115

CHAPTER IV

DOCTRINE OF ACT OF STATE AND SOVEREIGN

FUNCTIONS VIS-A-VIS ARTICLE 300

Introduction

The Constitution of India failed to demarcate the extent of immunity of the

State for tortious act of its servants under Article 300. But the Western concept of

sovereign immunity that King can do no wrong, approves the State to claim

immunity from liability and denies compensation to the aggrieved party.

The concept of sovereign immunity is considered as a shield on the ground of

public policy by which nonpayment of compensation is justified by the State.

In England, the King can make and unmake any law because sovereignty vests on

him and people believe that he cannot do any wrong. All acts of the crown are

considered as acts for the welfare of the people. Indian Courts are very particular

in providing compensation to the affected individuals. At the same time, it is clear

that the sovereign immunity concept cannot be left out. So, this doctrine was held

important till recently. But, how to justify the concept when genuine claims are

made before the Court and such claims are defeated? In fact the First Law

Commission1 in its report recommended the abolition of this outdated doctrine.

But, due to various reasons the drafted Bill2 abolish of this doctrine was never

1
Law Commission of India, First Report(Liability of the State in Tort) 1950
2
Government (Liability in Tort) Bill, 1967.
 116

passed. Finally, the question, whether the State is immune from liability or not for

the wrongful acts committed by its servants while exercising their official

functions, depends upon the decisions of Courts. After having a systematic study

of various enactment and judicial decisions, an attempt is made to bring about the

scope and extent of sovereign immunity of the State under Article 300 of the

Constitution.

4.1 Sovereign Functions

Sovereign functions are those actions of the State for which it is not

answerable before the Court of Law. Matters such as defense of the country,

raising and maintaining armed forces, making peace in retaining territory, are

functions which are indicative of external sovereignty and are not amenable to

jurisdiction of ordinary civil Court.

Sovereign functions are primarily inalienable functions, which the State

only could exercise. The State is engaged with various functions, but all of them

cannot be construed as primary inalienable functions. Taxation, eminent domain

and police functions including maintenance of law and order, legislative functions,

administration of law, grant of pardon could be found as the sovereign functions of

the State.

In the modern sense, the distinction between sovereign or non sovereign

power does not suit. It depends upon the nature of the power and the manner of its

exercise.
 117

Peninsular and Oriental Steam Navigation Co. v. Secretary of State for

India, was the historical case which had drawn the principle of sovereign and non

sovereign functions of the Government while deciding the extent of liability and

immunity of the State. The Supreme Court of Calcutta held that the Secretary of

State is liable only for the extent of commercial functions and not liable for

anything done in exercise of sovereign powers. The dichotomy theory of

Sovereign and Non Sovereign functions determined by the Court in Peninsular

case helped the judiciary to interpret the functions of the government when the

question of liability of State arose. But there is no uniform and static norm to

decide the sovereign functions. The following judicial interpretations are given by

the Courts in various cases as sovereign functions to exempt the State from

liability. When the functions of the State are carried out by its servants under the

provisions of the State the State is not responsible to pay compensation for the

wrongful acts of its servants.

i) Performance of Statutory Duty

There is no yardstick to measure to what extent the State is immune from

liability for the wrongful acts of servants of State. In Shivbhajan Durga Prasad v.

Secretary of State,3 certain bundles of hay were negligently attached by the Chief

constable of Mahim, the petitioner was arrested and prosecuted, later he was

acquitted by the Court. He sued the Secretary of State for compensation for the

negligence of the constable. It was held that the Secretary of State was not liable
3
ILR 28 Bom. 314 (1904).
 118

for damages on account of the negligence of a Chief Constable, with regard to

goods seized not in obedience to an order of the executed government, but in

performance of a statutory power vested in him. Gurucharan kaur v. Province of

Madras,4 was another case where a Sub. Inspector of Police, acting under a

bona - fide, though erroneous belief that he was to detain Maharani of Nabha and

wrongfully confined her. Concerning the claim of Compensation, the Government

was held not liable, as the police officers have taken the action in pursuance of

statutory duty even though under a mistaken view. A statutory duty was thus

clothed with a sovereign halo.5 Also in Union of India v. Sat Pal,6 the plaintiffs

claim for Rs.500/- being the penalty imposed by the Land customs Authority was

rejected on the authority of the Supreme Court decisions as the levy of penalty was

a power vested in the Land customs officers under the Statute.

ii) Maintenance of Public Path

The State maintains public paths, for the welfare of the general public and

there is no commercial object in it. So, laying public path and its maintenance are

part of sovereign functions of the State. In Mclnerny v. Secretary of State,7 the

Calcutta High Court held that, the Government was not carrying any commercial

4
AIR 1980 SC 1362.
5
This principle was approved by the Supreme Court in Kasturi Lal v. State of U.P., In State of Bihar v.
Bishnu Chand Lal Chaudhary (1985) 1 SCC 449, the claim regarding damges for trespass and
unauthorized interference by the Government with proprietary interest failed because Government was
acting in exercise of statutory power, honesty and in good faith, within the meaning of section 4 (22) of
Bihar and Orissa General Clauses Act, 1917 and its action was protected under section 31 of Bihar
State management of Estates and Tenures Act, 1949.
6
AIR 1969 J&K 128; 2006 (2) JKJ 499.
7
(1911) 38 ILR Cal 797.
 119

operations in maintaining a public path and therefore was not liable for damages

for the injury sustained by the plaintiff through coming into contact with a post set

up by the Government on a public road.

iii) Maintenance of Military Road

Maintenance of military road is one of the sovereign functions of the State.

It is carried out by the public works department for the purposes of defense.

In Secretary of State v. Cockraft,8 where the plaintiff was injured by the negligent

act of the servant who left a heap of gravel on a military road over which no one

was walking. A suit for damages against the Government, was held not to be

maintainable by the Madras High Court because the maintenance of roads

particularly of a military road was one of the Sovereign, and not the private

functions of the government.

iv) Commandeering Goods during War

As stated above, commandeering goods during war is sovereign functions

of the State in Kessoram Poddar & Co. v. Secretary of State,9 the plaintiff

company sued the Secretary of State to recover damages for the injury sustained

by them by reason of the defendants failure to take delivery and pay for certain

goods bought by the defendant from it by commandeering Orders. Rejecting the

claim, Chotznar J, held that the commandeering Order was one which no one but

8
AIR 1915 Mad. 993.
9
AIR 1928 Cal.74.
 120

the Government could make and being an act of the sovereign power, the

Secretary of State could not be sued in respect of it.

v) Training for Defence

The training provided by the State for the purpose of defense is to secure the

general public and it is the sovereign function. In Secretary of State v. Nagerao

Limbaji,10 the plaintiff brought a suit against the Secretary of State for damages for

the loss of his finger due to the explosion of an ignition sot lying near the area

which was used as a practice bombing ground by the military authorities. It was

held that the provision of facilities for bombing practice was a public duty

undertaken by the State in order to provide training for the army. Such duties are

not exercised by the State for its own benefit, but for the protection of the entire

population.

vi) Arrest and Detention

Maintence of law and order includes arrest and detention; it is the sovereign

function of the State when it is done in good faith. In M.A. Kador Zailany v.

Secretary of State11, where some police officer wrongfully arrested and imprisoned

the plaintiff, he filed a suit for damages against the Secretary of State. It was held

that, the Government was not liable for the wrongs done by its officers unless the

wrongful act is done either by Order or on its behalf and subsequently ratified or

10
AIR 1943 Nag. 287.
11
AIR 1931 Rang. 294.
 121

adopted by it. Similarly, In Gurucharan Kaur v. Madras Province,12 the D.S.P.

instructed the police Sub-Inspector to go to the station and prevent certain

Maharaja from leaving that station. The fact however was that it was not the

Maharaja but his wife, the Maharani and his daughter alone were awaiting the

arrival of the train in her own car. On the arrival of the train, the Sub-Inspector

acting under a bonafide, though erroneous belief, that he was to detain the

Maharani, not only prevented the Maharani from boarding the train but also got

the gate in the iron fencing closed and posted two constables near it. A suit was

brought by the Maharani and her daughter for wrongful confinement. It was held

that the Government could not be held liable for the acts of police done in

discharge of their statutory duty in good faith. Thus, if the wrongful restraint by

the government servant is made in good faith,13 the State is not liable.

Vii) Performance of Military duty

In Union of India v. Harbans Singh,14 where as a result of rash and

negligent act of a driver of a truck of the Military Department of the Union of

India, who was engaged in Military duty, in supplying meals to military personnel

on duty the plaintiffs father was knocked down and run over. The State was held

not liable as the act of the driver was done whilst he was performing sovereign

function.

