State succession liability survives merger when pre-existing contractual obligations pass to the successor government under the covenant and continuing law.
On State integration, pre-merger contractual liabilities of Bundi State survived and devolved on Rajasthan because the merger covenant and continuing Rajasthan laws transferred assets and liabilities to the successor State; the agreement was treated as a governmental obligation, and a later letter also supported acceptance of the claim. For limitation, the suit for unpaid annual instalments under a written contract was governed by Article 115 of the Limitation Act, 1908, not by provisions for rent or recurring rights. The government letter did not clearly admit liability for the specific instalment due on 1-4-1954, so it was not an acknowledgment for that amount and the decree was reduced accordingly.
Issues: (i) whether the State of Rajasthan inherited and remained liable for the contractual obligations of the former Bundi State under the merger arrangements and the continued laws of Rajasthan; (ii) whether the suit for annual payments under the agreement was governed by Article 115 of the Indian Limitation Act, 1908, and whether the government letter amounted to an acknowledgment under Section 19 of that Act.
Issue (i): whether the State of Rajasthan inherited and remained liable for the contractual obligations of the former Bundi State under the merger arrangements and the continued laws of Rajasthan
Analysis: The merger covenant and the Rajasthan administration ordinances showed that on integration of the States, the assets and liabilities of the covenanting and merging States were taken over by the new State. The continued operation of the old laws, read with the covenant provisions, indicated that liabilities arising under pre-merger governmental obligations survived and devolved upon the successor State. The agreement was entered into by the Bundi State, not in a personal capacity of the ruler, and the arrangement also conferred benefits capable of public use. A subsequent government letter admitting and adjusting the Phoolsagar cable hire claim further confirmed acceptance of the obligation.
Conclusion: The State of Rajasthan was liable under the agreement, and the plea denying succession and liability failed.
Issue (ii): whether the suit for annual payments under the agreement was governed by Article 115 of the Indian Limitation Act, 1908, and whether the government letter amounted to an acknowledgment under Section 19 of that Act
Analysis: The claim was treated as one for compensation for breach of a written contract when the annual payment fell due and was not made. Article 110, dealing with arrears of rent, and Article 131, dealing with a periodically recurring right, were held inapplicable. The Court accepted Article 115 as the governing provision. However, the government letter did not contain any clear admission of liability for the unpaid instalment said to be due on 1-4-1954, and no acknowledgment could safely be inferred from it for that amount under Section 19.
Conclusion: Article 115 applied, but Ex. 2 was not an acknowledgment for the disputed instalment; the decree could not include that amount.
Final Conclusion: The decree was reduced by excluding the amount unsupported by a valid acknowledgment, while the balance of the plaintiff's claim with interest was maintained, and costs were to be shared proportionately.
Ratio Decidendi: On merger, where the covenant and continuing law preserve pre-existing governmental liabilities, the successor State assumes contractual obligations of the merged State; and a suit to recover money due on a written contract upon breach is governed by the limitation provision applicable to compensation for breach of contract, while acknowledgment requires a clear admission of present subsisting liability.
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