Pannalal Vs. Dy. Commissioner, Bhandara and anr. Etc. - Court Judgment

Excerpt:
commercial - liability of state - section 70 of indian contract act, 1872 and order 41 rule 33 of cpc, 1908 - issue to be considered is liability of state government towards any sum found due to appellant - under section 70 real basis for liability is fact that person for whom work has been done and accepted benefit arising therefrom is liable - in this case dispensary fund committees and state of maharashtra have accepted three hospitals built by appellant - section 70 prevents unjust enrichment and is applicable as much to corporations as to individuals - held, state is as much liable and should pay suit amount as successors-in-interest. - [b.p. sinha, c.j.,; j.c. shah,; j.r. mudholkar,; k. subba rao,; m. hidayatullah, jj.] the ruler of the state of sant had issued a tharao dated 12th march 1948, granting full right and authority to the jagirdars over the forests in their respective villages. pursuant to the agreement dated march 19, 1948, the state of sant merged with the dominion of india. on october 1, 1948, shree v. p. menon, secretary to the government of india, wrote a letter to the maharana of sant state expressly declaring that no order passed or action taken by the maharana before the day of april 1st 1948, would be questioned. after merger there was obstruction by the forest officers when the respondents were cutting the forests, but after some correspondence they were permitted to cut the trees on furnishing an undertaking that they would abide by the decision of the government. the government of bombay, after considering the implications of the tharao, decided that the order was mala fide and cancelled it on 8th july 1949 in the meantime these respondents were stopped from working the forests by the government of bombay. thereupon these respondents filed suits for declaration of rights in the forests and for a permanent injunction against interference with those rights by the state. the respondents claimed in these suits that the rights of the grantees to the forests were not liable to be cancelled by the dominion of india after the merger of the state of sant in june, 1948, by executive action, and that the government of bombay was not competent to obstruct them in the exercise of those rights. their claims were opposed by the state of bombay mainly on the ground that in the absence of recognition, express or implied, by the successor state of the rights conferred by the former ruler on the jagirdars the respondents could not enforce them in the municipal courts. these respondents filed five suits against the state of gujarat. all suits except one were dismissed by the trial court. the district judge on appeal ordered the dismissal of that suit also and dismissed the appeals of the plaintiffs in the other suits. the plaintiffs then appealed to the high court and the high court allowed all appeals and the suits were decreed.' the high court held on the basis of the letter written by shri v. p. menon, secretary that the succeeding sovereign had waived or relinquished its right to repudiate the tharao. the high court further held that the tharao was not a legislative action of the ruler of sant state. the state government appealed to this court by special leave. hence the appeal. per majority: hidayatullah j. (i) the act of state comes to an end only when the new sovereign recognises either expressly or impliedly the rights of the aliens. it does not come to an end by an action of subordinate officers who have no authority to bind the new sovereign. till recognition, either express or implied, is granted by the new sovereign, the act of the state continues. in the present case, the act of state could only come to an end if government recognised the rights flowing from tharao. that government never did. there was thus no recognition of the tharao or the rights flowing from it at any time. in the present case, the subordinate officers of the forest department allowed each respondent to cut the trees on furnishing an undertaking that he would abide by the decision of the government and so the question of waiver or relinquishment does not arise. secretary of state in council for india v. kamachee boye sahaba, (1859) 13 moore p. c. 22, secretary of state v. sardar rustom khan and others, (68) i. a. 109, mis. dalmia dadri cement co. ltd. v. commissioner of income-tax, [1959] s.c.r. 729, the state of saurashtra v. memon haji ismale haji, [1960] 1 s.c.r. 537, jagan nath agarwala v. state of orissa, [1962] 1 s.c.r. 205, state of saurashtra v. jamadar mohamed abdulla and ors., [1961] 3 s.c.r. 970 and vaje singhji jorwar singh v. secretary of state for india, (1924) l.r. 51 i.a. 357, relied on. virendra singh and ors. v. the state of uttar pradesh [1955] 1 s.c.r. 415, disapproved. bhola nath v. state of saurashtra, a.i.r. 1954 s.c. 680, bhojrajji v. the state of saurashtra, 61 bom. l.r. 20, referred to. (ii) the act of state did not come to an end by virtue of article 299(1) of government of india act, 1935 and so the respondents could not claim the protection of that section. section 299(1) did not come into play because it could only come into play after the rights were recognised. in the present case the rights were never recognised by the government. (iii) the original act of state continued even after january 26, 1950, because there was no state succession on january 26, 1950 in so far as the people of sant state were concerned. for them state succession was over some time in 1948. the act of state which began in' 1948 could continue uninterrupted even beyond 