12
AIR 1942 Mad. 539.
13
Section 3 (20) of General Clauses Act 1897 defines good faith as; A thing shall be deemed to be done
in Good faith where it is in fact done honesty, whether it is done negligently or not.
14
AIR 1959 P&H 39.
 122

In Thangarajan v. Union of India,15 a defense lorry was carrying carbon

dioxide gas from a factory to the ship I.N.S. Jamuna. By the negligent act of driver

it dashed a small boy. On a suit against the State, the Court held that the lorry

belonged to the defense department. Union of India was driven in the exercise of

sovereign function. So, State is immune from liability.

State is not liable for the acts of its servant when such acts are committed

without the authority of law. In such cases, State cannot be held liable because

there is no act on the part of the State which holds the State responsible.

The officials of the State enjoy a vast discretionary power which affects the

individual rights. They should be held liable for improper exercise or abuse of

discretion. In this regard, the Indian Law commission has recommended that the

State should be liable if in the discharge of statutory duties imposed upon it or its

employees, the employees act negligently or maliciously, whether or not discretion

is involved in the exercise of such duty.

Viii) Maintenance of National Highways

A welfare State has to maintain proper roads for the benefits of the general

public. It is part of its sovereign function. In K. Krishnamurthy v. State of A.P,16

the driver of a motor road roller negligently struck the plaintiff down and his right

hand fell under the front wheel. The driver did not stop the engine forthwith.

The plaintiff claimed damages from the State for the permanent loss of his limb
15
AIR.1975 Mad. 32.
16
AIR1965 SC 333.
 123

occasioned by the rash and negligent act of their servant. The Andhra Pradesh

High Court, held that the making and maintenance of National Highways is the

exclusive duty of the State, and not a commercial function.

ix) Keeping Stolen goods in the Police Malkhana

In Kasturi Lal v. State of U.P.,17 the appellant was arrested by three constables

and his belongings like gold and silver were seized on the suspicion that they were

stolen properties. When he was released on bail the silver was returned and the gold

was kept at the police malkhana in the custody of a head constable. But the constable

in charge of the malkhana misappropriated it and fled to Pakistan. The trader therefore,

filed a suit against the State of Uttar Pradesh claiming the return of the gold or in the

alternative, the full price of the gold.It was proved that the authorities were negligent in

keeping the gold in safe custody. Gajendragadkar C.J., observed: If a tortious act is

committed by a public servant and it gives rise to a claim for damages, the question to

ask is: Was the tortious act committed by the public servant in discharge of statutory

functions which are referable to and ultimately based on the delegation of the sovereign

powers of the State to such public servant. The act of negligence was committed by the

police officers while dealing with the property of Kasturi Lal, which they had seized in

exercise of their statutory powers. To arrest and detain a suspicious person and to seize

his suspicious possessions are delegated sovereign powers of the Government officers

under the Statute. Thus, the State was held immune from liability.

17
AIR 1965 SC 1039.
 124

This position was also followed in State of Uttar Pradesh v. Chhotoy Lal,18

where the police on suspicion, arrested the plaintiff and seized 16 bags of Khandasari

sugar of which the movement was banned under the U.P. Control of Supplies

(Temporary Power) Ordinance 11 of 1946. But the police could not account for the

bags of sugar which had disappeared while in their custody. It was held that, the station

officer who seized the plaintiff respondents goods acted in the discharge of statutory

duties or to use the words of the Supreme Court in the exercise of delegated Sovereign

power. Therefore, the State is not vicariously liable for any loss to the plaintiffs

resulting from the station officers misconduct or negligence or misconduct of any

other State official or officials. In Oma Par shad v. Secretary of State,19 the Secretary

of State was held not liable for any criminal act of his employee, e.g. where a party

sued the Secretary of State for the recovery of stolen property, which during the trial of

the thieves were kept in the malkhana and were appropriated by the government

employee in charge of the malkhana. Keeping the stolen goods in the malkhana was a

sovereign function and so there can be no action in respect of them though a private

employer will be liable if his servant purloined the goods of x left in the possession of

his employer. This was explained by Chief Justice Gajendragadkhar, in Kasturi Lal v.

State of U.P.20

It is submitted that the reason behind the decision in Kasturi Lals case is

totally illogical as it erroneously adopted the pre-constitutional rule and identified

18
AIR 1967 All. 3247.
19
AIR 1937 Lah.572.
20
AIR 1965 SC 1039.
 125

statutory power as sovereign power. An officials immunity corresponding to the

statutory power was available only to the bonafide exercise of power, but not to

the abuse or misuse of the same. The Kasturi Lals case is widely criticized by

Jurists as it is a clear example of an improper application of an inadmissible test.21

x) Malicious Prosecution

Maharaja Bose v. Governor General in Council,22 this is the case of

wrongful arrest and malicious prosecution brought against the Governor General

in Council for damages. The plaintiff in this case was travelling by the defendants

Railway from Howrah to Patna. On February 3, 1944, he boarded an interclass

compartment in the 5 up Punjab mail at Howrah. On 4th at about 1 A.M. when the

said train stopped at Asansol Railway station, 3 Indian soldiers forcibly occupied

the plaintiffs seat. The plaintiff protested against this and he informed it to two

employees of the Railways. But they did not take any steps in this matter. When

the train started moving, the soldiers threatened the plaintiff with violence. Out of

fear for his personal safety, he pulled the emergency chain and caused the train to

stop. Defendants servants to whom the plaintiff had earlier complained reached

and made certain enquiries and asked the soldiers to vacate it. When such

conversation was going on the Assistant Station master on duty rushed to the

compartment and accused the plaintiff for pulling the chain and abused him by

using filthy languages and severely assaulted him. Without hearing any more

21
Alice Jacob, Vicarious liability of Government in Torts, 7 JILI 249 (1965); H.M. Seervai,
Constitutional Law of India, (Vol. II, Universal Publications, Lucknow, 4th Edn., 1996).
22
AIR 1952 Cal 242.
 126

explanation, the plaintiff was dragged out of the compartment, and was given into

the custody of a railway police on false charges and detained there. It was stated

that the plaintiff was a notable dancer and was on the way to take part in a dance

programme at Patna in aid of Red Cross. But the plaintiff failed to disclose his

name and identity so the railway servant arrested him. The plaintiff was tried by

the Magistrate and ultimately acquitted on July 24, 1944 and was released on a

personal bond. The plaintiff claimed compensation on the ground of vicarious

liability. It was argued on behalf of the defendant that in as much as the railway

servant is concerned, he had acted in the bona-fide exercise of powers under the

Railways Act.23 Hence, no suit lay against the State. In this case, the issues were

that whether the suit is maintainable? Was the plaintiff prosecuted maliciously and

without reasonable and probable cause? Was he wrongfully arrested? And what

damages, if any, did the plaintiff suffer for which the defendant was answerable.

The Court held that the plaintiff had no sufficient cause for pulling the

communication chain. The defendants servant was justified in handling the

plaintiff over to the police for non disclosure of his name and address. The Court

also held that the defendants servants honestly and reasonably believed the guilt

of the plaintiff and this negated the malice. The suit was dismissed and the State

was not held liable for the act of the employee.

23
Indian Railways Act, 1890. Section 132 empowers a railway servant to arrest without warrant under
certain circumstances.
 127

The above decision protects the States servant on the ground of statutory

immunity. It is evident that the employee of the railway department committed

wrong. The theory of benefit applied in this case, showed that the judiciary was

also very lenient to the State and the affected ordinary individual was left out

without remedy. In State of M.P. v. Dattamal,24 one Ramachandra was killed by

police firing, while controlling a riot on 21st, July 1954. On the date of occurrence

there was a students agitation at the main road at Indore. The District Magistrate

ordered firing. At that time, Ramachandra and his grandson were nearing their

house by car after closing their shop. One of the bullets pierced the car and

entered in to the body of Ramachandra, and as a result he died. The legal heirs

claimed damages for the illegal shooting. The trial Court ordered damages for the

negligent act of the police.

This Order was challenged by the State. The appellate Court reversed the

Order of the trial Court and held that maintaining of law and order by way of police

firing to control riot amounts to sovereign functions of the State. So, liability would

not arise. Thus there is no remedy in Indian law since there is no codified law to deal

vicarious liability of State like Federal Claims Act and Crown Proceedings Act.

It is unjustifiable that an innocent businessman was shot dead which

threatened the right to life guaranteed by the Constitution. The Court also did not

see the loss due to the negligence of the police official. Rejection of damages

resulted with the economic stress on the innocent family.

