# MAHARAJA SHREE UMAID MIT~LS LTD v. UNION OF INDIA

- **Citation:** [1963] Supp. 2 S.C.R. 515
- **Court:** Supreme Court of India
- **Decided:** 1963
- **Case number:** Civil Misc. Writ No. 47of1953
- **Bench:** S. K. Das, J. L. Kapur, A. K. Sarkar, M. Hidayatullah, Raghubar Dayal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/maharaja-shree-umaid-mit-ls-ltd-v-union-of-india-2785
- **Pages:** 27

## Headnote

Euiae Duty-Agret111ef1J with Rukr-Exempting payment
of duty-If amount• to law-Whether ag1·eem•nl binding on
Government of India-Power of Parliament to alte1' ll!JreementConstitulion of India, Art. 295.
A formal agreement executed in 1941, between the Ruler
ofjodhpur and the appellant provided that the State would
exempt the appellant from State or Federal excise duty and
income-tax, super-tax, surcharge or any other tax on income
and that if the appellant had to pay any such duty or tax,
the State would refund the same to the appellant. After India
had attained independence, Jodhpur joined the United State
of Rajasthan on April 7, 1949. On January 26,
1950,
Rajasthan became a Part B State. The Central Excises and
Salt Act, 1944, was extended to Rajasthan from April 1, 1950,
and the Union of India recovered excise duty from the appellant for the period 1-4-1950 to 31-3-1952. Similarly, the
Indian Income-tax Act, 1922, was extended to Rajasthan and
the Union sought to assess and recover
inr:-01ne~tax from the
appellant. The appellant contended that it was not liable to
pay any exci!e duty or income-tax on the grounds that the
agreement of 1941 with the Ruler ofjodhpurunder which the
exemptions were granted was law which continued in force
and that even if the agreement was purely contractual, the
rights and obligations thereunder were accepted by each succeeding Sovereign and under Art. 295 (1) (b) of the Constitution
they became the rights and obligations of the Government of
India which could not be abrogated by any law. The appellant further contended that under the agreement it was entitl·
ed to a refund from the State of Rajasthan of the excise duly
paid by it.
Held, that the appellant was liable to pay the excise
duty and income-tax.
The 1941 agreement was not law and did not have the
force of law. Every order of a Sovereig;1 Ruler cannot be
treated as law irrespective o! the m1tl1fc or character thereof.
1962
1961
Md.r•jo Shm
UllllJll MUls Ltd,
...
Uni .. If Illdia
516 SUPREME COURT REPORTS [1963]SUPP.
The true nature of the or<ler has to be considered and the order to
be Jaw must have the characteristics of law, that is, of a
binding rule of conduct as the exprCision of the will of the
Sovereign, which does not derive its authority from a mere
contract. An agreement which is based solely on the consent
of the parties is different from a law which derives its sanction
from the will of the Sovereign. The 1941 agreement was
entirely contractual in nature and was not law, as it had none
of the characteristics of law.
Ameer-un-niasa Begum v. Mahboob Begum, A. I. R.
(1955) S. C. 352, Director of Endowmenls, Government of
Hyderabad v. Akram Ali, A. I. R. (1956) S. C. 60, Madliarao
Phallce v. Tiu State of Madhya Praduh, [1961] IS. C. R. 957
and Promode Ohandra Dev v. State of Ori&.•a, [1962) Supp.
I S. C. R. 4-05, referred to.
The 1941 agreement contained no term and no undertaking as to exemption from excise duty or income-tax to be
imposed by the Union Legislature in future. As such the
question of succeeding Sovereigns accepting such a term and
an obligation arising therefrom under Art. 295 (I) (b) did not
arise. Apart from this, the correspondents showed that neither
the United State of Rajasthan nor the Part B State of Rajasthan
affirmed this agreement. Even if the obligation under the
agreement continued and Art. 295 (I) (b) was applicable to
it, there was nothing in Art. 295 which prohibited Parliament
from enacting a law as to excise duty or income-tax altering
the terms of the agreement.
Maharaj Umeg Singk v. Blau of Bombay, A. I. R. (1955)
s. a. 540, referred to.

## Text

_Characters 0–39,894 of 53,517. This is a partial read: ask again with offset=39894 for what follows._

2 S.C.R.
SUPREME COURT REPORTS
515
MAHARAJA SHREE UMAID MIT~LS LTD.
v.
UNION OF INDIA
(S. K. DAS, J. L. KAPUR,
A. K. SARKAR,
M. HIDAYATULLAH and RAGHUBAR DAYAL, JJ.)
Euiae Duty-Agret111ef1J with Rukr-Exempting payment
of duty-If amount• to law-Whether ag1·eem•nl binding on
Government of India-Power of Parliament to alte1' ll!JreementConstitulion of India, Art. 295.