1950 and it did not lapse or get replaced by another act of state. these rights in question cannot be protected under the constitution because these rights were not recognised even before 1950. (iv) that the impugned tharao was not a law as it did not lay down any rule of conduct. it was a grant made to the jagirdars mentioned in the tharao.. the fact that maharana's tharao was passed to benefit a larger number of persons en bloc does not make it any the more a law if it did not possess any of the indicia of a law. the tharao did give rights to the grantees but did not lay down any rule of conduct. it is a grant and as a grant it was open to the new sovereign not to recognise it. madhorao phalke v. the state of madhya bharat, [1961] 1 s.c.r. 957, distinguished. ameer-unnissa begum and ors. v. mahboob begum and ors. a.i.r. 1955 s.c. 352. distinguished. maharaja shri umaid mills ltd. v. union of india and others. a.i.r. 1963 s.c. 953 and the bengal nagpur cotton mill ltd. v. the board of revenue, madhya pradesh and others, a.i.r. 1964 s.c. 888 relied on. (v) the right claimed here is not even a concessionary right such as has received the support of the international writers. it is more of the nature of a gift by the ruler at the expense of the state. it lacks bona fides which is one of the things to look for. there is no treaty involved and whatever guarantee there is, art. 363 of the constitution precludes the municipal courts from considering. this distinguishes the jurisdiction and power of the supreme court of the united states in which consideration of treaties is included. in the united states the constitution declares a treaty to be the law of the land. in india the position is different. article 253 enables legislation to be made to implement international treaties. this court has accepted the principles laid down by the courts in england in regard to the limits of the jurisdiction of municipal courts. the view of the supreme court of united states or the view taken in international law has not been accepted by this court. politically and ethically there might have been some reason to accept and respect such concessions but neither is a reason for the municipal courts to intervene. the rule that the act of the state can be questioned in a municipal court has never been adopted and it has been considered that it is a matter for the political departments of the state. however desirable it may be that solemn guarantees should be respected, this court should not impose its will upon the state, because this is outside its jurisdiction. in this case, the present respondents who were not parties to the merger agreement or to the letter written by mr. menon which was made expressly a part of the agreement cannot take advantage of cl. 7. if they were parties, article 363 would bar such plea. maharaj umeg singh and others v. the state of bombay and others. [1955] 2 s.c.r. 164, relied on. u.s. v. percheman, 32 u.s. 51 at 86, disapproved: shapleigh v. miar, 299 u.s. 468, referred to. salaman v. secretary of state for india, [1906] 1 k. b. 613, referred to. cook v. sprigg. [1899] a.c. 572, referred to. foster v. nielson. (1829) 2 pet. 253, referred to. birma v. the state, a.i.r. 1951 rajasthan 1 to 7, referred to. amodutijani v. secretary southern nigeria, [1921] 2 a.c. 399, referred to. clark v. allen, 331 u.s. 503. referred to. west rand central gold minning co. v. regem, [1905] 2 k.b. 391, referred to. secretary of state v. bai raj bai, (1915) l.r. 42 i.a. 229, relied on. per shah j. (1) the rule that cession of territory by one state to another is an act of state and the subjects of the former state may enforce only those rights in municipal courts which the new sovereign recognises has been accepted by this court. m/s. dalmia dadri cement co., ltd. v. commissioner of incometax, [1959] s.c.r. 729, jagannath agarwala v. state of orissa, [1962] 1 s.c.r. 205, promod chandra dev v. state of orissa, [1962] suppl. 1 s.c.r. 405 and the state of saurashtra v. jamadar mohd. abdullah, [1962] 3 s.c.r. 970, relied on. the secretary of state in council of india v. kamachee boye sahaba, 7 moore's i.a. 476, vajesinghji joravarsinghji v. secretary of state for india in council, l.r. 51 i.a. 357 and secretary of state v. sardar rustam khan and others, l.r. 68 i.a. 109, relied on.  (ii) the constitutional provisions in the united states are somewhat different. under the constitution of the united states each treaty becomes a part of the law of the land; the provisions thereof are justiciable and the covenants enforceable by the courts. in india the treaties have not the force of law and do not give rise to rights or obligations enforceable by the municipal courts. in the present case by virtue of art. 363 of the constitution, it is not open to the respondents to enforce the covenants of the agreement as stated in the letter of guarantee written by mr. v. p. menon in the municipal courts. united states v. parcheman, [1833] 32 u.s. 51 at 86, 87, not relied on. cook v. sprigg. [1899] a.c. 572, referred to. maharaj umeg singh and others v. the state of bombay and others, [1955] 2 s.c.r. 164, relied on. (iii) an act of state may be spread over a period and does not arise merely an the point of acquisition of sovereign right. nor is the new sovereign required to announce his decision when he assumes or accepts sovereignty over foreign territory, about the rights created by the quondam sovereign, on pain of being held bound by the right so created. there. fore till the right to property of the subjects of the former indian state was recognized by the new sovereign there