24
AIR 1967 MP 246.
 128

Xi) Maintenance of Law and Order

In State of Orissa v. Padmalochan,25 the Orissa Military Police made a lathi

charge on a mob assembled in front of the District Court to press their demands.

It was stated that without any Order from the Magistrate or other police authorities the

police personnel assaulted members of the mob, as a result of which the plaintiff

received injuries. He filed a suit for damages against the State for injuries caused to

him. The lower Court decided in favour of the claimant but on appeal, the High Court

pointed out that,26 the police personnel committed excess in discharge of their

functions without authority and that would not take away the illegal act from the

purview of delegated sovereign function and held that the injuries caused to the

plaintiff by the police while dispersing the unlawful mob were in exercise of the

sovereign function of the State.

Similarly in State of M.P. v. Chironji Lal,27 the police, while regulating the

procession, made a lathi-charge and caused damage to the property of the respondent,

the State Government will not be liable for the damage. The functions of the State of

regulating processions is delegated to the police by section 30 of the Police Act, 1861

and the function of maintaining law and order, including the quelling of riots, is

delegated to the authorities specified by section 14 of the Code of Criminal Procedure,

1973. Those functions cannot be performed by private individuals. They are powers

exercisable by the State or its delegates as Sovereign Functions of the State.

25
AIR 1975 Ori. 41.
26
The Court said: The real difficulty in the case of this nature, however, is the application of the
principles laid down by the Supreme Court to the facts of each case.
27
AIR 1981 MP 65.
 129

Xii) Collection of Revenue

The State is not liable for any wrong done by a public official in the

purported exercise of his statutory duties in the area of sovereign activities of the

State like collection of revenue etc.

In Kuppanna Chetty & Co. v. Collector of Anantapur,28 the Tahsildar wrongfully

attached the movable goods under the Madras Revenue Recovery Act and thereby

caused considerable damage to the plaintiffs. The Court held that since the collection of

revenue was a sovereign or purely State activity, the State was not liable for any tort

committed by a Government employee in the course of such activity in breach of his

statutory duties. This was upheld in State of Andhra Pradesh v. Ankanna,29 the revenue

officers acted illegally and maliciously detained a bullock-cart belonging to the plaintiff

for realizing the land revenue under the Revenue Recovery Act. The Court held that the

collection of land revenue is a sovereign function and the State is not liable for the

malicious act of its servants, when such act is made under a Statute.

In the Pre-constitutional period, the act of the authorities in refusing license

30
to the plaintiff relating to the imposition and collection of excise duties were

held as sovereign functions. The State was also exempted from liability for a

wrongful act of the collector of Chittagong who paid the surplus sale proceeds of a

Taluk not to the real owner but to another person31.

28
AIR 1965 AP 457.
29
AIR 1967 AP 41.
30
Nobin Chunder Day v. Secretary of State, (1876) ILR 1 Cal. 12.
31
Secretary of State v. Ramnath Bhatta, AIR 1934 cal. 128.
 130

The Andhra Pradesh High Court also held in another decision32 that the

Government is not liable for the illegal seizure of the property33 for arrears of

revenue due of respondent by a public officer (a head village Munsiff).

xiii) Acts of Courts of Wards

Generally acts of Courts of Wards are considered as sovereign function of

the State. So the State is immune from liability when there is any fault of Court of

wards. In Secretary of State v. Srigobinda,34 the plaintiffs State was released from

the management of the Court of Wards complaining that the manager appointed by

the Courts of Wards has not done his duty by realizing all money with diligence.

He has also not accounted to the Courts of Wards for certain money which he

collected. It is not a case in which the plaintiff can make the Secretary of State or

the revenue of India liable.

Xiv) Administration of Justice

One of the functions of the State, in exercise of sovereign power, is to take

cognizance of offences coming to its knowledge and to order the trial of such

persons in accordance with law. If the persons, discharging administration of the

justice, were found to be guilty, the system of judicial functions cannot be carried

out properly. So, statutory protection is afforded to them, by the Judicial Officers

32
Venkataramadas v. Latchanna, AIR 1966 AP 277.
33
Later, the property was sold at an auction by the Government.
34
AIR 1932 Cal. 834.
 131

Protection Act.196035. This is available to the person whose acts can be deemed

to have been in his judicial capacity as a Judicial Officer.

A government servant is vested with both Judicial and executive powers.

He is exempted from liability only if he is discharging Judicial acts in the Courts of

administration of justice. But if he committed the tort of false imprisonment while

acting in his executive capacity, he cannot claim sovereign immunity.36

In Mata Prasad v. Secretary of State,37 the plaintiff was convicted and

imprisoned for four and half years for dacoity. He has also to pay a fine of

Rs.500/-. But for his good conduct he was released after 2 years. The plaintiff

claimed damages against the Secretary of State for wrongful conviction of his

officials. The Court held that a person who has been charged by a competent

Court and punished for that offence is not, therefore, entitled to sue the Secretary

of State for India in council for damages in respect of the act of the State in

exercise of its sovereign powers. Similarly, in Secretary of State v. Sukhdeo,38 the

magistrate in his official capacity, ordered to seize certain property belonging to

the plaintiff in satisfaction of fine imposed on his son. On the suit brought by the

35
Section 1 of the Act: No judge, Magistrate, Collector or other person acting judicially shall be liable to
be sued in any civil Court for any act done or ordered to be done by him in the discharge of his judicial
duty whether or not within the limits of his jurisdiction. Provided that no at the time, in good faith,
believed himself to have jurisdiction to do, or order the act complained of.
36
This was held in Anowar Hussain v. Ajoykumar AIR 1965 SC 1651 the respondent brought a suit
against the magistrate who by order wrongfully imprisoned him. The Supreme Court through Shah J.,
hold the magistrate personally liable and the liability of State was not considered.
37
AIR 1931 Oudh. 29.
38
(1899) 21 All. 341.
 132

plaintiff for recovery of property, the Court held that the secretary of State was not

liable for the seizure of property by the Court.

In Maha Nirbani v. Secretary of State,39 the presiding officer of the

criminal Court directed, some ornaments which was delivered by the plaintiff to a

police officer, to be returned to the original owner and not to the plaintiff. In the

suit by the plaintiff, the Court expressed the view that the State was not liable for

the loss resulting from a wrong Order of the Court.

Non-liability of the State can be imposed only if any loss is caused to any

person by any officer when he is acting under judicial capacity. On this basis the

State was held not liable for wrong warrants issued by the judicial officer, as

judicial act belongs to the category of sovereign powers.

4.2 Non-Liability of the State under Legislative Protection

Now the extent of liability and immunity of State under tort depends on the

nature of the power and manner of its exercise. The Constitution of India, provides

legislative supremacy subject to Judicial review. The Parliament is free to enact any

legislation on any topics and any subjects authorized by the Constitutional provisions

without violating basic structure of the Constitution. Likewise, the executive is also free

to execute the actions through law. Thus the legislature may enact bad law due to its

negligence or the law may be affected due to failure of compliance of fundamental

rights or public policy. In such circumstances, the affected person cannot approach a

39
AIR 1922 All. 2705.
 133

Court of law for negligence in making law. The legislature may justify it on the ground

of public interest and the executive may also justify it on the same ground. Thus the

statutory provisions protect the acts of State for its smooth functioning. Even though it

is conflicting with the modern concept of sovereignty, the State should not be

answerable in torts. But it is not acceptable that the affected common man is left out

without remedy. It is left to the judiciary to render social justice in case when injustice

is done due to the legislative or executive action. In such cases, the officers are made

personally liable for torts. In such situation the question is why the State is exempted

from liability when the officers who are linked with the State are made liable? For

better understanding of this chapter, the following are some of the statutory provisions

which protect the State from suits. These provisions protect the State for action taken in

good faith. The following are protection clauses provided in various legislations exempt

the State from liability.

1. The Information Technology Act, 2000

Section 34 of The Information Technology Act, 200040reads: No suit

prosecution or legal proceeding shall lie against the Central Government, the

Controller or any person acting on behalf of him, the presiding officer,

adjudicating officers and staff of the Cyber Appellate Tribunal, for anything which

is in good faith done or intended to be done in pursuance of this Act or any rule or

regulation or order made there under.

40
Act 21 of 2000
 134

2. Drugs and Cosmetics Act, 1940

Section 37 of Drugs and Cosmetics Act, 1940,41 reads as No suit,

prosecution or other legal proceedings shall lie against any person for anything

which is in good faith done or intended to be done under this Act.