A formal agreement executed in 1941, between the Ruler
ofjodhpur and the appellant provided that the State would
exempt the appellant from State or Federal excise duty and
income-tax, super-tax, surcharge or any other tax on income
and that if the appellant had to pay any such duty or tax,
the State would refund the same to the appellant. After India
had attained independence, Jodhpur joined the United State
of Rajasthan on April 7, 1949. On January 26,
1950,
Rajasthan became a Part B State. The Central Excises and
Salt Act, 1944, was extended to Rajasthan from April 1, 1950,
and the Union of India recovered excise duty from the appellant for the period 1-4-1950 to 31-3-1952. Similarly, the
Indian Income-tax Act, 1922, was extended to Rajasthan and
the Union sought to assess and recover
inr:-01ne~tax from the
appellant. The appellant contended that it was not liable to
pay any exci!e duty or income-tax on the grounds that the
agreement of 1941 with the Ruler ofjodhpurunder which the
exemptions were granted was law which continued in force
and that even if the agreement was purely contractual, the
rights and obligations thereunder were accepted by each succeeding Sovereign and under Art. 295 (1) (b) of the Constitution
they became the rights and obligations of the Government of
India which could not be abrogated by any law. The appellant further contended that under the agreement it was entitl·
ed to a refund from the State of Rajasthan of the excise duly
paid by it.
Held, that the appellant was liable to pay the excise
duty and income-tax.
The 1941 agreement was not law and did not have the
force of law. Every order of a Sovereig;1 Ruler cannot be
treated as law irrespective o! the m1tl1fc or character thereof.
1962
1961
Md.r•jo Shm
UllllJll MUls Ltd,
...
Uni .. If Illdia
516 SUPREME COURT REPORTS [1963]SUPP.
The true nature of the or<ler has to be considered and the order to
be Jaw must have the characteristics of law, that is, of a
binding rule of conduct as the exprCision of the will of the
Sovereign, which does not derive its authority from a mere
contract. An agreement which is based solely on the consent
of the parties is different from a law which derives its sanction
from the will of the Sovereign. The 1941 agreement was
entirely contractual in nature and was not law, as it had none
of the characteristics of law.
Ameer-un-niasa Begum v. Mahboob Begum, A. I. R.
(1955) S. C. 352, Director of Endowmenls, Government of
Hyderabad v. Akram Ali, A. I. R. (1956) S. C. 60, Madliarao
Phallce v. Tiu State of Madhya Praduh, [1961] IS. C. R. 957
and Promode Ohandra Dev v. State of Ori&.•a, [1962) Supp.
I S. C. R. 4-05, referred to.
The 1941 agreement contained no term and no undertaking as to exemption from excise duty or income-tax to be
imposed by the Union Legislature in future. As such the
question of succeeding Sovereigns accepting such a term and
an obligation arising therefrom under Art. 295 (I) (b) did not
arise. Apart from this, the correspondents showed that neither
the United State of Rajasthan nor the Part B State of Rajasthan
affirmed this agreement. Even if the obligation under the
agreement continued and Art. 295 (I) (b) was applicable to
it, there was nothing in Art. 295 which prohibited Parliament
from enacting a law as to excise duty or income-tax altering
the terms of the agreement.
Maharaj Umeg Singk v. Blau of Bombay, A. I. R. (1955)
s. a. 540, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 214/56.
Appeal from the judgment and order dated
October 19, 1953 of the Rajasthan High Court in
D. B. Civil Misc. Writ No. 47of1953.
WITH
Civil Appeal No. 399 of 1960.
Appeal from the judgment and decree dated
May
7, 1959, of the Rajasthan High Court in
D. B. Civil Regular First Appeal No. JO of J955,
---~---.---
2 s.t:.R.
SUPREME;couRT REPORTS . li17
G. S. Pathak, -Rameshu·ar Nath, · S. N.
Andley and P. L. Vohra, for the appellants •.
I.
JI. C. Setalvad, · Attorney-General for India,
II. N. Sa-1iyal, ··Additional Solicitor General of India,
K. N. Rajayopal Sastri and R. N. Sachthey, for the
respondents. (in C. A. No; 214/56) and respondents
·Nos. 1, 3 and .4 (in C. A.· No. 399/60).
. G. C. Kasliwal, . Advocate-General, · Rajasthan,
M. M. Tiwari, S. ](.'Kapur, Kan Singh, S. Venkatakrishnan and K; K. Jain, for respondent No. 2 (in
C. A. No. 399/60.)
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. , 1962. November 27. The Judgment of the
Court was delivered by
1962
Maharsj• Skri1
UmaiJ Mills LU.
vc
Union of l11iia
. S. K. DAS, J.-·
'These ·two appeals on certiD.,, J,
ficates granted by the 'High Court ofRajasthan have
been heard together, because they raise common
questions of law and. ·fact,• and• this judgment will
govern them both. · ' ' ·
· .·
.
.
. '
Shortly put, . the, main question in
C. A.
No. 3()!) of 1960 is whether the appellant, the Maharaj a Shree Umaid 'Mills Ltd.; ·is liable to pay excise
duty on.the cloth and yam manufactured and produced by it, in ·accordance with'the provisions of the
Central Excises and Salt Act, 1944 which provisions
were extended to the territory of the State of
Rajasthan on April I, 1950. The main question in
C. A. No. 214il956 is whether the same appellant
is liable . to pay income· tax in accordance with the
provisions of the Indian ·Income-tax Act, 1922
from the date on which those provisions were extended to the territory of the State of Rajasthan. C. A.
No. 3!J!J ofl960 arises out of a suit which the appe·
llant had filed in the court of the District Judge,
Jodhpur; That suit was. dismissed ·by the learned·
District.Judge. Then there was an appeal to the High
. 1962
lr!ah•r•ia Shr11 ·
Um aid Mills Lid.
v.