was no title capable of being enforced in the courts of the dominion or the union. (iv) the functions of a state whether it contains a democratic set up or is administered by an autocratic sovereign fall into three broad categories--executive, legislative and judicial. the line of demarcation of these functions in an absolute or autocratic form of government may be thin and may in certain cases not easily discernible. but on that account it is not possible to infer that every act of an autocratic sovereign has a legislative content or that every direction made by him must be regarded as law. the legislative power is the power to make, alter, amend or repeal laws and within certain definite limits to delegate that power. therefore it is power to lay down a binding rule of conduct. executive power is the power to execute and enforce the laws, and judicial power is the power to ascertain, construe. and determine the rights and obligations of the parties before a tribunal. in the present case the order dated march 12, 1948, is expressly in the form of a grant of the rights which were not previously granted and does not either expressly or by implication seek to lay down any binding rule of conduct. the impugned order was not a law or an order made under any law within the meaning of cl. 4 of the administration of the indian states order of 1948. promod chandra deb and others v. the state of orisa and others, (1962] suppl. 1 s.c.r. 405,ameer-un-nissa begum and others v. mahboob begwn and others, a.i.r. (1955) s.c. 352, director of endow-134-159 s.c.-30. ments, government of hyderabad v. akram ali, a.i.r. (1956) s.c. 60, tilkayat shri govindlalji maharaj etc. v. state of rajasthan and others, a.i.r. (1963) s.c. 1638, distinguished, discussed. madhorao phalke v. the state of madhya bharat, [1961] 1 s.c r 957 discussed. maharaja shree umaid mills ltd. v. union of india, a.i.r. 1963 s.c. 953, relied on. the bengal nagpur cotton mills ltd. v. the board of revenue, madhya pradesh and others, c.a. no. 416 of 1961 decided on july 30, 1963, relied on. (v) to attract s. 299(1) of the government of india act, 1935, there must, exist a right to property which is sought to be protected. the subjects of the acceding state are entitled only to such rights as the new sovereign chooses to recognize, in the absence of the any recognition of the rights of the respondents or their predecessor jagirdars, there was no right to property of which protection could be claimed. on the sam* reasoning, grantees of the ruler could not claim protection under art 31(1) of the constitution. per mudholkar j. (i) the rule of international law on which the several privy council decisions as to the effect of conquest or cession on the private rights of the inhabitants of the conquered or coded territory are founded has become a part of the common law of this country. this being a "law in force" and at the commencement of the constitution is saved by art. 372 of the constitution. the courts in india are, therefore, bound to en. force that rule and not what according to marshall c.j. is the rule at. international law governing the same matter, though the latter has also, received the approval of several text book writers. the rule which has. been applied in this country is not inequitor nor can it be regarded to be an anachronism. virendra singh v. the state of uttar pradesh, [1955] s.c.r. 415 united state v. percheman, (1833) 32 u.s. 51. disapproved. secretary of state for india v. kamachee boye sahiba, (1859) is moore p. c. 22, asrar ahmed v. durgah committee, ajmer, a.i.r. 1947 p.c. 1, dalmia dadri cement co. ltd. v. the commissioner of incometax, [1959] s.c.r. 729, state of saurashtra v. memon haji ismail [1960] 1 s.c.r. 537,state of saurashtra v. jamadar mohamed abdullah and ors., (1962] 3 s.c.r. 970, vajesinghji v. secretary of state for india,, 51 i.a. 357 and secretary of state for india v. bai rajbai, 42 i.a. 229promod chandra dev v. state of orissa and ors. [1962] supp. 1 s.c.r. 405, relied on (ii) two concepts underlie our law. one is that the inhabitants of acquired territories bring with them no rights enforceable against the new sovereign. the other is that the municipal courts have no jurisdiction to enforce any rights claimed by them, against the sovereign despite the provisions of a treaty unless their rights have been recognised by the new sovereign after cession or conquest. in other words a right which cannot on its own strength be enforced against a sovereign in the courts of that sovereign must be deemed to have ceased to exist. it follows therefore that a right which has ceased to exist does not, require repudiation. municipal courts derive their jurisdiction from the municipal law and not from the laws of nations and a change in the laws of nations brought about by the consent of the nations of the world cannot confer upon a municipal court a jurisdiction which it does not enjoy under the municipal law. (iii) the grantees of the ruler could not claim the protection of s 299 of government of india act, 1935 or of art. 31 of the constitution of india as they possessed no right to property enforceable against the new sovereign. (iv) the impugned tharao was not law. madhorao phalke v. the state of madhya pradesh [1961] 1 s.c.r. 957, referred to. per minority sinha c.j. and ayyangar j. (i) the juristic basis of the theory underlying the privy council decisions is that with the extinction of the previous sovereign the rights theretofore exerciseable by the subjects of that sovereign by virtue of grants for that sovereign were likewise extinguished and that without recognition