3. Chit Funds Act, 1982

Section 88 of Chit Funds Act, 198242 reads as No suit, prosecution or

other legal proceeding shall lie against the State Government, the Registrar or

other officers of the State Government, of the Reserve Bank or any of its officers

exercising any powers or discharging any functions under this Act in respect of

anything which is in good faith done or intended to be done in pursuance of this

Act or the rules made there under.

4. Consumer Protection Act, 1986

Section 28 of Consumer Protection Act, 1986,43 provides: No suit,

prosecution or other legal proceeding shall lie against the members of the District

Forum, or the State Commission or the National Commission or any officer or

person acting under the direction of the District Forum, the State Commission or

the National Commission or executing any order made by it or in respect of

anything which is in good faith done or intended to be done by such member,

officer or person under this Act or under any rule or order made there under.

41
Act 23 of 1940
42
Act 40 of 1982
43
Act 68 of 1986
 135

5. Insurance (Regulatory and Development Authority) Act, 1999

Section 22, of Insurance (Regulation and Development) Act, 199944 reads

as No suit, prosecution or other legal proceedings shall lie against the Central

Government or any officer of the Central Government or any member, officer or

other employee of the authority for any act which is in good faith done or intended

to be done under this Act or rules or regulations made there under.

6. Narcotic Drugs and Psychotropic Substances Act, 1985

Section 69 of Narcotic Drugs and Psychotropic Substances Act, 198545 provides

as No suit, prosecution or other legal proceeding shall lie against the Central

Government or the State Government or any officer of the Central Government or of

the State Government any person exercising any powers or discharging any functions

or performing any duties under this Act, for anything in good faith done or intended to

be done under this Act or any rule or order made there under.

7. Protection of Human Rights Act, 1993

Section 38 of Protection of Human Rights Act, 199346 provides that No

suit or other legal proceedings shall lie against the Central Government, the State

Government or any member thereof or any person acting under the direction either

of the Central Government, the State Government, the commission or the State

Commission, in respect of anything which is in good faith done or intended to be

44
Act 41of 1991
45
Act 61 of 1985
46
Act 10 of 1994
 136

done in pursuance of this Act or of any rules or any order made there under or in

respect of the publication, by or under the authority of the Central Government,

the State Government, the Commission or the State Commission, of any report,

paper or proceedings.

8. Civil Procedure Code, 1908

Section 80 of Civil Procedure Code, 1908,47 provides that no suit can be

instituted against the government until the expiration of two months after a notice

in writing has been given.

Section 82 of the Code of Civil Procedure, 1908, when a decree is passed

against the Union of India or a State, it shall not be executed unless it remains

unsatisfied for a period of three months from the date of such decree.

Article 112 of the Limitation Act, 1963, any suit by or on behalf of the

Central Government or any State Government can be instituted within the period

of 30 years.

9. Monopolies and Restrictive Trade Practices Act 1969

Section 3 of Monopolies and Restrictive Trade Practices Act 196948 says

that the Act shall not apply in certain cases unless the Central Government [by

notification], otherwise directs, this Act shall not apply to

47
Act 5 of 1908
48
Act 54 of 1969
 137

(a) Any undertaking owned or controlled by a Government company,

(b) Any undertaking owned or controlled by the Government,

(c) Any undertaking owned or controlled by a corporation (not being a company)

established by or under any Central Provincial or State Act,

(d) Any trade union or other association of workmen or employees formed for

their own reasonable protection as such workmen or employees,

(e) Any undertaking engaged in an industry , the management of which has been

taken over by any person or body of persons in pursuance of any authorization

made by the Central Government under any law for the time being in force,

(f) Any undertaking owned by a co-operative society formed and registered under

any Central, Provincial or State Act relating to co-operative societies,

(g) Any financial institution.

a) The Act is not applicable in the following situations:-

The undertaking owned or controlled by the Government or Government

companies, as the case may be and which are engaged in the production of arms

and ammunition and allied items of defense equipment, defense aircraft and

warships, atomic energy, minerals specified in the Schedule to the Atomic Energy

(Control of Production and Use) Order, 1953 and industrial units under the

Currency and Coinage Division, Ministry of Finance, Government of India.

 138

b) Any restrictive or unfair trade practice expressly authorized by any law for the

time being in force.

c) A restrictive trade practice flowing from an agreement which has the approval

of the central government or if central government is a party to such

agreement.

In addition to the above, any monopolistic trade practice which was expressly

authorized by any enactment for the time being in force or when it is necessary to

1. Meet the defense requirement of the country,

2. ensure maintenance of supply of essential goods and services, or

3. Give effect to any agreement to which Central Government is a party was also

exempted from the purview of the Act.

10. The Competition Act 2002

Section 2(h) of The Competition Act 2002,49 provides an exemption for

activities of the government relatable to the sovereign functions of the State.

Section 54 of the Act, empowers the Central Government to exempt the

application of any provision of the Act to an enterprise performing a sovereign

function on behalf of the Central or State Government, through a notification.

Thus, one problem with the wordings of these two sections taken together is the

confusion as to whether an enterprise carrying out an activity relatable to

sovereign functions requires an express notification by the Central Government by

49
Act 12 of 2003
 139

virtue of Section 54 for exemption; or would anyway be excluded from the scope

of an enterprise under section 2(h).

Although what a Sovereign function is has never been elucidated by the

Commission or Courts in the context of competition law, interpretation of the term

has been carried out for other legislations. It has been extensively discussed in the

context of understanding, the scope of the term other authorities under the

definition of State under Article 12 of the Constitution, which include bodies that

are agencies and instrumentalities of the State.

11. National Security Act 1980

Section 16 of National Security Act 1980,50 provides protection of action

taken in good faith. No suit or other legal proceeding shall lie against Central

Government, or a State Government, and no suit, prosecution or other legal

proceeding shall be against any person, for anything in good faith done or intended

to be done in pursuance of this Act

It is evident that the immunity of the Crown in the United Kingdom was

based on the feudalistic notions of justice, namely the King can do no wrong. One

should understand the position of the king as an administrator and what are the

powers which are considered as sovereign powers? India as a welfare country,

having its constitutional law approves immunity to the government unlike various

legislations. However the Indian Governmental functions carried out by its

servants cannot be left free for their wrong doings. To bring a balance in
50
Act 65 of 1980.
 140

administration and to achieve the goals of the Indian Constitution, the State is

protected from liability for its sovereign activities. The Competition Act 2002,

also brings a distinction of governmental functions into sovereign functions and

non sovereign functions. The sovereign functions as specified in this Act are

functions carried out by the departments of Central Government dealing with

atomic energy, space, defense and currency which are excluded from the purview

of this Act. On the question of what is sovereign function, different opinions

have been given time to time and again and attempts have been made to explain it

in different ways:

4.3. Various tests to identify the Nature of Functions of the State

1. Primary and Inalienable Functions

Krishna Iyer J, in Bangalore Water Supply and Seweragre board v.

A. Rajappa, 51 said that the definition of industry although of wide amplitude can

be restricted to take out of its purview certain sovereign functions of the State,

limited to its inalienable functions.

As to what are inalienable functions, Lord Watson, in Coomber v. Justices

of Berks,52 describes the functions such as administration of justice, maintenance

of order and repression of crime, as among the primary and inalienable functions

of a constitutional Government.

51
AIR(1978) SCC,5 48.
52
(1883-84) 9 App. Cas. 61,74
 141

However, the Supreme Court has also held that the definition can include

the regal primary and inalienable functions of the State, though the statutory

delegated functions to a Corporation and the ambit of such functions cannot be

extended so as to include the activities of a modern State and must be confined to

legislative power, administration of law and judicial powers.53

2. Regal & Non-Regal Functions

Isaacs, J. in his dissenting judgment in The Federated State School Teachers

Association of Australia v. The State of Victoria,54 concisely States Regal

functions are inescapable and inalienable. Such are the legislative power, the

administration of laws, the exercise of the judicial power. Non-regal functions

may be assumed by means of the legislative power. But when they are assumed

the State acts simply as a huge corporation, with its legislation as the charter.

Its action under the legislation, so far as it is not regal execution of the law is

merely analogous to what a private company is similarly authorized.55 These

words clearly mark out the ambit of the regal functions which are distinguished

from the other powers of a State.

3. Governmental Functions

What is meant by the use of the term sovereign, in relation to the

activities of the State, is more accurately brought out by using the term

53
State of Bombay and Ors. v. The Hospital Mazdoor Sabha and Ors. AIR 1960 SC 610.
54
(1929) 41 CLR 569
55
Agricultural Produce Market Committee v. Shri Ashok Harikuni & Anr. Etc. AIR 2000 SC 3116.
 142

Governmental functions although there are difficulties here also in as much as

the Government has entered largely new fields of industry. Therefore, only those

services which are governed by separate rules and constitutional provisions, such

as Articles 310 and 311 should, strictly speaking be excluded from the sphere of

industry by necessary implication.56

4. Constitutional Functions

The learned judges in the Bangalore Water Supply & Severage Board v.