Uniora of India ·
DaJ,, J.·
5is SUPREME COURT REPORTS [1963] SUPP •
Court of Rajasthan. The High Court ciL Rajasthan
dismissed the appeal. The High Court was then
moved for a certificate under Arts.132 (1) and 133(1)
of the Constitution. Such certificate having been
- granted by the !ligh . Court, the appeal has . been
preferred to this coμrt. _ C._ A. -. No: 214 of l!J56
arises out of a_writ petition which the appellant had
filed for the issue- of writ of _mandamus or any other
appropriate writ restraining the respondents from
assessing or recovering income' tax . from the appe· -
Hant. This writ petition was dismissed by the High
Court on the preliminary ground that . the appellant
had another remedy open to it under.·the provisions•
of the Income-tax Act, 1922. The apP.ellant moved
the High Court and obtained a certificate·- in pur·
suance of which it has filed C. A. No. 214of1956;
As we are deciding both the appeals on merits, it is
unnecessary to deal with. the preliminary ground on
which the High Court dismissed the writ petition.
'
-
.. _ We have already stated that in both the appeals
the l\faharaja Shree Umaid l\fills .Ltd.~· Pali, is the
-appellant. In C. A. No. 399 of l!J60 the re8pondents
are the Union of India, the State of Rajasthan, the
Collector of Central Excise, New Delhi ' and the
Superintendent, Central Excise, Jodhpur. : In C. A.
No. 214 of 1956 the respondents are. the Union of
India, the State of Rajasthan, the-Commissioner of
Income-tax, Delhi and the·· Income-tax •Officer,-
Jodhpur .
. We may now state the facts which are relevant
to these iwo appeals. The appellant was incorpora·
ted under the Marwar Companies Act, 1923 and has
its registered office· at. Pali ·in the -present S tate of -
Rajasthan. It has been manufacturing cloth and
yarn since l!J41. · The case of the appellant was
that the then Ruler of the State of Jodhpur .was
· earnestly desirous of having a cotton mill started at
Pali and for that llurpose agreed to give_certain
,,.-'
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2 S.C.R.
SUPREME COURT REPORTS . 519 .
concessions by way of immunity from parrnent of'.
1962
taxes and duties_ then .in force in the Jodhptir State · Maharaj• sh;,, •
or likely to come into force in view of the con.'.' Umaid Mills Lia.
templated. · federation· . of '.the __ · ·Indian ' States.
1 Unidn 'if. India
and Provinces under the Government of India Act,
-- ·
l!J35. · There were· negotiations and correspondence '
Dai, 1'
about the concessions which were to be granted and ' .
finally a formal deed of agreement .incorporating. , ·
the concessions an~ immunities granted was executed .. ·.
between the Government of His Highness the .'
Maharaja of Jodhpur on one side and the.'appellant"'
on the other on April 17, 194L . Clause !3 of this"'
agreement, ·in so far as it is relevant for our purpose;··
said':
· ·
·
:,; _..
·
"The State will exempt or remit .·the
· - following duties and royalties : .
, · · ; ·
(a) xx
'(b) xx
(c) xx'
J . -
•
xx
xx
xx
(d) xx
xx.
. .._,
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. 'i
·
(c)
State or Federal Excise duty on goods ·
manufactured in 'the mill premises. If any ,
such duty has to be paid by the Company the· '
State will refund the same wholly to the;
Company.
"
-- -.- . . (f) . State or Federal Income T~x or.Super ':
Tax or surcharge or any other tax on income.::.. :
If any such tax has to be paid by the company ''.
the State will refund the· same wholly to 'the: ·
company.
· · ' · · · ·
·
'j.,
. ; ·.: ) . , .
(g) xx '
xX._ ''
In consideration of the concessionsgiven t~e· appel:
lant agreed to pay to the State of Jodhpur, a royalty
. 1962
}.fd&raja Slzre1 .
Um•id .Milu L14.
- v.
_ U11lo• 11/ India
Das. J.
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520 SUPREME COURT REPORTS[~963] SUPP •
of 7! per cent on the net profits of the company in
each of its financial years, such payments to be made· ·
within three months after the close of each financial
year. This agreement, it was stated, was acted up.on
by the State of Jodhpur and the appellant enjoyed
an immunity from excise duty and inccime·tax. The
_Indian Independence Act, 1947 brought into exis·
tence as from August 15, 194 7, a Dominion of India.
The Ruler ofJodhpur acceded to the Dominion of
India by means of an Instrument of Accession in.the
form referred to in Appendix VII at pages 165 to
168 ofthe White Paper on Indian States. Jodhpur
was one of the Rajputana States .. _ The integration
of these States was completed ·in three stages.
Firstly, a Rajasthan Union- was formed by a number_
of smaller Rajaputana States situated in the southeast of .that region. Later, there was formed the
United State of Rajasthan. The Ruler of Jodhpur
joined the United State _of Rajasthan and on
April 7, 1949, made over the administration of his
State to the Rajpramukh of the United State· of
Rajasthan. The Covenant by which this was done
is Appendix XL at pages 274 to 282 of the \Vhite
Paper. On the same day was promulgated the
Rajasthan Administration Ordinance, 194!) (Ordi-.
nance No. I of l!l49), s. 3 whereof continued all the
laws in force in any Covenanting· State until altered
or repealed or amended by a competent legislature or
· -other competent authority, etc. There was a fresh
Instrument of Accession on April 15, 1949, on behalf
of the United State ofRajasthan by which the United
State _of Rajasthan accepted all matters enumerated
in List I and List III of the Seventh Schedule to the
Government of India Act, 1935 a~ matters in respect
of which the Dominion Legislature might make laws
for the United State of Rajasthan, there was a
proviso, however, which· said that nothing _in the
said Lists shall be deemed to empower the Dominion
Legislature to impose any tax.or duty in the territor- .
ies of the United . State of Rajasthan or to prohibit
.