which is really tantamount to a fresh grant by the new sovereign, no title enforceable in the municipal courts of the succeeding sovereign came into being. the doctrine of act of state evolved by english courts is one purely of municipal law. it denies to such a court jurisdiction to enquire into the consequences of acts which are inseparable from an extension of its sovereignty. that doctrine was, however. not intended to deny any rule of international law. the british practice that has prevailed in this country has not proved in actual practice to lead to injustice, but has proceeded on a just balance between the acquired rights of the private individual and the economic interests of the community, and therefore there is nothing in it so out of tune with notions of propriety or justice to call for its rejection. even in the case of virendra singh this court did not express any decisive opinion in favour of accepting the observations in percheman's case as proper to be applied by the municipal courts in india. this court has in subsequent decisions followed the privy council decisions. the view of the supreme court of the united states has not been accepted by this court for the reason that the constitutional position in regard to the recognition of treaties in both countries are different. in the united states a treaty has the force of law, which is not the position here. besides, in india by virtue of article 363 of the constitution, municipal courts are deprived of jurisdiction to enforce any rights arising from treaties. vinrendra singh v. the state of uttar pradesh, [1955] 1 s.c.r. 415, disapproved. vajesinghji v. secretary of state for india, 51 i.a. 357, cook v. sprigg, [1899] a.c. 572, relied on. walker v. baird, [1892] a.c. 491, johnstone v. pedlar, [1921] 2 a.c. 262, referred to. united states v. percheman, 32 u.s. 51, disapproved. m/s, dalmia dadri cement co. ltd. v. the commissioner of incometax, [1959] s.c.r. 729, jagan nath agarwala v. the state of orissa, [1962] 1 s.c.r. 205, promodh chandra dev v. the state of orissa, [1962] 1 supp. s.c.r. 405, the state of saurarhtra v. jamadar mohamad abdulla, [1962] 3 s.c.r. 970, secretary of state for india v. kanzachee boye sahiba [1859] 7 moore, i.a. 476, secretary of state for india in council v. bai rai bat, 42 i.a. 229 and secretary of state v. rustom khan, 68 ia. 109. relied on. amodu tijani v. secretary southern nigeria, [1921] 2 a.c. 399, referred to. west rand central gold mining co., v. rex, [1905] 2 k.b. 391. referred to. asrar ahmed v. durgha committee, ajmer, a.i.r. 1947 p.c. 1, relied on attorney-general of canada v. attorney-general of ontario, [1937] a.c. 326, referred to. (ii) where the new sovereign assumes jurisdiction and it does some act and there is ambiguity as to whether the same amounts to a recognition of a pre-existing right or not, the covenant and the treaty right be looked at in order to ascertain the intention and purpose of that equivocal act, but beyond this the covenant and the treaty cannot by them- selves be used either as a recognition pure and simple or, as waiver of a right to repudiate the pre-excisting rights. it is needless to point out that since the enforceability of the rights against the succeeding sovereign springs into existence only on recognition by the sovereign, there la no, question of a waiver or the right to repudiate. in the present case the high court erred in holding on the basis of cl. 7 of the letter of shri v. p. menon that the government waived their right to repudiate the grant made by the previous ruler. bhola nath v. the state of saurashtra, a.i.r. (1954) s.c. 680. distinguished (iii) just previous to the constitution the grantee had no right of property enforceable against the state. the coming into force of the constitution could not, therefore, make any difference, for the constitution, did,not create rights in property but only protected rights which otherwise existed. (iv) in the present case the "tharao" was not a grant to any individual but to the holders of 5 specified tenures in the state. the 'tharao' is more consistent with its being a law effecting an alteration in the tenures of the 5 classes of jagirdars by expanding the range of the beneficial enjoyment to the forests lying within the boundaries of the villages which had already been granted to them. in this light, the 'tharao' would not 'be administrative order in any sense but would partake of the character of legislation by which an alteration was effected in the scope and content of tenures referred to. the "tharao" dated march 12, 1918 satisfies the requirement of "a law" within art. 366(10) of the constitution and in consequence, the executive orders of the government of bombay by which the forests right% of the plaintiffs were sought to be denied were illegal and void. the "tharao" was in truth and substance a law which was continued by art. 372 of !he constitution and therefore it could be revoked by the appellant by legislative authority and not by an executive act. madhorao phalke v. the state madhya bharat [1961] 1 s.c.r 957, ameer-un-nissa begum v. mahboob begum, a.i.r. 1955 sup 4 court, 352 and director of endowments, government of hyderabad akram ali, a.i.r. 1956 s.c. 60, relied on. per subha rao j. (i) the decision in virendra singh's case is not only correct, but. is also in accord with the progressive trend of modern international law. it may, therefore, be stated without contradiction that in none of the decisions of this court that were given subsequent to vires. dra singh's ease the correctness of that decision was doubted. after all, an