P L D 1962 Supreme Court 260 (PLP)

FAZLE‑AKBAR, J.‑

This certificated appeal from an appellate judgment of a Division Bench of the High Court of West Pakistan raises a question as to the obligation of the Federation of Pakistan to discharge a liability for compensation in respect of land which was requisitioned prior to partition for work connected with the defence of India. The relevant facts shortly are these. By an indenture of lease dated 1st January 1939 the respondent Messrs Dalmia Cement Company Limited, Karachi (hereinafter referred to as the Company) took lease of Moolri Hill situated in Deh Safooran, Karachi, from the Government of Sind for quarrying stones for their cement factory. In 1941 the Government in exercise of its power under rule 79 of the Defence of India Rules, 1939 requisitioned the said hill for the construction of an aerodrome and for other works connected with the defence of India. The hill was kept under requisition for four years i.e., till April 1945. As there was a dispute as to the amount of compensation claimed by the company the Government on 12th April 1945 in exercise of its powers under section 19 (1) of the Defence of India Act, 1939, referred the dispute to the arbitration of Mr. Dharamrai Tirathdas, Official Assignee of the Chief Court of Sind. During pendency of the reference before the Arbitrator, India was partitioned on the 14th August 1947 and two new Dominions, namely, the Dominion of Pakistan and the Dominion of India came into existence. The Arbitrator by his Award dated 10th December 1947 assessed compensation at rupees two lacs and held that the Government of India was liable for payment of the said amount. The Company then filed an appeal in the High Court against the Award in accordance with the provisions of clause (1) (f) of section 19 of the Defence of India Act and impleaded the Union of India and Federation of Pakistan as respondents. The Union of India, however, declined to submit itself to the jurisdiction of the Courts in Pakistan. The learned Judges of the High Court while increasing the amount of the Award from rupees two lacs to Rs. 2,52,480 held that liability in respect of the transaction fell within the ambit of Article 10 (1) (c) of the Indian Independence (Rights, Property and Liabilities) Order, 1947 and therefore both India and Pakistan were liable for the said amount. They accordingly passed a decree for the increased amount against the respondents. Mr. Masud All Khan, Military Estate Officer, Karachi Circle, acting on behalf of the Ministry of Defence, then obtained a certificate from the High Court that the case was a fit one for appeal to this Court. When the appeal came up for hearing before us it was adjourned at the request of the Attorney‑General to enable him to correct the name of the appellant and thereafter on his petition the Federation of Pakistan was substituted in place of Masud Ali Khan as the appellant. Now we turn to the main question in the case, namely, whether the Federation of Pakistan could be made liable for the liability which was a liability of undivided India before Partition. The finding of the High Court with regard to the quantum of compensation has not been challenged by the Attorney‑General before us. The Attorney‑General has, however, urged that the liability to pay compensation for the requisitioned land comes within the terms "financial obligations" mentioned in Article 9 of the aforesaid Order. According to him, Article 10 does not apply to the facts of the case because it deals with liability in respect of "actionable wrong other than breach of contract" and since the hill was requisitioned under the Defence of India Rules, it could not be said that any actionable wrong was committed by requisitioning and taking possession of the hill. On the other hand, Mr. Dingomal urged that the terms "financial obligations" in Article 9 must be read ejusdem generis with the words "loans, guarantees" which precede the same and should be given a technical meaning namely, that they imply "financial obligations" in the nature of loans, guarantees etc. He, therefore, argued that Article 10 (1) would apply to the present case. His contention was that the words "actionable wrong" should not be understood in the restricted sense of liability for damages for a completed tortious act. He further argued that the classification of liabilities made by Articles 8, 9 and 10 is exhaustive and whatever is not dealt with by Articles 8 and 9 must come under the residuary Article