.
2 S.C.R.
SUPREME COURT REPORTS
52i
.
.
the imposition of any duty or tax by the legislature
of the United State of Rajasthan in the said territories. On September 5, l!J4!), was. promulgated the
Rajasthan Excise Duties Ordinance, 1!)4!) (Ordinance
No. XXV of 1!)4!:1).
This Ordinance was published
on September ID; 1!)4!), and s. 30 thereof said that.
all laws dealing _with .. matters covered by . the
Ordinance in force at its commencement in any part
of Rajasthan were repealed.
Orie of the questions
before us is whether this section had the effect of
abrogating the· agreement dated April 17, 1!)41, in.
case that agreement had the force of law in the State
of JodhJ>ur.
On November 23,. 1!:149, the United
State of Rajasthan made a prodamation to the effect:
that the Constitution of India. shortly to be adopted
by the Constituent Assembly of India shall be the
Constitution for the Rajasthan State. The Constitu·
tion of India came into force on January 26, 1!)50,
and as from that date Rajasthan became: a Part B
State.
. For the purpose of these two appeals, we have
to notice the three stages ·of evolution in the constitu·
tional position. First, we have the State of Jodhpur
whose Ruler had full sovereignty and combined in'
himself all functions,
legislative, executive
and
judicial.
Then we have the
United State of
Rajasthan into whichJodhpur was integrated as from
April 7, 1949, by the Covenant, Appendix XL at
pages 274 to 282 of the White Paper. Lastly, we
have the Bart B State of Rajasthan within the
framework of the Constitution of India which came·
into force on January 26, · 1950. Jodhpur then
became a part of the Part B State of Rajasthan.
Both duties of excise (except alcoholic liquors
etc.) and taxes on income other than agricultural
income fall. within List I of the Seventh Schedule
of the_Constitution of India. By s. 11 of the Finance
Act 1950, the provisions ·of. the Central Excises and
•
1962
J.!ahaiOJ~ Shr1'
Umaid Mills Lii.
v.
Union o/ l"dia
Das, J.
'.'i.
1952
A!ah3rafa Shrt1
Umaid 4\fills LIJ.
v.
Uniun '1f India
Das.J.
522 SUPREME COURT REPORTS (1063] SUPP.
Salt Act, 1944 : and all rule3 and orders rriadethere' :
under were extended to the territory of Rajasthan as·.
from April 1, 1950. The Excise officers of the Union .
of India recovered a sum of Rs. 4,05,014-12·0 as'
excise .duty for the goods manufactured and produced
by the appellant, for the period from April 1, 1950, ·
to !\farch 31, 1952, ·from the appellant. The appel-..
lant said that it paid the amount under protest. ·. Ori .
April 16, 1952, the· appellant ii:istituted a suit by :
means of a plaint filed in the court.of the District ·
Judge, Jodhpur. In the plaint the appellant made
several averments on the basis of which it claimed
that the respondents· were not· ·entitled to · realise
excise duty from the appellant by reason of the agree:
ment dated April 17, 1941.. The appellant asked for
the following reliefs :
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(a) a declaration that the agreement dated ·
April 17, 1941, is binding on all the respon; ,
dents· ·
·
"
(b)
· · · · realised
that the amount of exdse duty already
be refunded with interest at 6% per.
annum;:--·
- ·
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· (c) that the Union of India and the State •
of Rajasthan and their· servants, agents and :
. officers be permanently restrained by means o(
an injunction from realising any excise duty .
fro~ the appellant;· and ·
. ·
·
·
(d) that the State of Rajasthan be directed .
. to refund from time to time as and when the
appellant is to pay excise duty to the Uriion ~
of India, by reason . of the indemnity clause in
the agreement of April 17, 1941. ·
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Several· issues were framed by the learned
District Judge who on a trial of those iss'ues substan: ·
tially held that the agreement of April 17, 1941; wa.oi
2 s.a.R.. ' SUPREME COURT REPORtS
523 .
not binding on the respondents.
He further held that
the agreement itself stood frustrated by reason of
subsequent events which happened and. was therefore
unenforceable. ·There. was an appeal to the High
Court which affirmed the · main . findings of the
learned District Judge.
·
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The facts in C.A. No. 214 of 1956 are the same
as those given ·above, ·the . only· point of distinction
being that this appeal relates to income:tax while the
other relates to excise duty. Here again the appellant bases . its claim
on the · agreement dated
April 17, 1941, and contends that the agreement is
binding on the respondents and the appellant cannot
·be .. asked to pay· incomectax ·by. reason of the
provisions of the Indian lncome·tax Act, 1922 which .
were extended· to the whole· of India ·· except the
State of Jammu and Kashmir as a result of certain
amendments inserted in the said Act by the Finance
Act, 1950.
· On ·behalf of the appellant two main lines of
argument have been· presented before us in support
of the ·contention . ,that
the agreement
dated
Aprill7, 1941, is binding on the respondents and the
finding to the contrary by the courts below is incorrect.