act of state is an arbitrary act not based on law, but on the modern version of 'might is right'. it is an act outside the law. there were two different lines of approach. one adopted by the imperialistic nations and the other by others who were not. that divergence was reflected in english and american courts. all the jurists of international law recognise the continuity of title to immovable property of the erstwhile citizens of the ceding state after the sovereignty changed over to the absorbing state. it may, therefore, be held that so far as title to immovable property is concerned the doctrine of international law has become crystallized and thereunder the change of sovereignty does not affect the title of the erstwhile citizens of the ceding state to their property. in america the said principle of international law has been accepted without any qualification. m/s. dalmia dadri cement co. ltd. v. the commissioner of income-tax, [1959] s.c.r. 729,jagannath agarwala v. the state of orissa, [1962] 1 s.c.r. 205, promodh chandra dev. v. the state of orrissa [1962] supp. 1 s.c.r. 405, state of saurashtra v. jamadar mohmed abdulla, [1962] 3 s.c.r. 970, discussed and distinguished. united states v. percheman, (1833) 32 u.s. 51, relied on. foster v. neilson, (1829) 2 p.e.t., 253, the american insurance co. and the ocean insurance co. v. bales of cotton (1828) 7 l.ed. 511, charles dehault v. united states, (1835) 9 ed. 117, vajeenngli joravarsingji v. secretary of state for india in council, (1951) i.a. 357, referred to. (ii) the law in england is that the municipal courts cannot enforce the acquired rights of the erstwhile citizens of the ceding state against the absorbing state unless the said state has recognized or acknowledged their title. this court accepted the english doctrine of act of state in a series of decisions. the word "recognize" means "to admit, to acknowledge, something existing before". by recognition the absorbing state does not create or confer a new title, but only confirms a pre-existing one. non-recognition by the absorbing does not divest the title, but only makes it unenforceable against the state in municipal courts. pramod chandra dev. v. the state of orissa, [1962] supp. 1 s.c.r. 503, relied on. (iii) the doctrine of acquired rights, at any rate in regard to immovable property has become crystallized in international law. under the said law the title of a citizen of a ceding state is preserved and not lost by cession. the change of sovereignty does not affect his title. the municipal laws of different countries vary in the matter of its enforceability against the state. as the title exists, it must be held that even in those countries, which accepted the doctrine of act of state and the right of a sovereign to repudiate the title, the title is good against all except the state. before the constitution came into force the state did dot repudiate the title. when the constitution of india came into force the respondent and persons similarly situated who had title to immovable pro- perty in the sant state had a title to the said property and were in actual possession thereof. they had title to the property except against the state and they had, at any rate, possessory title therein. the constitution in article 31(1) declares that no person shall be deprived of his property save by authority of law. that is, the constitution recognised the title of the citizens of erstwhile state of sant, and issued an injunction against the sovereign created by it not to interfere with that right except in accordance with law. a recognition by the supreme law of the land must be in a higher position than that of an executive authority of a conquering state. it was held that the title to immovable property of the respondent was recognised by the constitution itself and, therefore, necessarily by the sovereign which is bound by it. in the present case the letter written by the government of india dated 'october 1, 1948, clearly recognized the title of the respondents to their properties. the letter clearly contains a statement in paragraphs 5 and 7 thereof that enjoyment of jagirs, grants etc., existing on april 1, 1948, were guaranteed and that any order passed or action taken by the ruler before the said date would not be questioned. this is a clear recognition of the property rights of the respondent and similar others. virendra singh v. the state of uttar pradesh, [1955] 1 s.c.r. 415, relied on. m/s. dalmia dadri cement co. ltd. v. the commissioner of incometax [1959], s.c.r. 729, jagan nath agarwala v. the state of orissa [1962], 1 s.c.r. 205, promodh chandra dev v. the state of orissa' [1962], supp. 1 s.c.r. 405 and state of saurashtra v. jamadar mohamed abdullah [1962], 3 s.c.r. 970, discussed and distinguished.   - in two of these suits he made the government of madhya pradesh as well as the deputy commissioner parties. the appellant did not file any cross-objections in spite of the failure of the trial court to pass decrees against the other defendants. kalay, civil surgeon, bhandara to the effect that the deputy commissioner is the administrative head of all the departments of the district, and in his capacity as such is the person looking after the affairs of these hospitals well and that the dispensary fund committee becomes the owner of the hospital after it is constructed and handed over. the interest of the government is very well safeguarded as the contracts do not purport to have been entered into on behalf of the government. 