10. His last contention was that in accordance with the provisions of Article 12 (2) of the Order, the Federation of Pakistan was duly substituted for the Government of India and hence they should discharge this liability. In order to appreciate the points urged before us it will be necessary in the first instance to refer to the Indian Independence Act, 1947. Under section 9 (1) (b) of the said Act the Governor. General of India was directed to make provisions by Order :‑ "for dividing between the new Dominions, and between the new Provinces, to be constituted under this Act, the powers, rights, property, duties and liabilities of the Governor‑General In‑Council or, as the case may be, of the relevant Province which, under this Act, are to cease to exist." Pursuant to this section the Governor‑General promulgated the Indian Independence (Rights, Property and Liabilities) Order (hereinafter referred to as the Order) .for initial distribution of rights, property and liabilities between the two Dominions. It is this Order that falls to be interpreted for the purpose of ascertain ing whether the liability to pay compensation for the requisitioned hill Is a liability of the Federation of Pakistan. It will be convenient at this stage to refer to the scheme of the Order in the matter of classification and distribution of rights and liabilities between the two Dominions created as a result of Partition. Article 3 (1) provides that this Order shall have effect :‑ "Subject to any agreement between the two Dominions or the Province concerned and to any award that may be made by the Arbitral Tribunal." No such award or agreement has been produced before us and hence this Article has no application in this case. Articles 4 and 5 deal with loans; Article G with goods coins, bank notes and currency notes and Article 7 with properties of other kinds subject to the provisions of this Order. Obviously these Articles 4 to 7 are also not applicable to this case. The parties have, therefore, confined their arguments to Articles 8, 9 and 10 of the Order. Article 8 deals with pre‑Partition contractual liabilities; Article 9 which deals with liabilities in respect of outstanding "loans, guarantees and other financial obligations" has been relied upon by the Attorney‑General ; whereas Mr. Dingomal has relied on Article 10 which deal, with "liability in respect of actionable wrong other than breach of contract." Mr. Dingomal has also relied on Article 12 (2) which provides for substitution in pending proceedings in connection with different kinds of rights and liabilities. We may at once point out that Article 12 (2) cannot be of much assistance is this case. This Article deals with a case where a suit had already been instituted against the Governor‑General‑in‑Council with regard to a pre‑Partition liability. It provides that the Dominion upon which the liability devolved in accordance with the Order after Partition had to be substituted for the Governor‑General‑in‑Council and the proceedings had to continue against that particular Dominion. It is, therefore, clear that in order to attract the operation of this provision it is necessary that the transfer of liability to which the proceedings relate should take place under one of the Articles mentioned in the Order. In other words unless the liability in question was transferred by the A Order itself, Article 12 (2) would not be attracted. In view of the clear language of this Article Mr. Dingomal found it difficult to press this contention. Therefore the present dispute has to be decided with reference to Articles 9 (a) and 10 of the Order which are in these terms:‑-- "

9. All liabilities in respect of such loans, guarantees and other financial obligation3 of the Governor‑General‑in‑Council or of a Province as are outstanding immediately before the appointed day shall, as from that day‑ (a) in the case of liabilities of the Governor‑General‑in Council, be liabilities of the Dominion of India ; (b) .................... (c).................... (d).................... 10 (1) Where immediately before the appointed day the Governor‑General‑in‑Council is subject to any liability in respect of an actionable wrong other than breach of contract that liability shall,

(a) where the cause of Faction arose wholly within the territories which, as from that day, are the territories of the Dominion of India, be a liability of that Dominion ; (b) where the cause of action arose wholly within the territories which, as from that day, are the territories of the Dominion of Pakistan, be a liability of that Dominion ; and a (c) in any other case, be a joint liability of the Dominions or India and Pakistan." We first take up the question if the liability to pay compensation for the requisitioned lands outstanding before Partition could be regarded as a liability in respect of a "financial obligations" of the Governor‑General‑in‑Council within the meaning of Article 9 (a). In order to appreciate the full scope of Article 9 (a) It will be necessary to refer to clause 6 of Article 8 because some contractual obligations are excluded from the ambit of Article

8. Article 8 (6) reads as follows :‑ "The provisions of this Article shall have effect subject to the provisions of Article 9 of this Order . . . . . . . ." Article 9 read with Article 8 (6), therefore, leads to the conclusion that it also provides for contractual obligation of a special kind. Hence it may be said that the whole field of contractual obligations are covered by Articles 8 and 9 of the Order. It has, therefore, been held' in a large number of Indian decisions that non‑contractual liabilities and particularly liability for compensation in respect of requisitioned land under the Defence of India Rules cannot be considered as "financial obligations" within the meaning of Article