The ·first . line of argument is that agreement of
April 17, 1941, is itself law, being the command of
the Ruler of Jodhpur who was a sovereign Ruler at
that time . and combined in himself all legislative,
executive and judicial functions. This law, or legisJative contract as learned counsel for the appellant
has put it,i continued in· force whenJodhpur merged
into the United. State of Rajasthan, · by reason of
s. 3 of the Rajasthan Administration Ordinance, 1949
which continued all existing laws in any covenanting
State in force.immediately before the commencement
of the . Ordinance. It is pointed out tliat for the
purpose of s. 3 aforesaid, "law" means any rule,
order or bye-law which having been made by a
1962
··-
1.\liharaja Shr1i
Umaid .Mills Ltd.
v.
Union of l•dia
----
Dtz3, J.
•\
· 1962
~faM-raja Slirte
Umaid llJills Lid .
..
Unfun of lndi:J
.f!as, J.
----~--
524 SUPREME: COURT REl>ORtS [i963]SlJPi>.
competent authority in a covenanting State has the·.
force of law in that State. The agreement of
April 17, I !J41, it is argued, was sanctioned by the
Ruler and was his order; therefore, it had the force
of a special law in Jodhpur and this law continued
to be in force by reason of s. 3 of the Ordinance
referred to above. When the Rajpramukh of the
United State ofRajasthan promulgated the Rajasthan
Excise
Duties
Ordinance,
1949
(Ordinance
No. XXV of 1949), s. 30 thereof did not abrogate
the special"law embodied in the agreement. On the
coming into force ·or the Constitution on January 26,
1950, when Rajasthan became·. a . Part B State,
Art. 372 of the Constitution applied and the special
law continued in force. The finance Act, 1950 did
not abrogate the special law. · Therefore, the special
law still continues in force and binds the respondents.
This is the first line of argument.
The second line of argument proceeds on the
footing that the agreement of April 17, 1941, is
purely contractual in nature and is not law. Even
on that . footing, learned. counsel for the appellant
argues, the contract in question gives rise to rights in
one party and obligations on the other. These rights
and obligations, it is stated, were
accepted by
each
succeeding
sovereign,
(1) Jodhpur State
(2) United State of Rajasthan and (3) the Part B
State of Rajasthan. It is contended that the finding
to the contrary by the courts below is wrong. As the
rights and obligations were accepted by each succeeding Sovereign, Art. 295 (i) (b) of the Constitution
came into play as from January 26, 1950, and the
rights and liabilities of the Jodhpur State or of the --
United State of Rajasthan became the rights and
liabilities of the Government of India in so far as
these rights
and liabilities were for
the pur:-
poses of the Government of India relating 'to any
of the matters enumerated in the Union List.·
Learned counsel for the appellant argues that Art.295
\
2 S.C.R.
SUPREME COURT REPORTS . ~§2_5_
is of the nature of a constitutional gnarantee and any
law made in violation thereof must be void to the
extent that it violates the Article.
Apart from the aforesaid two main lines of
argument, learned counsel for the appellant has also
submitted that the contract in question being a right
to property, the appellant could not be deprived of it
in violation of its guaranteed rights under Arts. 19
and 31 of the Constitution; that there was no frustration of the contract as found by the learned Distric:t
Judge; and that in any view the appellant is entitled
to a refund of the duty or tax paid by it to the Union
Government from the State of Rajasthan by reason
of clause 6 of the agreement.
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\Ve proceed now to deal with these_ arguments
in the order in which we have stated them. As to
the first line of argument we have come to the conclusion that the agreement of April 17, 1941, rests
solely on. the consent of the parties; it is entirely contractual in nature and is not law, because it has none
of the characteristics of law. Learned counsel for
the appellant has relied on the decisions of this court
in Ameer-un-nissa Begum v. JJI ahboob Begum ('),
Director of Endowments, Govt. of Hyderabad v.
Akram AU ('), .~Iadhaorao Phalke v. The State of
JJ!adhya Bharat (') and Promod Chandra Deb v. The
State of Orissa ('). \Ve do not think that these desisions help the appellant. It was pointed out in·
1lladhaorao Phalke's case (3) that in determining the
question whether a particular order of a sovereign
Ruler in whom was combined all legislative, executive and judicial functions, it would be necessary to
consider the character of the orders passed. Their
Lordships then examined the Kalambandi under
consideration before them and pointed out that "the
nature of the provisions contained in this document
unambiguously impresses upon it the character of a
statute or a regulation having the force of a statute."
(I) A.t.R. (1955) S.C. 352.
(2) A.I.R. (1936) S.C. GO;
'(3l 0961/ l.S.C.R. 95!•
(4) [1962) Sapp- 1.s.9.a., ~'
1962
Mahaiaja Shf11
Umaid Mills Ltd •
v.
Union of lntlia
Das. ·1.
1962 -
Md,,raja SAm
Umai4 Mills Lii.
v.
Union •f lndi•
Das, J.
526 SUPREME COURT REPORTS [1963] SUPP.
Same was the position in Ameer-un-niaaa's case (')
and the case of the Director of Endowments, Govt.
of Hyderabad (') where this court had to deal with
the effect of Firmans issued by the Nizam who was
at the time an absolute Ruler. It was held that such
Firmans had the effect
of law because in all
domestic matters, the Nizam issued Firmans to determine the rights of his subjects. The Firmans were
not based on consent, but derived their authority
from the command of the Sovereign viz., the Nizam,
expressing his sovereign will.