5. but even apart from contract we have no hesitation in holding that in all the three cases liability under section 70 of the contract act clearly arises. phadke appearing on behalf of the appellant has stated that he would be satisfied with a decree for rs.alagiriswami, j.1. these three appeals have come to this court a second time by way of a certificate granted by the high court of bombay. the appellant filed three suits, civil suit no. 1-b of 1948 for rs. 12,000/., civil suit no. 2-b of 1948 for rs, 31,028/- and civil suit no. 3-b of 1948 for rs. 21,381/- for the work of additions and alterations to three hospitals, kunwar tilak singh hospital at gondia, bai gangabai hospital at the same town and twynam hospital at tumsar, all in bhandara district, then in the state of madhya pradesh and now in the state of maharashtra. in december 1943 he entered into contracts in relation to the above three hospitals with mr. tiwari, the then deputy commissioner bhandara district. he was paid various amounts in respect of the work done for these hospitals and dispute having arisen in respect of the appellant's claim for the balance of the amounts due in respect of these three contracts, the appellant filed the above three suits. in two of these suits he made the government of madhya pradesh as well as the deputy commissioner parties. the deputy commissioner, mr. tiwari, was also made a party in his personal capacity. he also made the dispensary fund committee another defendant in each of the suits and as the committee was not a statutory body he impleaded all its members as parties. in respect of bai gangabai hospital the state government, the deputy commissioner, the municipal committee of gondia, which owned the hospital, as also mr. tiwari in his personal capacity were made parties. the trial court decreed the suits against the state government alone. the amounts decreed were rs. 8,214/- in c.s. no. 1-b, rs. 19,298/- in c.s. 2-b and rs. 12,765-15-0 in c.s. no. 3-b. these were to carry interest, past and future. the state government took the matter on appeal to the high court of judicature at nagpur. the appellant did not file any cross-objections in spite of the failure of the trial court to pass decrees against the other defendants. by the time the appeals came up for hearing bhandara district became a part of the state of maharashtra. the high court of bombay allowed the appeals filed by the state. the high court also declined to exercise its powers under order 41, rule 33 of the cpc against the other defendants. on appeal this court set aside the order of the high court refusing to consider the claim against the other defendants under order 41, rule 33 and remanded the case back to the high court. this court, however, confirmed the judgment of the high court as far as the dismissal of the suit against the state was concerned. the high court again dismissed the suits and the matter was again come before this court by way of leave granted by the high court of bombay. it appears that since then the state of maharashtra has taken over the kunwar tilak singh hospital and the twynam hospital and, therefore, the only question to be decided in two of these three appeals is the liability of the state of maharashtra for any sums that may be found due to the appellant in respect of these two hospitals. the bai gangabai hospital is even now owned by the municipal committee, gondia and its liability also is to be determined.2. the exact status of the dispensary fund committee is not very clear. it does not appear to be a statutory body nor does it appear to be a permanent body. it seems to be something of an ad hoc body appointed by the deputy commissioner and consisted of a number of officials and a few non officials. the deputy commissioner himself was not a member of the body. it appears, however, as we would show later, that the deputy commissioner was acting on behalf of this body with the tacit approval of the committee itself. the contracts were signed by the deputy commissioner as deputy commissioner but not on behalf of the state; nor did they say that they were on behalf of the dispensary fund committee or the municipal committee. but in his evidence mr. tiwari stated that he entered into the agreement on behalf of the gondia municipal committee and the dispensary fund committee, and not in his personal capacity or in his capacity as deputy commissioner and that the idea was that the funds will be forth coming if he signed the agreement and the work will be more readily done. there being no dispute that the work in respect of all these three hospitals was done by the appellant and the ownership of the hospitals vests in one case with the gondia municipal committee and in the other two cases with the government of maharashtra, only two questions arise for decision, (i) what is the amount due, and (ii) are the municipal committee of gondia and the state of maharashtra liable either on the basis of the contracts or under section 70 of the contract act.3. as regards the amount due, the contract itself provided that the rates were to be increased subject to increase in the pwd schedule of rates. the contracts were in standard pwd form and the rates were als the pwd schedule of rates. there had been an increase of 50 per cent in august 1943 over the pwd schedule of rates. that was before the contracts in question were entered into, subsequently on 22-1-44 the pwd rates were again raised by 20 per cent. the deputy commissioner had also sanctioned the increased rates and extended the time for work as is seen from ext. r-8 and r-9 in c.s. no. 1-b of 1948. the letter of the deputy commissioner, bhandara dated 6-10-1945 in reply to the letter of the appellant's