9. The Courts in India including the Supreme Court of that country have held that the words "financial obligations" in Article 9 should be construed ejusdem generis with "loans" and "guarantees" which precede the same. They have rightly traced the origin of this expression "financial obligations" from section 178 of the Government of India Act. In this connection reference may be made to the decision of the Supreme Court of India in The State of West Bengal v. Serajuddin Batley (A I R 1954 S C 193). In the above case the pre Partition liability was to pay rent under a lease. The Court observed :‑ "The argument before us has been confined only to the Interpretation of Article

9. Learned Advocate‑General contends that the liability to pay rent under the lease comes within the expression `other financial obligations' to be found In that Article ?according to him all obligations to pay money under a contract whether by reason of covenant to pay money or by way of damages for beach of contract may be properly described as `financial obligations.' It. is no doubt true an obligation to pay money under a contract or for breach thereof is in a sense a `financial obligation' but the question is not what may popularly be described as `financial obligation' but what is the meaning of the expression `other financial obligations' in the context in which it has been used. To accept the argument of the learned Advocate‑General will be to rob Article 8 of practically the whole of its content excepting claims for injunction or specific performance of the contract or the like. Such, we apprehend, could not have been the intention of the framers of that Article. This difficulty does not arise if the expression be construed eiusdern genesis, for so construed It implies an obligation in the nature of an obligation in respect of loans and guarantees incurred or undertaken by the State as held by Harrie.s, C. J in Province of West Bengal v. Midnapur Zemindary Co. Ltd. A I R 190 Cal. 159, which has been followed by Chunder, J. in Iswar Madan Gopal Jiu v. Province of West Bengal A I R 1950 Cal. 463 and by Kapur, J. in The State of Punjab v. Mohan Lall A I R 1951 Punjab

382. The phrase `loans, guarantees and other financial obligations' occurred in section 178 in Part VII of the Government of India Act, 1935 and there cannot be any doubt that those expressions used in that section did not refer to all and sundry pecuniary obligations of the State arising out of contracts of every description. The loans and guarantees there referred to meant, it would seem, the special kinds of contracts relating to State loans and State guarantees. In that context `financial obligations' would mean obligations arising out of arrangement or agreements relating to State finance such as distribution of revenue, the obligation to grant financial assistance by the Union to any State or the obligation of a State to make contribution and the like. It is, however, not necessary or desirable to attempt an exhaustive definition of the expression `financial obligations'. The Court will have to consider in each case whether a particular obliga tion which may be the subject‑matter of discussion falls within the expression `financial obligations' within the meaning of Article

9. Whatever liabilities may or may not come within that expression we are clearly of opinion, in agreement with the High Court, that the liability to pay rent under a lease certainly does not come within that expression." The above observations are in accord with our views on the question of interpretation of the expression "financial obligations" in Article