A. Rajappa,57 a Sewerage Board case seem to have confined only such sovereign

function outside the purview of industry which can be termed strictly as

constitutional functions of the three wings of the State i.e. executive, legislature

and judiciary. However, the concept is still the same with insubstantial differences

between the terms. This can be noticed by the following observation by the Court

in Nagendra Rao and Co. v. The State of Andhra Pradesh,58 as to which function

could be, and should be, taken as regal or sovereign function. It has been recently

examined by the Bench of the Court, where in the words of Hansaria. J, the old

and archaic concept of sovereignty does not survive as sovereignty now vests in

the people. It is because of this, that in an Australian case, the distinction between

sovereign and non-sovereign functions was categorized as regal and non-regal.

In some cases, the expression used is State function, whereas in some

Governmental functions.

56
Beg CJ, Banglore Water Supply case.
57
AIR1978 SC 48.
58
AIR 1994 SC 2663.
 143

5. Nature and form of activity

It is now increasingly necessary to abandon the lingering fiction of a

legally indivisible State and of a feudal conception of the crown, and to

substitute for it the principle of legal liability where the State either directly

or through incorporated public authorities, engages in activities of a

commercial, industrial or managerial character. The proper test is not an

impracticable distinction between governmental and non-governmental

function, but the nature and form of the activity in question.59

6. The dominant nature test

(a) Where a complex of activities, some of which qualify for exemption, others

not, involves employees on the total undertaking, or some departments are not

productive of goods and services if isolated, even then, the predominant nature

of the services and the integrated nature of the departments as explained in the

Corporation of Nagpur v Its Employees,60 will be the true test. The whole

undertaking will be industry although those who are not workmen by

definition may not be benefited by the statutes.

(b) Sovereign functions, strictly understood, (alone) qualify for exemption, not the

welfare activities or economic adventures undertaken by government or

statutory bodies.

59
Ghaziabad Development Authority. v. Balbir Singh AIR 2005 SC 1206.
60
AIR 1960 SC 675
 144

(c) Even in departments discharging sovereign functions, if their core units which

are industries and they are substantially severable, then they can be considered

to come within section 2(j) the definition of industry.

(d) Constitutional and competently enacted legislative provisions may well remove

from the scope of the Act categories which otherwise may be covered thereby.

As per the Bangalore Water-Supply case, sovereign functions strictly

understood alone qualify for exemption; and not the welfare activities or

economic adventures undertaken by the Government. A rider has been added that

even in the department discharging sovereign functions, if there are units which

are industries and they are substantially severable, then they can be considered to

be an industry. As to which activities of the Government could be called

sovereign functions strictly understood, had not been spelt out in the aforesaid

case.61

3. In relation to what are sovereign and what are non-sovereign functions,

this Court in the Chief Conservator of Forests and Anr. v. Jagannath Maruti Kandhare

and Ors.62 holds; We may not go by the labels, Let us reach the hub. And the same is

that the dichotomy of sovereign and non-sovereign functions does not really exist- it

would all depend on the nature of the power and manner of its exercise.

61
It may be Stated that it is in pursuance to what was Stated under (d) above that the amendment of 1982
to Industrial Disputes Act, 1947 was made which provided for exclusions of some categories, one of
which is any activity of the Government relatable to the sovereign functions of the Government
including all the activities carried on by the departments of the Central Government dealing with
defense research, atomic energy and space. This was formerly exception No (6) of sec 2(j) of
mentioned in the amended definition.
62
(1996) 1 LLJ 1223 (SC).
 145

As per the decision in this case, one of the tests to determine whether the

executive function is sovereign in nature is to find out whether the State is

answerable for such action in Courts of law. It was stated by Sahai, J. that acts

like defense of the country, raising armed forces and maintaining it, making peace

of war, foreign affairs, power to acquire and retain territory are functions which

are indicative of external sovereignty and are political in nature. They are,

therefore, not amenable to the jurisdiction of ordinary civil Court in as much as the

State is immune from being sued in such matters. But then according to this

decision the immunity ends there. It was then observed that in a welfare State,

functions of the State are not only the defense of the country or administration of

justice or maintaining law and order but extends to regulating and controlling the

activities of people in almost every sphere, educational, commercial, social,

economic, political and even martial. Because of this the demarcating line

between sovereign and non-sovereign powers has largely disappeared.

The aforesaid observation shows that, if we were to extent the concept of

sovereign function to include all welfare activities the ratio in Bangalore Water

Supply case would get eroded, and substantially we would demur to do so on the

face of what was Stated in the aforesaid case according to which except the strictly

understood sovereign functions, welfare activities of the State would come within

the purview of the definition of industry; and not only this, even within the wider

circle of sovereign function, there may be an inner circle encompassing some units

which could be considered as industry if substantially severable.

 146

7. Predominant Nature of the Activity

As referred in part (a) of the Dominant Nature Test, the Court in the

Corporation of Nagpur case,63 evolved another test when there may be cases

where the said departments may not be in charge of a particular activity or service

covered by the definition of sovereign function but also in charge of other activity

or activities falling outside the definition. In such cases, a working rule may be

evolved to advance social justice consistent with the principles of equity. In such

cases, the solution to the problem depends upon the answer to the question

whether such a department is primarily and predominantly concerned with activity

relatable to the sovereign function or incidentally connected therewith.

It was also held in the same case that in a modern State the sovereign

power extends to all the statutory functions of the State except to the business of

trading the industrial transactions undertaken by its quasi-private personality.

Also, the regal functions described as primary and inalienable functions of the

State though statutorily delegated to a corporation are necessarily excluded from

the purview of the definition. Such regal functions shall be confined to legislative

power, administration of law and judicial power.

In N. Nagendra Rao & Co. v. State of A.P,64 defines non-sovereign

functions as discharge of public duties under a Statute, which are incidental or

ancillary and not primary or inalienable function of the State. This decision holds

63
AIR 1960 SC 675.
64
AIR 1994 SC 2663.
 147

that the State is immune only in cases where its officers perform primary or

inalienable functions such as defense of the country administration of justice,

maintenance of law and order.

The Court gave an example where a search or seizure affected under such

law could be taken to be an exercise of power which may be in domain of

inalienable function. Whether the authority to which this power is delegated is

liable for negligence in discharge of duties while performing such functions is a

different matter. But when similar powers are conferred under other Statute as

incidental or ancillary power to carry out the purpose and objective of the Act,

then it being an exercise of such State function which is not primary or

inalienable, an officer acting negligently is liable personally and the State

vicariously.65

In fact, all governmental function cannot be construed as either primary or

inalienable sovereign function. Hence even if some of the functionaries under the Act

could be said to be performing sovereign functions of the Government that by itself

would not make the dominant object of the Act to be sovereign in nature. Various

decisions rendered by the Supreme Court prior to and after the decision in Bangalore

Water Supply v. A. Rajappa66, had been discussed by the Supreme Court in the case of

State of U.P. v. Jai Bir Singh67 where the Court inter alia wished to enter a caveat on

confining sovereign functions to the traditional functions, described as inalienable

65
Agricultural Produce Market Committee v. Shri Ashok Harikuni & Anr. Etc. AIR 2000 SC 3116, para 22.
66
(1978) 3 SCC
67
(2005) 5 SCC 1.
 148

functions comparable to those performed by a monarch, a ruler of a non-democratic

government. The concept of sovereignty is confined to law and order, defense, law

making and justice dispensation. In a democracy governed by the Constitution the

sovereignty vests in the people and the State is obliged to discharge its constitutional

obligations contained in the Directive Principles of the State Policy in Part-IV of the

Constitution of India. From that point of view, wherever the government undertakes

the public welfare activities in discharge of its Constitutional obligations, as provided in

Part-IV of the Constitution, such activities should be treated as activities in discharge of

sovereign functions. Therefore, such welfare governmental activities cannot be brought

within the fold of industrial law by giving an undue expansive and wide meaning to the

words used in the definition of industry regarding immunity to sovereign powers.