advocate, found at pages 428-430 of the paper book, shows that the appellant claimed rs. 76456-2-6 for tumsar hospital. the total cost calculated according to the agreement rates worked out to rs. 53820-0-0 out of which he had already been paid rs. 53,641-8-0. it also shows that the appellant claimed rs. 28906-8-0 for kunwar tilak singh hospital and that the total cost worked out on the basis of the agreement came to rs. 20798/- out of which the appellant has already been paid rs. 20,058-4-0. in respect of the gangabai hospital the appellant's demand was rs. 59598/- but the total cost calculated according to the agreement rates was rs. 44099/- and the appellant had actually been paid rs. 45477/-. mr. ganturam, the engineer who supervised this work had admitted that there was really no quarrel regarding measurements and the only dispute was with regard to the rates. in view of the stipulation in the contract, already referred to, there is no doubt that the appellant would be entitled to 20 per cent increase in the p.w.d. rates which came into force on 22-1-44 by slip no. 4 of the mahandi circle superintending engineer's memo. the trial court has made elaborate calculations and arrived at the figures for which the appellant was entitled to a decree. as the appellant can succeed in this case on the basis of section 70 of the contract act we think it would be a fair way of assessing the benefit obtained by the defendants to award the appellant 20 per cent of amount calculated according to the agreement. these figures have already been mentioned. the appellant would, therefore, be entitled to 20 per cent of rs. 53-820 plus the balance of the amount due even according to the twynam hospital, tumsar in civil appeal no. 1073/67, that is rs. 10,942-50. he would be entitled to 20 per cent of rs. 20,798 plus the balance which was due to him even according to the contract rate i.e. rs. 20,798-20, 052-4-0 in civil appeal no. 1072/67 for kunwar tilak singh hospital, that is rs. 4,809-35. in respect of the gangabai hospital, gondia he would be entitled to 20 per cent of rs. 44,099 and from this will be deducted what has been overpaid to him i.e. rs. 45,477-44,099 in civil appeal no. 1071/67, that is rs. 7441-80. the decree in this case will be against the municipal committee, gondia whereas in the two earlier cases it will be against the state of maharashtra.4. it may be useful at this stage to consider the grounds on which the high court of bombay considered that there was no room for granting any relief to the appellant, it is not necessary to discuss at length the liability of any one except the state of maharashtra and the gondia municipal committee as the appellant has stated that he would be content with a decree against the state in two cases and the municipal committee in one case. as regards the capacity in which the deputy commissioner entered into the contract on behalf of the dispensary fund committees it appears that the deputy commissioner as the principal district officer under instructions from the government took interest in collecting funds and helping in building hospitals and dispensaries. the capacity in which he acts in these matters is not the official capacity but a sort of paternal interest in fostering welfare of institutions. evidence in this case show that the amounts collected were kept in the treasury though it did not come from government funds. the twynam hospital at tumsar and kunwar tilak singh hospital at gondia are dispensary fund hospitals. the madhya pradesh medical manual part iv, chapter xxvii relates to classification of hospitals and dispensaries. clause 365 classifies the hospitals under six categories:1. government2. municipal (including notified area committee)3. district council4. dispensary fund5. private, and6. missionary.clause 370 lays down that the financial control of these hospitals and dispensaies, is vested in dispensary fund committees and their management in the civil surgeon. clause 385 relates to the constitution of the committee of management of dispensaries under the management of the dispensary fund committees. this committee is composed of representatives of the following classes:(a) the civil surgeon, ex-officio, or in his absence the medical officer-in-charge.(b) government officials.(c) representatives of the local bodies which contribute towards the funds.(d) representatives of the subscribers.(e) nominated non-officials.the precise constitution of the committee was to be laid down by the deputy commissioner and he was to nominate members of class (b) and (e), and the local bodies of class (c) and members of class (d) were to be elected in the manner prescribed by the deputy commissioner. though the contracts themselves do not show that they were on behalf of the dispensary fund committee and deputy commissioner was acting on behalf of the dispensary fund committee, the evidence of mr. tiwari taken along with the general circumstances of this case leave us in no doubt that mr. tiwari was acting on behalf of the dispensary fund committee with their tacit consent. it was he who entered into the contract, got the work supervised, sanctioned increases in rates and the extension of time, the committee itself taking no active part. but they must have been aware of what was being done in their name and on their behalf. apparently is will known to every body in matters of this kind, even the collection of subscription is mainly due to the influence and efforts of the deputy commissioner. no wonder the whole matter was left to his discretion and action. we do not attach much importance to the fact that the