9. We, therefore, accept Mr. Dingomal's contention that a statutory liability to pay compensation for lands acquired under the Defence of India Rules before Partition cannot be one of the "financial obligations" mentioned in Article 9 of the Order. The question then arises whether this liability for compensa tion can fall under Article 10 (1) of the Order. Under this Article it is first necessary to show that the Governor‑General‑in Council was subject to a liability In respect of "an actionable wrong, other than breach of contract," The question, therefore, would be whether a statutory liability for compensation under the provisions of the Defence of India Rules could be regarded as `an actionable wrong' within the meaning of Article 10 (1). Mr. Dingomal has contended that wide and liberal construction should be placed upon the words "liability in respect of actionable wrong" as used in Article 10 (1). According to him the said words do not merely mean liability for damages for tortuous acts, but have a much wider connotation. In support of this contention he has relied on the decision of the Supreme Court of India in The State of Tripura v. The Province of East Bengal (A I R 1951 S C 23). In the above case a suit was instituted by the State of Tripura in 1945 against the Province of Bengal in the Court of Subordinate Judge, Dacca, for a declaration that the Bengal Agricultural Income‑tax Act in so far as it purported to impose a liability to pay Agricultural Income‑tax on an Indian State was ultra vires and that the notice issued by the Agricultural Income‑tax Officer, Dacca, was without jurisdiction. There was also a prayer for injunction. This suit was subsequently trans ferred to the Court of the Subordinate Judge, Alipore in the District of 24‑Parganas. The question before the Supreme Court was whether after Partition such a suit was maintainable against the Province of 19ast Bengal. The High Court of West Bengal held that the Subordinate Judge of Alipore had no jurisdiction to try the suit against the new Province. The Supreme Court of India by a majority judgment allowed the appeal preferred by the State of Tripura and held that the Court at Allpore had jurisdic tion to proceed with the suit. The majority of the Judges held that a wide and liberal construction so far as the language would admit should be placed upon the terms of the Indian Independence (Rights, Property and Liabilities) Order, 1947. Patanjali Sastri, J. observed :‑‑ "There is no reason, accordingly, why the words `liability in respect of an actionable wrong' should be understood in the restricted sense of liability for damages for completed tortious acts. We consider that the words are apt to cover the liability to be restrained by injunction from completing what on the plaintiff's case was an illegal or unauthorised act already commenced." B. K. Mukherjee, J. observed :‑ "The High Court took the view that the expression `actionable wrong other than a breach of contract' is synonymous with 'tort' It seems to me that the learned Judges have attached a .narrow and somewhat restricted meaning to the words of the Article mentioned above and that the plain language of the provision read in the light of the context would demand and justify a wider and more liberal interpretation. In my opinion, there can be an actionable wrong which does not arise out of a breach of contract and at the same time does not answer to the description of a 'tort' as it is understood in English Law . . ." Fazl Ali, J. in his dissenting judgment after referring to the various text‑books on tort and the case law on the subject held that a prayer for injunction could not be regarded as an action in tort. He further held that the term "actionable wrong" as used in this Article was synonymous with tort. With due respect to the learned Judges of the majority whose reasons were commended to us by Mr. Dingomal we find it diffi cult to agree with their conclusions. On the other hand, the conclusion and reasonings of Fazl Ali, J. are more in accord with our views as to the interpretation of the words "actionable wrong." As this decision is not binding on the Courts in Pakistan we do not consider it necessary to deal with the reasonings in the judg ments in detail. It will suffice to say that in any event this decision cannot be regarded as an authority for the proposition that a statutory liability for compensation under the Defence of India Rules should be regarded as a liability in respect of "an actionable wrong." We fail to see how even a wide and liberal c interpretation of the words "actionable wrong" could cover a statutory liability to pay compensation for land acquired for defence purposes. Under Article 10 (1) it is first necessary to show that the Governor‑General‑in‑Council was subject to a liability before Partition in respect of "an actionable wrong other than breach of contract." Further, in order to attract the operation of this Article three things must be established namely, that before Partition something had been done which was wrong, that the wrong was actionable, and that the liability had accrued as a resul of that wrong. Now in this case the requisition was made for defence purposes in accordance with law and under the authority of Defence of India Rules. Because of the inflated claim of the Company the matter had to be referred to an Arbitrator in accor dance with the provisions of the Statute. The fact that the Arbitrator awarded rupees two lacs as against the claim of rupees two erores amply justified the Government's action in the matter. Thus the act of the Government being wholly within the terms of the Statute it cannot be said that by referring the matter to arbitration they committed any wrong. / When the arbitration was pending Partition took place and the two Dominions came into existence. It is thus clear that no wrong was committed before Partition which could give a right of action to the Company. In these circumstances we are unable to accept Mr. Dingomal's contention that this liability being "an actionable wrong" will fall under Article 10 (1) of the Order. Mr. Dingomal reallsing his difficulty attempted to argue that the Indian Independence (Rights, Property and Liabilities) Order, 1947 made provisions for all rights and liabilities and, therefore, some place must be found for this pre‑Partition claim of the Company in one of the three Articles namely, 8, 9 and 10 of the Order. According to him the liability not being a contrac tual obligation could not come under Articles 8 and 9, and, therefore it should be placed under the residuary Article