4.4 Immunity of State under the Doctrine of Act of State

There is no doubt that no action may be brought either against the crown or

any one else in respect of an act of State.68 An act of State, under the English law

is an act of the executive as a matter of policy performed in the course of its

relations with another State or during its relations with the subjects of that State,

unless they are temporarily within the allegiance of the Crown69. In the words of

Hartley and Griffith70, the term means an act of such character that the Courts have

no jurisdiction to determine its lawfulness. Thus it is an act of a sovereign against

68
W.V. H. Rogers, Winfield and Jolowicz on Tort, 702 ( 14 Edn Sweet & Maxwell, 1994)
69
Wade and Bradley, Constitutional Law, 265 (Edn., 1971).
70
Hartley and Griffith, Government and Law 287 (1976).
 149

another sovereign or an alien outside its territory. An act of State derives its

authority not from municipal law but from ultra-legal or supra-legal means71.

Municipal Courts have no power to examine the propriety or legality of an act of

State. The term is defined by various writers,72 Lord Atkin in Eshughay v.

The Government of Nigeria defined the term as:

An act of the sovereign power directed against another sovereign power

not owing temporary allegiance in pursuance of sovereign rights of waging war or

maintaining peace on the high seas or abroad, may give rise to no legal remedy.

But as applied to acts of the executive directed to subjects within those territorial

jurisdictions it has no special meaning, and can give no immunity from the

jurisdiction of the Court to inquire the legality of the act.

A nation is sovereign within its own borders, and its domestic actions may

not be questioned in the Courts of another nation. The object of the act of State

doctrine is to protect the Executives prerogatives in foreign affairs. The act of

State doctrine is applied for the act of a governmental body or of a body having

governmental powers and must be carried out in the exercise of such governmental

or sovereign powers and the act in question must be a formal act or evidenced by

formal action such as legislation or an executive order.

71
M.P.Jain and S.N.Jain, Principles of Administrative law, 816 (Edn., 2007).
72
Fitzjames Stephen defines it is an act injurious to the person who is not as the time at the act a subject of His
majesty, which act is done by any representatives of His majestys authority, Civil or military and is either
previously sanctioned or subsequently ratified by His majesty. A History of the Criminal Law of England
(1883 Edn.) vol.2, p.p. 61-62.
 150

a) Act of State and Sovereign Immunity

The Act of State doctrine differs from sovereign immunity doctrine. The Act of

State doctrine provides sovereign States with a substantive defense on the merits. But a

claim of sovereign immunity, which merely raises a jurisdictional defense. The Courts

of one State will not question the validity of public acts performed by other sovereigns

within their own borders, even when such Courts have jurisdiction over a controversy

of in which one of the litigants had stood to challenge those acts. But this is not so in

sovereign immunity. Act of State does not deal with the subjects of the State but deals

with foreigners who cannot seek the protection of the municipal law. It is a sovereign

act of the government performed in exercise of its executive prerogative sanction for

which is derived from sovereignty of the State.73 Thus the act of State doctrine operates

extra territorially and it is difficult to conserve of an act of State as between a sovereign

and his subjects.74

b) History and Development

The Act of State doctrine was initially developed in US in cases against

officials or agents of foreign government and applied as a corollary to the personal

immunity of foreign sovereigns. In Underhill v. Hernandez75, the Supreme Court

of United State of America held that a citizen of the United States was not entitled
73
Union of India v. Ram Kamal, AIR 1953 Assam 116.
74
P.V. Rao v. Kushaldas Adwani, AIR 1949 Bom. 277 at 279.
75
168 US 250 (1897) According to Fuller C.J., in a Statement which has come to be known as the
Classic American Statement of the Act of State doctrine; Every sovereign State is bound to respect
the independence of every other sovereign State, and the Courts of one country will not sit in judgment
on the acts of the government of another done within its own territory. Redress of grievances by reason
of such act must be obtained through the means open to be availed of by sovereign powers as between
themselves.
 151

to recover damages in a United States Court from a Venezuelan military General

who refused to issue a passport to him because the acts of General were held to be

acts of the Venezuelan government.

In France and in some continental countries under Act of State doctrine,

officers acting in their official capacity are not cognizable by the ordinary Courts,

nor are they subject to the ordinary laws of the land.

c) Essentials of Act of State

The essence of an Act of State in the exercise of sovereign power

exercised arbitrarily on principles either outside or paramount to the municipal

law.76 If a transaction takes place in one jurisdiction and the forum is in another,

the Court merely declines to adjudicate or makes applicable its own law to parties

or property before it. The refusal of one country to enforce the penal laws of

another is a typical example of an instance when the Court will not entertain a

cause of action arising in another jurisdiction. The United States Supreme Court in

Banco Nacional De Cuba v. Sebbatino,77 Cuba nationalized its sugar industry,

taking control of sugar refineries and other companies in the wake of the Cuban

revolution. The case involved a claim by Cuba for the price of a cargo of sugar

which had been expropriated by the Cuban government, and then sold to a U.S.

commodity broker (Farr, whitlock &Co.). In addition to the Cuban claim, Farr

was faced with a claim from the receivers of original owner (Sebbatino) who

76
Hidayathullah,J. in Saurashtra v. Menon Haji Ismail, AIR 1959 SC 1383.
77
398 U.S. (1964)
 152

argued that the Cuban expropriation was contrary to international law. Both the

District Court and the Court of Appeals, found in favour Sebbatino, holding that

the Act of State doctrine was in applicable where the relevant foreign act was in

violation of international law. However, the Supreme Court reversed this decision.

Justice Harlan applied the Act of State doctrine and held that US Courts could not

question the validity of the Cuban expropriations even if the plaintiff alleged a

violation of international law.

The Supreme Court of United States,78 held that the Act of State doctrine

applies only when a US Court must declare such official act invalid, and thus

ineffective as a rule of decision for the Courts of this country.

In Secretary of State v. Hari Bhanji79, the plainfitiff had sued for the return of a

certain sum of money alleged to have been illegally sezied from him as import duty on

salt. The Madras High Court did not follow Nobin Chunder Dey v. Secretary of State80

and held that the act of State of which the municipal Courts in British India were

78
W.S. Kirk Patrick & Co. v. Environmental Tectonics Crop. Intl, 493 (U.S.1990). In this case the
Supreme Court strictly limited its application to cases in which a Court is required to determine the
legality of a sovereign States official acts under that sovereigns own laws.
79
(1882) ILR 5 mad. 273
80
(1876) ILR 1 Cal.12. In this case the plaintiff was the higher bidder at an auction for selling liquor and
drugs. He did all that was necessary to entitle him to the license but he did not get it. The result was
that he was forced to close his shops. He sued for compensation for the damages suffered and in the
alternative for the refund of the deposit made by him. The suit was against the Secretary of the State
for India. The Court held that the impugned act was an act of State as those acts could only be
performed in the exercises of the sovereign powers of the State. The claim, it was held, could not be
enforced against the Government of India.
The decision recognizes the position that the plea that an impugned acts is an act of State in the
exercise of its sovereign powers can be available to the State against its own subjects even in times of
peace. This is the first case in which the dictum of Barnes Peacock, C.J. in Peninsular Oriental Steam
Navigation Company v. Secretary of State, (1861) 5 Bom. H.C.R. App. 1 was so applied that even acts
of government officials which were done professedly under the sanction of the municipal law were
regarded as such acts of State for which the secretary of State for India was held not liable.
 153

debarred from taking cognizance were acts done in the exercise of sovereign powers

which were not justified by municipal law. In India, actions which are purportedly

taken under municipal law are denied the status of act of State if the private party only

seeks to set aside the action81. But if he claims damages in tort the Courts generally

examine whether the power exercised was sovereign in nature, and denies relief if it is

found in the affirmative.82 Even though the distinction between sovereign and non

sovereign functions was doubted83, the view has never been overruled. The present

tendency is to minimize the use of the distinction and to award damages.

