supported by three letters sent to the appellants
by the Dirnctor. food and Civil Supplies, the Controller of Food
Accounts and the Director General, Food and
Civil
Supplies,
dated September 22. 1951, November 22, 1951 and September
l 8. 1952 1cspectivciy
In all these letters it is insisted upon that
the appellants should settle the claims of the sellers,
The appeli:mts can derive no advantage from the word "settlem,!nt" in those
letters.
We are satiofied that the said word has been loosely used
therein.
Thirdly, it i~ said that as the Government had represented to
the appellants that it would recover only 40% of the amount
debited to the Joint Punjab account, it is now esropped from
claiming any higher amount. This argument cannot be raised at
this stage. The p!ca of estoppel was not taken by the appellants
G in their two written statements filed on January 15, 1957 and
June 2. 1959. No issue was framed on estoppel. No argument
lounded on estoppel was advanced by the appellants in the trial
court and the HigJ1 Court.
The argument is not rai>ed even in
the statement of case filed by the appellants in this Court.
As
we are not allowing the appellants to raise the plea of cstoppel
H
at.the stage of hearing. it is not necessary to deal with U•1io11 of
.fndia and others v. M /s lndo-Afghan Agencies Ltd. (1)
and
(I) [1968! 2 S. C.R. 366.
594
SUPREME COURT REPORTS
[1973) 2 s.c.R.
C entμry Svi1111i11g &. Manufacturing Company Ltd. and :motlier
A
v. The Ulhasnagar Municipal Council and another(').
Fourthly, it is said th\lt as the Government had decided to
claim only 40';.: of the amount debited to the Joint Punjab account before March 1948, the Government cannot now recover
more than that nmount.
While dealing with this argument, the
B
trial court said : .. These letters and other letters on the file which
have been referr~d to by the learned counsel for the defendants
do show that the Government had taken such a decision". How-
.:ver, the trial court did not accept the argument that the Government could not claim more than 40%. It does not appear from
the judgment of the High Court that this argument was recanvasc
scd before it, for the judgment of the High Court does not expressly deal with it. The argument is founded on the proceedings
of the meeting he!J on July 28 and 29, 1953 in the office of the
1 Cnntroller, Focd Accounts, at Simla.
In the meeting th~ second
appellant and the other partner Sri Ram were present on behalf
of the first appcll~nt. The other three persons who attended the
ll
meeting were the Government representatives. One of them was
the Deputy Cont;·oller, Food Accounts. The Deputy Controller,
food Accounts, explained the history of the controversy to the
meeting.
He said that the Government had been claiming 40%
0f the amount actually debited to the Joint Punjab account bef•)re March, J 94 ~ and payment by the appellants of the claims
of sellers for whom the Governme'nt had recovered
certain
E
amounts from the consignees.
Thereafter he stated the case. of
the appellants which was set forth in their reply letter of January
17, 1951. Then he stated that AO'.k of the amount actnally
debited to the Join: Punjab account came to Rs. 5,85,000/ 12/-
according to the Government and Rs. 4,73,271/6/9 according
to the appellants.
He admitted that the Government ha;; reF
covered two ;ums of Rs. 2,92,102/11/9 and Rs. 2,67,96'.l/10/l
from and on behal! of the appellants.
Thus the total recovery
was admitted to be Rs. 5,59,781/8/-t. Then he said that the net
credit in favour of tht Clearing Agents came to Rs. 59,695/12/!}
according to the Government and according to the Clearing
Agents it was Rs. 86,510/1/3t. Thereafter he added that they G
have "to settle all the accounts of all the sellers on whose behalf
the Punjab Government has recovered the money from the consignees and .the amounts found due to different sellers as
per
Delhi Committee proceedings by making cash payment to Government cf the amount found short".
He ended by saying that
the appellants ~.tated that they had settled the amounts of certain
H
seilers and that they promisel:l to settle the accounts of more
(I) 1970] 3 S. C.R. 85~.
HAR! CHAND v. PUNJAB (Dwivedi, J.)
595
A
,.;Hers by the third week of August, 1953. They were asked by
him to bring the payees' receipts with them ,in suppo1t of pay·
ments made to sellers.
While examining the implications of the aforesaid minutes of
the meeting, it is necessary to bear in mind <three things· One,
8
it is clear trom the letter of the Director General, Food and Civil
Supplies, to the Secretary, Government of West Punjab dated
March 31, 1948 that the Government of East l'unjab had great
sympathy for the pitiable plight of the appellants. The letter say
th<.t the Clearing Agents were unable to pay the amounts debited
to the Joint account of the Punjab Government before
Ma~ch,
l 948, because they had been uprooted from West Punjab where
c
they had huge property worth 27 lakhs in the shape of mills, agri·
cultural lands and other movable and immovable properties, be·
cause large amounts were due to them from West Punpb Government on account of the supply of foodgrains J:>y them, because
there were alsn other dues payable to them on account of securi·
ties and shares .in wholesale Pacca Ahrties Association and Syndi·
D
cate in West Punjtb and because the commission due to them to
the tune of Rs. 7 lakhs by Undivided Punjab was not being paid
iO them.
It is said that on account of their financial difticulties
the Government had decided that Rs. 12,55,214/6/3 payable by
them should be debited to the Joint Account of the
Undivided
Punjab and that ail recoveries in respect of those dues relating to
E
the ::ire-partition period and payable at Lahore should be credited
to the Joint Account. Second, the Government was not leg:illy
liable to pay the sellers from whom the appellants had purchased
rice. Shri H. S. Achreja, Secretary to the Governor, has· deposed
that there was "no legal liability of the Government to pay sellers,
whose goods were supplied to the consignees through the sellers
at ShHhdara.
The Syndicate had filed a suit against the GovernF
ment.
That suit was dismissed."
Third, the Government was
likely to get mere 40% of the recovery from the appellants. Any
recovery in excess of it was likely to benefit West Punjab. So
the Government could afford to take a magnanimous decision
without the likelihcod of any loss to itself that Ol)ly 40% of the
amount debited lo the Joint Punjab Account before March 1948,
G should be recovered from the appellants.
H
Accordmg to counsel for the respondent, the minutes of the
m.eetin~ would show that ~he decision to recover only 40% of the
atoresa1d amount wa~ sub1ect to the condition that the appellants
should pay th_e sellers for whom the Government has already recovered certam ~mounts from the consignees.
We are diffident
to draw that inferrnce from the minutes of the meeting held on
Julv 28 and 29, 1953. It is important to notice the difference in
the language of the Director's letter dated Janu<try 17, 1951 and
596
SUPREME COURT REPORTS
[1973] 2 s.c.R.
the minutes cf the aforesaid meeting.
The language of the forA
mer clearly evinces that payment to 'the sellers by the appellants
was an essential term of the proposed settlement.