10. The short answer to this argument would be that there being no actionable wrong this liability could not be brought under Article

10. Simple by calling Article 10 a "residuary Article", a liability which is not an actionable wrong cannot be placed under that Article. Some argument was advanced on the question : whether under principles of International Law a new State assumes the duties and legal obligations of its predecessors. No doubt a sovereign when granting independence has power to impose what terms and conditions he pleases to the taking over v of his obligations by the new State. But, if nothing is said about a particular obligation then can it be deemed to have been taken over by the new State? In other words, will the new State in such a case be bound to fulfill the obligations of its predecessor? Mr. Dingomal cited certain passages from Oppenheim's International Law Volume I, Eighth Edition from pages 156 onward in which the author deals with the question of Succession of International Persons. In paragraph 84 at page 165 the author says :‑ "When in consequence of war or otherwise one State cedes a part of its territory to another, or when a part of the territory of a State breaks off, and becomes a State and an International Person itself, succession takes place with regard to such international rights and duties of the predecessor as are locally connected with the part of the territory ceded or broken off, and with regard to the fiscal property found on that part of the territory. The successor is probably bound to take over a corresponding part of the debt of its predecessor." The last sentence clearly shows that the author was merely expressing an opinion as to what probably should be done. It cannot, however, be regarded as an unqualified statement of the practice of nations in such matter. In the words of Lord Alverstone, C, J. In West Rand Central Gold Mining Company v. Rex ((1905) 2 K B 391) this may be regarded as a mere expression of ethical views of the writer." It may be said that the modern authors on International Law attempt to press the duty of a new State to recognise the obliga tions of its predecessors to a greater extent than the previous writers on International Law but they fall far short of the propo sition for which Mr. Dingomal contended. Whatever view may be taken of the opinion of the author it cannot be regarded as laying down an established practice of International Law that in the absence of stipulation a new State takes over and becomes bound by the liabilities of its predecessor. Lastly we nay observe that if they Proposition that a new State is bound by the obligations of its predecessor is accepted even then it will not be possible to grant any relief to the respondent‑Company, because in the absence of a statutory recog nition the Municipal Courts have no authority to enforce such an obligation. We are, therefore, of opinion for the reasons given that the Federation of Pakistan is not liable under the provisions of Indian Independence (Rights, Property and Liabilities) Order, 1947 for payment of the compensation claimed by the respondent‑Company. We accordingly allow the appeal, but make no order as to costs. We confirm the direction of the Arbitrator that the liability under his award is that of the Government of India. S. A. RAHMAN, J.‑

I agree with the conclusion reached by my learned brother, Fazle‑Akbar, J. and concur in the order allowing the appeal. I would, however, like to add a few words. If the contention of Mr. Dingomal is accepted that the Indian Independence (Rights, Property and Liabilities) Order, 1947, is exhaustive of all varieties of rights and liabilities, then the choice lies in this case between the application of Art. 9 or that of Art. 10 of the Order. I venture to think that it would be easier to give a wider interpretation to the provisions of Art. 9 so as to bring the present case within its scope and would require too much strain ing of the language of Art. 10 if that has to be pressed into service. The subject‑matter of the present case is not, in my opinion, an, actionable wrong but it may very well fall within the description of "other financial obligations" of Art.

9. That expression need not be read ejusdem generis with the words "loans and guarantees", occurr ing in that Article, as seems to have been done in some cases cited from the Indian jurisdiction before us. The expression appears to have been borrowed from sections 177 and 178 of the Government of India Act 1935, but with the omission of the significant words "secured upon the revenues of the Government of India" that were included in the last‑named enactment. If Art. 9 is held to be applicable, the liability is clearly that of India under the Order. If on the other hand, this Article is held to be inapplicable, the result is that the dispute in this case appears to be one which cannot be resolved with reference to the provisions of the Order and would fall to be decided by agreement or by reference to arbitration between the two countries. A. H. Appeal allowed.