It follows that to raise a defense of act of State three conditions must be

fulfilled. The first is that the act must be authorized or subsequently ratified by the

government. The second is that act must be committed outside the territory of India,

and the third is that the plantiff must be an alien. Another important thing to remember

is, in speaking of the exercise of sovereign power a clear distinction must be made

between exercise of power in relation to foreign States, their subjects not within the

allegiance, and action under municipal law in relation to subjects84.

d) Instances of Act of State

(a) During War

During war the acts of a sovereign State affecting alien are not congnizable

by municipal Courts. In Secretary of State for India v. Kamachee Boye85 the facts

81
Bombay v. Khushaldes Adveni, AIR (1950) SC 222 at 249.
82
Kasturilal v. Uttar Pradesh, AIR (1965) SC 1039; Thangarajan v. Union of India, AIR (1975) Mad 32.
83
Justice Mathew in Shyam Sunder v. Rajasthan,, AIR 1974 SC 890 at 893.
84
H.M. Seervai, Constitutional Law of India, (1984) p. 1792
85
(1859) VII M.I.A. 476.
 154

were that on the death of Raja Shivaji of Tanjore, the East India Company seized

the public and private properties of the deceased Raja. The seizure was made on

the ground that the dignity of the Raja was extinct for want of a male heir, and that

the property of the late Raja lapsed to the British Government. The widow

claimed it as the legal heir of the deceased Raja. The claim was accepted by the

Supreme Court of Madras. But, on appeal the Privy Council reversed and it was

held that the seizure made by the company on the death of last male Raja was an

act of State, which could not be questioned before a municipal Court. The

transactions of independent States are governed by laws other than those which

municipal Courts administer. In this regard Lord Kings down observed:

Of the propriety or justice of that act, neither the Court below nor the

Judicial Committee has the means of forming, or the right of expressing, if

they had formed, any opinion. It may have been just or unjust, politic or

impolitic, beneficial or injurious taken as a whole to those whose interests

are affected. It is sufficient to say that, even if a wrong has been done, it is a

wrong for which no Municipal Court of justice can afford a remedy.

A further question is whether a State is bound to indemnify citizens for the

damage sustained during actual hostilities? The issue was examined by the House of

Lords in Burmah Oil Co. v. Lord Advocate.86 The facts of this case if that the

installations as well as the petrol were destroyed, to prevent its falling into the hands of

the advancing Japanese army. It was clear that, the destruction was carried out on the
86
(1965) AC 75.
 155

orders of the Crown in the lawful exercise of its prerogative power to provide for the

defense of British territory. The question that fell for decision by the House of Lords

was whether the Crown must pay compensation. The House of Lords held that if

property of the subject was damaged by the State during actual hostilities, no

compensation need be given. The plaintiffs had claimed the full value of the property

destroyed, which might have amounted to more than 30,000,000. In that case, Lord

Reid pointed out that the appellants appear to be claiming the full value of these

installations in time of peace. I am holding that they are entitled to compensation and it

will be necessary to consider whether compensation must not be related to their loss, in

the sense of what difference it would have made to them if their installations had been

allowed to fall into the hands of the enemy instead of being destroyed. Lord Pearce also

dealt with the point thus There may, however, well be a distinction in terms of

compensation. Petrol which is taken and used may be worth its full value. Petrol

which is blown up when it is about to pass into the hands of an enemy, who will

undoubtedly consume it without paying the owner, may be valueless. That matter has

not been argued and is not yet relevant.

Lord Radcliffe, dissented and held that the State should not be asked to pay

a requisition price for something for which there was at the time no conceivable

purchaser.

Thus the common law rule is that seizure or destruction of private property

within the realm under prerogative power, even during grave national emergency, if not
 156

during actual hostilities could be done only on the footing that compensation was

payable. The decision was immediately nullified by the War Damages Act, 1965,87

which prevented the payment of compensation in such or similar circumstances.

The Assam High Court in Union of India v. Ramkamal88 examined this aspect. The

respondent was a lessee of certain fisheries. He had constructed fish-nurseries with

auxillary installations. In the year 1944, a party of Indian and British soldiers occupied

the western half of the northern and the western banks of the fisheries. During this

period serious damage was caused to the fishery. The trial Court decreed the suit and

awarded damages of Rs.77.000/- with proportionate costs against the Union of India.

On appeal, the Assam High Court held that acts in the exercise of sovereign power of

the State in time of war, insurrection, rebellion or any other emergency of a like

character, affecting the person or the property of the subjects should also enjoy

immunity. However, it was held that the State should satisfy the Court as to the

necessity and reasonableness of the action before it could claim recognition of

immunity. It means that the necessity and the reasonableness of the sovereign act are

subject to judicial scrutiny. In the instant case, no evidence was produced on behalf of

the State to prove the gravity of the emergency justifying the occupation without

recourse to the provisions of the municipal law contained in the Defense of India Act.

Occupation by the troops in such circumstances amounted to an act of trespass.

87
Section 1(1) of the Wet Dangerges Act. 1965 provides No person shall be entitled at common law to
receive from the crown compensation in respect of damage to or destruction of property caused
(whether before or after the passing of the Act, within or outside the United Kingdom by acts lawfully
done by or on the authority of the Crown during, or in contemplation of the outbreak of, a war in which
the sovereign was or is engaged.
88
AIR (1953) Ass. 116.
 157

Thus Union of India was held liable to compensate the plaintiff

respondent89 Ram Labhaya C.J. observed: Indian decisions do not support the

contention that the expression act of State refers only to acts against foreigners

or foreign States. The expression has been used in relations to all acts of the

sovereign authority whether they operated extraterritorially or whether they were

acts between the State and its own subjects. No distinction has been made

between acts of the sovereign authority affecting foreign States or foreigners and

those affect the citizens of the State.

The division of sovereignty into two compartments which has taken place

in England for purpose of convenience has not been adopted in India.

The difficulty in adopting this division was probably historical.

It seems that the law in India is also similar to that available in England.

The learned Chief Justice had evolved the test of necessity and reasonableness of

the action for claiming immunity. Though it is impossible for a Court of law to

access the necessity and reasonableness of a military action, the test in practice

means that if done during actual hostilities the State may claim immunity.

b. International Treaties

An act of State includes signing of treaties. It can only be done by a

sovereign and not by a private person. In State of Kerala v. Ravi Varma Raja

89
The High Court reduced the decretal amount to a sum of Rs. 5500/-.
 158

Menon,90 the Kerala High Court held that, the formation of United States of

Travancore and Cochin was an act of State as it was the result of a covenant

entered into by the rulers of Travancore, Cochin. Also in Nawab of Carnatic v.

East India Company,91 the suit brought by the Nawab, against the Company was

dismissed on the ground that it was an act of State as it was a matter of political

treaty between two sovereigns.

c. Annexation or Cession of Territories

The rule that cession of territory or annexation of territory by a sovereign State

is an act of State. In East India Company v. Syed Alley92, it was held that resumption

by the Madras Government of a Jagir granted by former Nawabs, before the date of the

treaty, and a regrant by the Madras Government to another for a life State only, was

such an act of sovereign power by the East India Company. So the Supreme Court at

Madras was precluded from taking cognizance of a suit by the heirs of the original

grantee in respect of such resumption. In State of Saurashtra v. Memon Haji Ismail,93

the Nawab of Junagadh had gifted certain property to the respondent. After the

annexation of the State by the Indian Union, the Administrator resumed those

properties and the grantee brought a suit against the State for the recovery of the price

of those properties. The Supreme Court rejected the suit on the ground that the

sovereign act of annexation could not be questioned before civil Courts.

90
AIR 1964 Ker.123.
91
4 Bro CC 198 (1793)
92
(1827) VII M.oo.Ind.App. 555 (1829).
93
AIR 1959 SC1583.
 159

When the princely States were merged into the Union of India, the

inhabitants of those States have raised problems as to their rights. The question

was how far the newly formed successor governments were bound by the rights

enjoyed by the inhabitants under the former rulers. The law is that the prior rights

will be recognized only if the successor government had recognized them.

The rational of the rule has been explained in Nayak Vajesingji Joravarsingjai

Naayk v. Secretary of State94, where the Privy Council in consolidated appeals, the

three Nayaks of Tanda, Chandwana and Katwada respectively sued the Indian

Government for a declaration that they are proprietors of the whole land in the

Talukas belonging to them and that they are not bound to accept a lease of the

same in the terms offered to them by the Government in 1907. In this case, the

Privy Council observed when a territory is acquired by a sovereign State for the

first time that is an act of State. It matters not how the acquisition has been

brought about. It may be by conquest, it may be by cession following a treaty, it

may be by occupation of territory hitherto unoccupied by a recognized rule. In all

cases, the result is the same. Any inhabitant of the territory can only make good in

the municipal Courts established by the new sovereign, such rights as he had under

the rules of predecessors will avail him nothing. Even if in a treaty of cession it is

stipulated that certain inhabitants should enjoy certain rights that does not give a

title to these inhabitants to enforce these stipulation in the Municipal Courts. The

right to enforce remains only with the High Contracting Parties.

94
AIR 1924 PC 216.
 160

The above observation was followed by Lord Atkin in Secretary of State v.

Sardar Rustam Khan,95 where it was held that as the Khan of Kalat had made over to

the British State the whole of his sovereign rights and by the terms of the treaty as

well as by virtue of Section 1 of Foreign Jurisdiction Act, 1890, the Government of

India had full sovereign rights over the territory in question and had the right to

recognize or not to recognize existing titles to land, the respondents could enforce no

claim against the Government in the municipal Courts.

