On the merits, India had contended in the first place that the right of passage claimed by Portugal was too vague and contradictory to enable the Court to pass judgment upon it by the application of the legal rules enumerated in Article 38 (1) of the Statute. There was no doubt that the day-to-day exercise of the right might give rise to delicate questions of application but that was not, in the view of the Court, sufficient ground for holding that the right was not susceptible of judicial determination.
Portugal had relied on the Treaty of Poona of 1779 and on sanads (decrees) issued by the Maratha ruler in 1783 and 1785, as having conferred on Portugal sovereignty over the enclaves with the right of passage to them; India had objected that what was alleged to be the Treaty of 1779 was not validly entered into and never became in law a treaty binding upon the Marathas. The Court, however, found that the Marathas did not at any time cast any doubt upon the validity or binding character of the Treaty. India had further contended that the Treaty and the two sanads did not operate to transfer sovereignty over the assigned villages to Portugal but only conferred, with respect to the villages, a revenue grant. The Court was unable to conclude from an examination of the various texts of the Treaty of 1779 that the language employed therein was intended to transfer sovereignty; the expressions used in the two sanads, on the other hand, established that what was granted to the Portuguese was only a revenue tenure called a jagir or saranjam, and not a single instance had been brought to the notice of the Court in which such a grant had been construed as amounting to a cession of sovereignty. There could, therefore, be no question of any enclave or of any right of passage for the purpose of exercising sovereignty over enclaves.
The Court found that the situation underwent a change with the advent of the British as sovereign of that part of the country in place of the Marathas: Portuguese sovereignty over the villages had been recognized by the British in fact and by implication and had subsequently been tacitly recognized by India. As a consequence the villages had acquired the character of Portuguese enclaves within Indian territory and there had developed between the Portuguese and the territorial sovereign with regard to passage to the enclaves a practice upon which Portugal relied for the purpose of establishing the right of passage claimed by it. It had been objected on behalf of India that no local custom could be established between only two States, but the Court found it difficult to see why the number of States between which a local custom might be established on the basis of long practice must necessarily be larger than two.
It was common ground between the Parties that during the British and post-British periods the passage of private persons and civil officials had not been subject to any restrictions beyond routine control. Merchandise other than arms and ammunition had also passed freely subject only, at certain times, to customs regulations and such regulation and control as were necessitated by considerations of security or revenue. The Court therefore concluded that, with regard to private persons, civil officials and goods in general there had existed a constant and uniform practice allowing free passage between Daman and the enclaves, it was, in view of all the circumstances of the case, satisfied that that practice had been accepted as law by the Parties and had given rise to a right and a correlative obligation.
As regards armed forces, armed police and arms and ammunition, the position was different.
It appeared that, during the British and post-British periods, Portuguese armed forces and armed police had not passed between Daman and the enclaves as of right, and that after 1878 such passage could only take place with previous authorization by the British and later by India, accorded either under a reciprocal arrangement already agreed to, or in individual cases: it had been argued that that permission was always granted, but there was nothing in the record to show that grant of permission was incumbent on the British or on India as an obligation.
A treaty of 26 December 1878 between Great Britain and Portugal had laid down that the armed forces of the two Governments should not enter the Indian dominions of the other, except in specified cases or in consequence of a formal request made by the party desiring such entry. Subsequent correspondence showed that this provision was applicable to passage between Daman and the enclaves: it had been argued on behalf of Portugal that on twenty-three occasions armed forces crossed British territory between Daman and the enclaves without obtaining permission, but in 1890, the Government of Bombay had forwarded a complaint to the effect that armed men in the service of the Portuguese Government were in the habit of passing without formal request through a portion of British territory en route from Daman to Nagar-Aveli which would appear to constitute a breach of the Treaty; on 22 December, the Governor-General of Portuguese India had replied: "Portuguese troops never cross British territory without previous permission", and the Secretary-General of the Government of Portuguese India stated on 1 May 1891: "On the part of this Government injunctions will be given for the strictest observance of . . . the Treaty". The requirement of a formal request before passage of armed forces could take place had been repeated in an agreement of 1913. With regard to armed police, the Treaty of 1878 and the Agreement of 1913 had regulated passage on the basis of reciprocity, and an agreement of 1920 had provided that armed police below a certain rank should not enter the territory of the other party without consent previously obtained; finally, an agreement of 1940 concerning passage of Portuguese armed police over the road from Daman to Nagar-Aveli had provided that, if the party did not exceed ten in number, intimation of its passage should be given to the British authorities within twenty-four hours, but that, in other cases, "the existing practice should be followed and concurrence of the British authorities should be obtained by prior notice as heretofore."
As regards arms and ammunition, the Treaty of 1878 and rules framed under the Indian Arms Act of 1878 prohibited the importation of arms, ammunition or military stores from Portuguese India and its export to Portuguese India without a special licence. Subsequent practice showed that this provision applied to transit between Daman and the enclaves.
The finding of the Court that the practice established between the Parties had required for the passage of armed forces, armed police and arms and ammunition the permission of the British or Indian authorities rendered it unnecessary for the Court to determine whether or not, in the absence of the practice that actually prevailed, general international custom or general principles of law recognized by civilized nations, which had also been invoked by Portugal, could have been relied upon by Portugal in support of its claim to a right of passage in respect of these categories. The Court was dealing with a concrete case having special features: historically the case went back to a period when, and related to a region in which, the relations between neighbouring States were not regulated by precisely formulated rules but were governed largely by practice: finding a practice clearly established between two States, which was accepted by the Parties as governing the relations between them, the Court must attribute decisive effect to that practice. The Court was, therefore, of the view that no right of passage in favour of Portugal involving a correlative obligation on India had been established in respect of armed forces, armed police and arms and ammunition.
Having found that Portugal had, in 1954, a right of passage in respect of private persons, civil officials and goods in general, the Court lastly proceeded to consider whether India had acted contrary to its obligation resulting from Portugal's right of passage in respect of any of these categories. Portugal had not contended that India had acted contrary to that obligation before July 1954, but it complained that passage was thereafter denied to Portuguese nationals of European origin, to native Indian Portuguese in the employ of the Portuguese Government and to a delegation that the Governor of Daman proposed, in July 1954, to send to Nagar-Aveli and Dadra. The Court found that the events which had occurred in Dadra on 21-22 July 1954 and which had resulted in the overthrow of Portuguese authority in that enclave had created tension in the surrounding Indian district, having regard to that tension, the Court was of the view that India's refusal of passage was covered by its power of regulation and control of the right of passage of Portugal.
For these reasons, the Court reached the findings indicated above.