dispensary fund committee have denied that mr. tiwari had entered into contracts on their behalf or that the committees did not pass any resolution authorising the deputy commissioner to enter into agreement. we consider that the evidence of mr. tiwari is in consonance with circumstances of this case. this position is also clear from the evidence of dr. kalay, civil surgeon, bhandara to the effect that the deputy commissioner is the administrative head of all the departments of the district, and in his capacity as such is the person looking after the affairs of these hospitals well and that the dispensary fund committee becomes the owner of the hospital after it is constructed and handed over.... we are unable to agree with the high court that no reliance can be placed on mr. tiwari's statement on the ground that he was interested in safeguarding the interest of the government by saying that he did not enter into the agreements on behalf of the government. the interest of the government is very well safeguarded as the contracts do not purport to have been entered into on behalf of the government. nor has the deputy commissioner been authorised under section 175 of the government of india act to enter into contracts of this character on behalf of the government. the high court itself has remarked that it is conceivable that the deputy commissioner took the entire responsibility on his own shoulder and went on with the work in an informal way. it would be fair to hold that mr. tiwari entered into the contracts on behalf of the dispensary fund committees. as regards the municipal committee of gondia, statutes usually lay down the formalities to be observed in entering into contracts on their behalf and there is nothing to show that these formalities were observed. the contract may not, therefore, be binding on it.5. but even apart from contract we have no hesitation in holding that in all the three cases liability under section 70 of the contract act clearly arises. we do not understand why the high court thinks that the dispensary fund committees cannot be regarded as the owners or beneficiaries of the buildings of the hospitals. and more curiously the high court has said that it is the public that are the beneficiaries. the buildings on construction belong to the dispensary fund committee and the municipal committee and they have received benefit in so far as they are the owners.6. it is hardly necessary to refer to the authorities in support of this position. but we may refer to the decision of this court in state of west bengal v. b.k. mondal (1962) 1 scr (supp.) 876. there a contract to put up certain godowns for the use of the civil supplies department of the state of bengal was held unenforceable. the godowns were accepted and used by the department concerned. it was held that merely because the contract was illegal it does not follow that the contractor has done some thing which is not lawful. this court pointed out that the real basis of the liability under section 70 is the fact that the person for whom the work has been done, has accepted the work and has received the benefit thereunder and that what section 70 prevents is unjust enrichment and it applies as much to individuals as to corporations and government. there is no doubt that in this case the dispensary fund committee have accepted the buildings and they have also been accepted by the state of maharashtra when they took over the hospitals with their buildings which the appellant had constructed. thus, the dispensary fund committee in two cases and the municipal committee of gondia in the third have received the benefit and the state of maharashtra, having taken over the two hospitals became liable to pay the suit amount as successors in interest of the dispensary fund committees.7. it is true, as the learned judges of the high court pointed out that real basis for a claim under section 70 is not the terms of the contract but the quantum of the benefit actually derived. in the absence of any other material the contract between the parties provides a useful basis for calculating that benefit. it has not been alleged on behalf of the defendants that the rates agreed upon and later enhanced were not fair rates or that anybody else would have undertaken the work cheaper. the only reasonable way of arriving at the value of the benefit derived by the government is on the basis of the rates agreed upon (including future increases in rates by pwd) and that would be a fair indication of the value of the work. we may in this connection refer to the decision of this court in piloo sidhwa v. municipal corp. : [1970]3scr415 where the market price was taken as a proper indication of compensation under section 70 and interest also was awarded.8. mr. phadke appearing on behalf of the appellant did not want any relief against defendants other than the state of maharashtra in appeals nos. 1072/67 and 1073/67 and the municipal committee of gondia in appeal no. 1071/67. the amount mentioned by us earlier would have had to carry interest at the rate of 6 per cent from the date of plaint but mr. phadke appearing on behalf of the appellant has stated that he would be satisfied with a decree for rs. 8,214/- in civil suit no. 1-b i.e. appeal no. 1072/67, for rs. 19, 298/- in appeal no. 1073/67, and rs. 12,765 in appeal no. 1971. 67. there will be decrees accordingly. these amounts are far less than what the appellant is entitled to as indicated above, and he would, therefore, get his full costs in all the courts. they would, of course, carry interest at 6 percent from this date till date of realisation.