The Supreme Court followed the view in Dalmia Dadri Cement Company v.

Income Tax Commissioner.96 The Jind State was merged into Patiala and East Punjab

States Union in 1948. While the new State was formed all the laws operating in former

States were abrogated and the laws prevailing in the Patiala State were made applicable

to all the merged States. It became a Part B State of the Indian Union and the Indian

Income Tax Act was made applicable. The Company claimed exemption from the

imposition of income tax relying on the exemption granted to it by the former ruler of

Jind State. The Court rejected the contention holding that the rights granted by the

former State could be enforced against the new State only if it accorded recognition to

them either by an affirmative declaration or conduct.

In Premsukhdas v. Rajasthan97, the former State of Bharatpur had allowed

certain concessions of 25 per cent reduction from custom duties for those persons who

purchased plots in a colony in Bharatpur to do business. The intention was to develop

95
AIR 1941 PC 64.
96
AIR 1958 SC 816.
97
AIR 1967 SC 40.
 161

that area by encouraging people to settle there. On this condition the appellant

purchased plot in that area. But when the Bharatpur State was merged in the State of

Rajasthan, the latter State repudiated the concession and enacted uniform customs

duties throughout the State. The appellant filed a suit for recovery of excess custom

duties which he had been compelled to pay on account of disallowance of concessions

given by the former State of Bharatpur. The Supreme Court rejected the claim on the

ground that the contractual liability of a former State was binding on a succeeding

sovereign State only if it recognized the contractual liability. In Pramod Chandra Deb

v. Orissa,98 the former ruler had given certain maintenance grants to the junior

members of their families. The Supreme Court held that those grants could be enforced

against the Government of India in so far as they were recognized by it. There were

four such grants of which three had been recognized by the Government. The fourth

grant had been annulled by an order issued under the Extra Provincial Jurisdiction Act,

1947 and that grant was held to be unenforceable. In Gwalior R.S. (W) Co. v. India,99

the Gwalior Maha Rajah, by his order dated 18.1.1947 had given exemption from

income tax for a period of twelve years to Birla Brothers in the Gwalior State, when

they set up new industries and factories there. In pursuance of the Order, the Gwalior

State Government had entered into an agreement with the Birla Brothers subsequently

the State was merged into Madhya Bharat. Income tax assessment proceedings were

launched by the Madhya Bharat State and later by the Central Government. The

98
AIR 1962 SC 1288.
99
AIR 1960 MP 330.
 162

company claimed exemption on the ground of the order of exemption and the

subsequent agreement entered into with the State Government. The Madhya Bharat

High Court, allowed the claim of exemption on the ground that an obligation was cast

on the Gwalior Government to give exemption which in turn devolved on the Central

Government under Act 205(1). The Indian Income Tax Act did not abrogate specific

exemption already granted to the petitioner by special statutory provisions and virtually

the Union Government and its predecessor Government had recognised the plaintiffs

claim.

In Virendra Singh v. State of U.P100, the Court took different view of the effect

of conquest or cession on private rights. Here the ruler of Sarilla, granted village Rijura

to the petitioner on January 5, 1948, and the ruler of Charkari and Sarilla, agreed to

unite into the United State of Vindhya Pradesh. While this union was in existence,

certain officials of the Government interfered with the rights of the petitioners but the

Government of the United State of Vindhya Pradesh issued orders directing the officers

to abstain from such interference. Subsequently, the territory was ceded to the

Dominion of India, which thereafter constituted the area into a Chief Commissioners

Province for the purpose of administration; but the four villages granted to the

petitioner were detached from the centrally administered State and absorbed into the

State of Uttar Pradesh. On August 29, 1952, the Governor of Uttar Pradesh revoked the

grants made in favour of the petitioner. The Supreme Court rejected the plea of act of

State holding there can be no act of State by a sovereign State as against its own

100
AIR 1954 SC 447.
 163

subjects. In this case, it was held the plaintiff having become a citizen of India; he

could enforce his property rights under Articles 19 and 31.

But the decision of Virendra Singh was overruled by a bench of seven

judges of Supreme Court in Gujarat v.Vora Fiddali,101 the facts of the case were

that the Ruler of the Sant State ceded the territory of his State to India by an

agreement of merger on March 19, 1948. Later, it became a part of the Province

of Bombay from August 1, 1949. A week before ceding the State territory to

India, the ruler of Sant made a tharao by which holders of certain villages were

given full rights and authority over the forests in the villages under the rules.

Some of these holders executed contracts in favour of the plaintiffs between May

1948 and 1950. After merger the question arose whether those contracts should be

approved or not. Considering that the tharao made by the ruler transferring the

forest rights was malafide, the Government of Bombay cancelled the tharao on

July, 1949. Before the High Court the plaintiffs succeeded on the ground that the

agreement being law was protected by article 372 of the constitution and could not

be abrogated by an executive act of the State Government. The Supreme Court by

majority held that Virendra Singh was wrongly decided. The tharao was held to

be not law. The Court also held that the integration of Indian States with the

Dominion of India was act of State and the Central Government could refuse to

recognize the rights created on the eve of merger by the tharao of the Ruler of Sant

State and say that it was not acceptable to them and therefore not binding on them.

101
AIR 1964 SC 1043.
 164

The rule was applied to termination of services of employees of former State by

the Successor State. In Amarsingh v. Rajasthan,102 the appellant was a District and

Sessions Judge in the former Bikaner State. The integration of the State of Bikaner into

the new State of Rajasthan necessarily involved reorganization of the various services

in the several integrating States. When the final reorganization was brought into force

the appellant was appointed subsequently as Civil Judge. He was placed in Group C

(Civil Judges and Munsiffs) and placed at No. 18 in the list of junior posts. His pay and

emoluments were as before and he retained the same grading. His earned increments

were not affected, and except for the change in name, his conditions of service were not

worse than that in the service of the former State. In the writ petition, he contended that

under the guarantee given by the United States of Rajasthan, he was entitled to be

posted as a District and Sessions Judge in the new set up and that he had been reduced

in rank in violation of article 311. The Supreme Court held that no question of

reduction in rank attracting article 311 was involved because all his previous postings in

the New State were purely temporary; and so far as Art XIV(1) of the Covenant103 was

concerned its guarantee had been fulfilled.104

102
AIR 1958 SC 231.
103
Article XVI (1) of the Covenant signed by the High Contracting Parties at the time of (30.3.1949)
integration of the former State of Bikaner into a new State of Rajasthan Indicates that the old contracts
of service are terminated and that those who continued in service did so on the basis of fresh contract,
the conditions of which had yet to be determined. The only guarantee (assuming that the person in
service at that time can avail himself of it) was that the new conditions were not to be less
advantageous than those on which the said person was serving on November 1, 1948. There was no
guarantee that they would be the same or better.
104
Followed in Cipriani v. Union of India, AIR 1969 Goa 76.
 165

Conclusion

Act of State is an arbitrary act not based on law, but on the modern version of

might is right105. The boundaries of the area, within which the rule applies, are

sometimes be difficult to be draw. The doctrine in English law has only a limited

application as defense106, but it is narrower than the act de government of the French

droit administrative.107 But in America, under the Foreign Sovereign Immunities

Act,108 if a sovereign were to make it amenable to suit in a U.S. Court, then jurisdiction

would vest with the U.S. Courts. The jurisdiction over a sovereign in this case may be

claimed through terms embodied in the treaty.109 The Foreign Sovereign Immunities

Act demands that Courts apply the nature-of-the-act approach to determine whether an

action is commercial or government. Later, this test has been applied in act of State

doctrine also. Certainly the nature of an action, whether it is public or commercial, has

become an issue of contention in cases where the act of State doctrine may be

applicable.

105
Garner, Administrative Law 283 (5th Edn., 1979).
106
Because today, under the Crown Proceedings Act, 1947, the Crown would also be liable directly. The
enforcement of treaty, so far as it affects the rights of persons within the jurisdiction must be
authorized by Act of Parliament. The Crown has no paramount powers. See H.W.R. Wade,
Administrative Law 717 (5th Edn. 1985).
107
During the period of Napolean the plea of act de government could be raised in any case of political
complexion. But in modern times it extends only to the relations of the Government, on the one hand,
with Parliament, and on the other, with foreign States or international organizations. See L. Neville
Brown, and J.F. Garner, French Administrative Law, 100 (3rd Edn. 1983).
108
Foreign Sovereign Immunities Act, 1976.
109
Dean S. Van Drasek, Foreign Sovereign Immunities Act and the Act of State doctrine X Ac. L. Rev
1.25 (1986).