For example, in
Ameer-un-nissa's c.ase, (') the Firman set aside the
decision of a Special Commission in respect of certain
claimants and though a subsequent Firman revoked
the earlier Firman, it did not restore the decision of
the Special Commission. It was in these circumstances that this· court observed :
"The determination of all these questions
depends primarily upon the meaning and effect
to be given to the various 'Firmans' of the
Nizam which we have set out already. It
cannot be disputed that prior to the integration
of Hyderabad State with the Indian Union and
the coming into force of the Indian Constitution,
the
Nizam of Hyderabad
enjoyed
uncontrolled sovereign powers.
He was the
supreme lt-gislature, the supreme judiciary and
the supreme head of the executive, and there
were no constitutional limitations upon his authority to act in any of these capacities. The
'Firmans' were expressions of the sovereign
will of the Nizam and they were binding in the
same way as a11y other law; ...... nay, they
would override all other laws which were in
conflict with them. So long as a particular
'Firman' held the field,
that alone would
govern or regulate the rights of the parties
concerned, though it could be annulled or
(I) A.I.Ro !1955) S,C, 952.
(2) A.I.R; (1"6) S.C. 601
•
2 S.C.R.
SUPREME GOU.RT REPORTS
.
'
; Jt J\ J '
---
.
527
1952
modified by a later 'Firman' at any time that
the Nizam willed."
· .
·
'"' Maliaraja Sii.rte
Umaid Mills Ltd.
These observations do not support the extreme view
that any_ and every order of.a sovereign Ruler is law.
In Pronwa Ghanara Deb's. case (1) the Khorposh
grants ·were considered in the context of the rules
laid down in Order 31 of the Rules, Regulations and
Privileges ofKhajnadars which were accepted by the
Ruler of the State as the law governing the rights of
Khorposhdars. It was Jn these circumstances held
· that the rules continued in force till they were
changed by a competent authority, and the grants
made in accordance with those rules continued to be
~hl.
.
In our view, · none of the· aforesaid decisions go
the extent of laying down that any and every order
of a Sovereign Ruler who combines in himself all
functions must be treated as law irrespective of the
nature or character of the order passed. -We think
that the true nature of the order must be taken into
consideration, and the order to be law must have the
characteristics of law, that is, of a binding rule of
conduct as the expression of the will of the sovereign, ·
which does not derive its authority from mere consensus of mind of two parties entering into a bargain. ·
It is not necessary for this purpose to go into theories
of legal philosophy or to define law. However law
may be defined, be it the command of the supreme
legislature as some jurists have put it or be it a "body
of rules laid down for the determination of . legal
rights and duties which courts recognise", there is an
appreciable distinction between an agreement which
is based solely on consent of parties and a law which
derives its sanction from the will of the Sovereign .
A contract is essentially a compact between two
or more · parties; a law is not an agreement between
parties but is a binding rule of conduct deriving its '
sanction . from the sovereign authority.· Frorp.
th~
pl [1962) Supp• I S,C,R, 40?,
.
. .
•
v.
Union of India
_ D .. :11 !.
1962 \ •
AfahtVaja Sh"'
Umaid Mi//1 Lti.
v.
Union of India
Das, J.
528 ,SUPREME COURT REPORTS [1963] SUPP.
-
-
point of ~iew, there is a valid distinction between a
particular agreement between two or more parties
even if one of the parties is the sovereign Ruler, and
the law relating generally to agreements. The former
rests on consensus of mind, and the latter expresses
the will of the Sovereign. If one bears in mind this
distinction, it seems clear enough that the agreement
of April 17, 1941, even though sanctioned . by the
Ruler and-purporting to be on his behalf, rests really
on consent. \Ve have been taken through the correspondence which resulted in the agreement and our
attention was particularly drawn to a letter dated
April 22, 1938, in which the Ruler was stated to have
sanctioned the terms and concessions decided upon
by his Ministers in their meeting of February 25,
1938. \Ve do not think that the correspondence to
which we have been referred advances the case of the
appellant.
On the contrary, the correspondence
shows that there were prolonged negotiations, proposals and counter-proposals, offer and acceptance of
. terms ... all indicating that the matter-was treated even
by the ·Ruler as a contract between his Government
and the appellant. That is why in the letter dated
April 22, 1938, it was stated that Messrs Crawford
Bailey & Co. Solicitors, would draw up a formal agreement embodying the terms agreed to by the parties.
This resulted ultimately in the execution of the agreement dated April 17, 1941. To call such an agreement
as law is in our opinion to misuse the term 'law'.
.
It is also worthy of note in this connection that
clause 6 of the agreement purports to give the appellant exemption not only from State Excise duty, but
also. from Federal Excise duty; similarly not only
from State Income-tax, but from Federal Income-tax •
or Super-tax or Surcharge. It is difficult to see what ·
authority theJodhpur Ruler had to give exemption
from Federal Excise duty or Federal Income·tax.
