Successor State liability under Article 295(2) sustained a refund claim where pre-Constitution laws and liabilities continued after merger.

Successor State liability under Article 295(2) extended to a refund claim for export duty paid in advance to the former State of Dholpur, because the merger covenants preserved existing laws and transferred assets and liabilities to the new State of Rajasthan. The continued operation of the pre-Constitution law, together with the covenantal provisions and the relevant administrative ordinance, showed an intention to recognise rights arising under that law and to assume the corresponding liabilities. The claim was therefore not defeated by any displacement of the liability through competent law, and the refund remained maintainable against the successor State.

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Issues: Whether the State of Rajasthan, as the successor State after the merger of the former princely States, was liable under Article 295(2) of the Constitution to refund export duty paid in advance to the former State of Dholpur in respect of goods not ultimately exported.

Analysis: The pre-Constitution covenants governing the successive mergers of the covenanting States consistently provided both for continuation of the existing laws and for the transfer of assets and liabilities to the new State. The continued operation of the old laws until altered or repealed, together with the covenantal provisions and the corresponding administrative ordinance, showed that the new State intended to respect the rights arising under those laws and to assume the liabilities flowing from them. The situation was distinguishable from the earlier case relied upon by the appellant, where the new sovereign had repealed the prior laws and thereby negatived any recognition of the claimed rights. Here there was no competent law displacing the liability or denying the claim for refund.

Conclusion: The liability of the former State of Dholpur was recognized and bound the State of Rajasthan under Article 295(2) of the Constitution, so the claim for refund was maintainable against the State and the appeals failed.

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