Sunday 27 November 2022

Landmark Privy Purse Supreme Court Judgment laying down four stages through which a debt or liability to pay money passes

 In his summary of the Law of Contract (p. 124) Langdell remarked that 'a debt according to the popular conception of the term, is a sum of money belonging to one person (the creditor), but in the possession of another (the debtor). He questioned' this approach. Blackstone contrasted property in possession and property in action and held contracts to be within the latter, (See Commentaries Vol. II XXV pp. 396-398). He was in effect thinking of a debt. According to him property in action exists :

Where a man hath not the occupation, but merely a bare right to occupy the thing in question, the possession whereof may, however, be recovered by a suit or action at law.... {Para 60}

61. He was of opinion that till then the thing or its equivalent, remains in suspense, and the injured party has only the right and not the occupation. It being a thing in potentia and not in esse it is only a thing in action and not possession. Sohm (The Institutes) also says that till the fulfilment of the obligations the creditor has right only against the debtor and not against a thing.

62. This old concept of property is no longer held to be true. Mark by, Elements of Law 1871, 6th Edition p. 320) regards the liability of the promisor as itself a thing which is capable of being bought and sold, assigned and transferred and if of money value, may itself be regarded as an object of ownership. An obligation according to him is as much a res as any other property and the only difference is in the mode of enjoyment. The creditor realizes this ownership by compelling the debtor to perform his obligation. As illustration he gives a catalogue of passive rights of ownership. Anson (Principles of Law Contract) supports him by pointing out that an obligation is a right of control exercisable by one person over others for acts which have a money value.

63. The dynamic theory of obligations regards a debt as a claim to 'an equivalent in a value to a floating charge against the generality of things which are the properties of the debtor'. From this is developed the notion of a credit-debt where property rights arise from a promise, express or implied in respect of ascertained or readily ascertained sums of money. Thus a debt or a liability to pay money passes through four stages. First there is a debt not yet due. The debt has not yet become a part of the obligor's 'things' because no net liability has yet arisen. The second stage is when the liability may have arisen but is not either ascertained or admitted. Here again the amount due has not become a part of the obligor's things. The third stage is reached when the liability is both ascertained and admitted. Then it is property proper of the debtor in the creditor's hands. The law begins to recognise such property in insolvency, in dealing with it in fraud of creditors, fraudulent preference of one creditor against another, subrogation, equitable estoppel, stoppage in transitu etc. A credit-debt is then a debt fully provable and which is fixed and absolutely owing. The last stage is when the debt becomes a judgment debt by reason of a decree of a Court. Thus an American Judge held 'outstanding uncollected accounts' as property. Standard Marine Insurance Co. v. Board of Assessors 123 La 717. It is because of this that the French Law includes such obligations in mobiles.

64. Applying these tests to the Privy Purses, it is clear that they would be property. As soon as an Appropriation Act is passed there is established a credit-debt and the outstanding Privy Purse becomes the property of the Ruler in the hands of Government. It is also a sum certain and absolutely payable.


Writ Petitions Nos. 376 to 383 of 1970.

Decided On: 15.12.1970

Madhav Rao Jivaji Rao Scindia Bahadur and Ors. Vs. Union of India (UOI) and Ors.

Hon'ble Judges/Coram:

M. Hidayatullah, C.J., A.N. Grover, A.N. Ray, C.A. Vaidialingam, G.K. Mitter, I.D. Dua, J.C. Shah, J.M. Shelat, K.S. Hegde, S.M. Sikri and Vashishtha Bhargava, JJ.

Citation: MANU/SC/0050/1970,AIR 1971 SC 530

Read full Judgment here: Click here

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