Such an exemption, if it were to be treated as law,
would be beyond the competence of the Rul~r! ·· !1t
2 S.C.R.
SUPREME COURT REPORTS
529
Ruler can make a law within his own competence
and jurisdiction. He cannot make a law for some
other sovereign. Such an exemption would be a dead
letter and cannot have the force of law. Learned
counsel for the appellant suggested somewhat naively
that the Ruler might . exercise his influence on the
other Sovereign (if and when Federation came into
existence) so as to secure an exemption from Federal
tax for the appellant. Surely, an assurance of this
kind to exercise influence on another sovereign
authority, assuming that the effect of the relevant
clause is what learned counsel has submitted, as to
which we have great doubt, will at once show that it
has not the characteristics of a binding ·rule of con·
duct. It is doubtful if such an assurance to exercise
influence on another sovereign authority can be
enforced even as a contract not to speak of law.
Learned counsel for the respondents referred us
to several other clauses of the agreement which in his
opinion showed that the agreement read as a whole
could not be treated as law, because some of the
clauses merely gave an assurance that the State would
take some action in future; as for example, clause 8
which gave an assurance to amend the law in future.
He contended that an assurance to amend the law in
future cannot be treated as present law .. There is,
we think, much force in this contention. When these
difficulties were pointed out to learned counsel for
the appellant, he suggested that we should separate
the various clauses of the agreement and treat only
those clauses as law which gave the appellant a
present right. We do not see how we can dissect
the agreement in the manner suggested and treat
as law one part of a clause and treat the rest as an
agreement only.
We should notice here that clause 6 of the.agreement does not refer to excise duty qr income-tax to
be imposed by the Union of I11dia. A• a matter of
1961
Maharaj• Sh,,,
Umoid Milli Lid.
y,
Unimi of. Indio
Da1, I.
<.
1962
A!~h•raj• Shrt•
Um•ii Mills Ltd.
v.
Union of l11di2
Das, J. -
--.:-"ri ·,..,---.~ ·_-.., .
~·
\ '.
530: SUPREl\1E COURT REPORTS [l!l63] SUPP.
fact, nobody could envisage in 1941 the constitutional developments which took place in 1947·1950,
and when the parties talked of Federal excise duty
·and Federal income·tax, they had in mind the scheme
of Federation envisaged by the Government of India
-· Act,-1935 ... which scheme never came into operation.
It is difficult to see how the ·agreement in any view
of the matter .. can be treated as law in respect of a
tax or duty imposed by the Union Government when
there is no mention of it therein.
The argument if carried to a
reductio ad
nbsurdum would come to · this that every order of the
Ruler would have to be carried out by the succeeding
Sovereign. That order may be almost of any kind,
as for example, an order to thrash a servant. \Ve
have no doubt in our minds that the nature of the
order must be considered for determining whether it
has the force of law.
Art. 372 of the Constitution
which continues existing law must be construed as
embracing those orders only which have the force of
Jaw .. .law as understood at the time.
,.
There .has been a lot of argument before us as
to
what learned_' counsel for the appellant has
characterised as 'legislative contracts,' an expression
med mostly in American decisions relating ·to the
limitation placed by the 'contract clause' in the
American Constitution upon action taken by the
State legislature in respect of pre-existing contracts
(see l'iljUU Eranch of the ·Slate Bani~ of Ohio v.
Jncob Knoop (')).' \Ve do not think those decisions
have any bearing· on the· question before us, which
is simply this : does a compact between two or more
parties, purely contractual in nature, become law
because one of the parties to the contract is the
Sovereign Ruler ? The American decisions throw no .
light on this que$tion.
Learned counsel also referred
us to the statement of the law in Halsbury's Laws of
England, Vol.8, Third Edition,· paragraph 252 at
~I) (1853) 14 L. Ed. 977,
2 S.C.R.
SUPREME COURT REPORTS
531
page I Hi relating to statutory confirmation of void
contracts by means of a local and personal Act of
Parliament : the effect of such a statute is to make
the agreement valid in toto.
The principle is that
where an Act of Parliament confirms a scheduled
agreement, the agreement becomes a statutory obligation and is to be read as if its provisions were contained in a section of the Act (see lntrrnatioruil Railway
Company v. N. 1'. C'omm·i88ion (')).
We fail to see
how this principle has any application in the present
case.
There is nothing to show that the agreement
in the present case was confirmed as a law by the
R11ler; on the contrary, we have shown earlier that
it was always treated as a contract between two
parties.
There is no magic in the expression 'legislative contract'.
A contract is a compact between
two or more parties and is either executory or cxecutr'.d.
If a statute adopts or conlirms it, it becomes law
and is no longer a mere contract. That is all that
a 'legislative contract' means.
In the_ rases before
us there is no 'legislative contract".
In view of our conclusion that the agreement
of April l 7, 1941, is not law, it is perhaps unnecessary
to decide the further question as to whether s.3 of
the Rajasthan Ordinance, 1 !i+!J (Ordinance I of 1949)
wminuec\ it or whet her s.:IO of the Rajasthan Excise
Duties Ordinan< e, I !l+!I (Ordinance XXV ·of I !H!I)
repealed it.
We may merely say that with regard
1.0 the dTect of s.:111, learned coumcl for the appellant
relied on the principle that. the prcsurnptiou is that a
subsequent enactment of a purely general character
is not intended to interfere with an earlier special
provision for a particular case,
unless it appears
from a consideration of the general enactment that
the intention of 1he legislature was to establish a r~le
of univcroal application in which case the special
provision must give way to the general (see paragraph
711, page 4117 of Vol. 31l,
Halsbury's Laws of
England, Third Edition, and Williams v. Pritchard(');
Eddington v. Borman (1)).
(!) A.J.R. (1937) P.C. 21+.
(2) (1790) Jl.a, 862,
(3) (1790) 100 E.R. 1189.
1962
Mallaraja Shr1•
Umaid Mills Ltd.
y,
Union of lttdia
Das, J.
1962
Afllharaja Sh111
Umaid Mills Ltd •.
v.
Union of India
Das, J.
532 SUPRE.ll.IE COURT REPORTS [19G3] SUPP.
On behalf of the respondents it was submitted
that s. 30 of the Rajasthan Excise Duties Ordinance, l!J49, in -express terms, repealed all laws dealing
with matters covered by the ordinance, and s. 3 thereof
dealt with . excise
duties on goods produced or
-- manufactured in Rajasthan ; therefore, there was no
room for the application of the maxim yenernli11
specialibiis non deroyant and · s. 30 clearly repealed
all earlier -l:iws -.in the matter of excise duties or
exemption therefrom. It is perhaps unnecessary
to decide this question ; because ·we have already
held that the agreement of April 17, 1941, was
neither law nor had the force of!aw. We may
merely point out that the-question is really one of
finding out the intention · of the legislature, and in·
view of the very dear words of s. 30 of the Rajasthan
Excise Duties Ordinance, 1949 and of the repealing
\
provisions in the Finance Act, 1950 it would be
difficult to hold that the earlier special law on the
subject still continued in force. .
· ·
.
\Ve proceed now to consider the second line
of argument pressed on behalf of the appellant. So
far as the Union Government and its officers are
concerned, there is, we think, a very short but
convincing answer to the argument. The agreement
in question contains no term and no undertaking as
to exemption from excise duty or income-tax to be
imposed by the Union Legislature in future. \Ve
have pointed out earlier that the undertaking, such
as it was, referred to Federal excise duty and Federal
income-tax . and . we have further stated that the
Federation contemplated by the Government of
India Act, . 1935 never came into existence. The
Union which came into existence under the Constitution of 1950 is fundamentallv different from the
Federation contemplated under ·the Government of .
India Act, 1935,
Therefore, in the absence of any -
term as to exemption from excise duty or income-tax
· to be imposed by the Union Legislature, the questiOn -
2 s.c.R.
SUPRE.ME COURT REl'ORTS
533
of succeeding sovereigns accepting such a term and
. an obligation arising therefrom on January 26, 1950,
by means of Art.
295 (i) (b) of the Constitution
cannot at all arise. Surely, a term or undertaking
which is non-existent cannot give rise to a right or obli·
gation in favour of or against any party. On this
short ground_ only, the claim of the appellant should
be rejected· against ·-the respondents in so far as the
levy of excise duty or tax by the Union· is concerned,
apart altogether from
any question whether the
Ruler . of Jodhpur or even the United State of
Raj asthan could legally bind the future. action of the
Union Legislature.
---
It is now well . settled by a number of decisions
of this court that an act of State is the taking over_
of sovereign powers by a State in respect of territory ·
which was not till then a part of it, by conquest,
treaty, cession or otherwisr, and the municipal courts
recognised by the new Sovereign have the power and
jurisdiction to investigate . and ascertain only such
rights as the new sovereign has chosen to recognise
or acknowledge by legislation, agreement or otherwise ; and that such recognition may be express or
may be implied from circumstances. The right which
the appellant claim5 stem5
from the agreement
entered into by the Ruler of Jodhpur. The first
question is, did the succeeding sovereign, the United
State of Rajasthan, recognise the right which the
appellant is now claiming? The ·.second question
is, did -the next succeeding sovereign, the State of
Rajasthan, recognise the right ? As against the State
of Rajasthan the main claim of the appellant is
based on that part of cl. 0 which says that if any
such duty (or tax) has to be paid by the company,.
the state will refund the same to tl1e company. The
appellant claims as against respondent Nu. 2 a refund
of the duty or tax as and when it is paid to the.Union·
Government by the appellant.
. 1962
Ma llarojll Shrtt
Um1.itl Al1l.s Lt/.
v.
Union of India
Das J.
534; st.Ji>REl\1E COURT REPORTS[l!lu3}SUPP.
The learned District Judge found that the_
Maharaj• Shr11
Ruler of Jodhpur acted upon the agreement in the
Um•id Mills Ltd.
matter of c!lstoms concessions granted to the appellant
Unio.V;, tnJia
and accepted the royalty as per cl. 12 of the
. ~ agreement ; but the question relating to excise duty
never came before theJodhpur State as nn such·duty
·was leviable in the State. In the High Court Jagat
1962
Das, J.
· Narayan; j;; dealt. with the evidence on die point
and gave. a list of documents bearing on it .. He
pointed out that the Director of Industries of the
United State of Rajasthan no doubt made dr.mands for
the payment of royalty not only for the period since
·the formation of the United State of Rajasthan, but
also for arrears of royalty for the period prior to the
formation of that State. He found however that as to
exemption from excise duty or the claim of refund,
the United State of Rajasthan had in no way affirmed·
the agreement. ·The learned .Judge said :
·
"What has to be determined is whether on the
facts and circumstances appearing from the
evidence .on record it can be said that the
United. State of Rajasthan affirmed the agreement:/ I am firinly of the opinion that no such
inference can be . drawn. . The state did not
make up its mind whether or not to abide by
the agreement .