As per the case facts, the State Act allowed a party to file a suit within six months from its commencement or within the period allowed by the Limitation Act, ...
No Acts & Articles mentioned in this case
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6258 OF 2014
THE SECRETARY TO GOVT. OF KERALA,
IRRIGATION DEPARTMENT AND OTHERS
...APPELLANT(S)
VERSUS
JAMES VARGHESE AND OTHERS
...RESPONDENT(S)
WITH
CIVIL APPEAL NO. 9236 OF 2014
CIVIL APPEAL NO. 9241 OF 2014
CIVIL APPEAL NO. 9226 OF 2014
CIVIL APPEAL NO. 6268 OF 2014
CIVIL APPEAL NO. 6264 OF 2014
CIVIL APPEAL NO. 6265 OF 2014
CIVIL APPEAL NO. 6266 OF 2014
CIVIL APPEAL NO. 6260 OF 2014
CIVIL APPEAL NO. 6262 OF 2014
CIVIL APPEAL NO. 6259 OF 2014
CIVIL APPEAL NO. 6267 OF 2014
CIVIL APPEAL NO. 295 OF 2015
CIVIL APPEAL NO. 6261 OF 2014
CIVIL APPEAL NO. 8995 OF 2014
1
CIVIL APPEAL NO. 9022 OF 2014
CIVIL APPEAL NO. 9016 OF 2014
CIVIL APPEAL NO. 9005 OF 2014
CIVIL APPEAL NO. 8998 OF 2014
CIVIL APPEAL NO. 9009 OF 2014
CIVIL APPEAL NO. 8997 OF 2014
CIVIL APPEAL NO. 9002 OF 2014
CIVIL APPEAL NO. 8996 OF 2014
CIVIL APPEAL NO. 8999 OF 2014
CIVIL APPEAL NO. 9007 OF 2014
CIVIL APPEAL NO. 9004 OF 2014
CIVIL APPEAL NO. 9003 OF 2014
CIVIL APPEAL NO. 9008 OF 2014
CIVIL APPEAL NO. 9017 OF 2014
CIVIL APPEAL NO. 9000 OF 2014
CIVIL APPEAL NO. 9001 OF 2014
CIVIL APPEAL NO. 9215 OF 2014
CIVIL APPEAL NO. 9213 OF 2014
CIVIL APPEAL NO. 9018 OF 2014
CIVIL APPEAL NO. 9217 OF 2014
CIVIL APPEAL NO. 9006 OF 2014
CIVIL APPEAL NO. 9019 OF 2014
CIVIL APPEAL NO. 9219 OF 2014
CIVIL APPEAL NO. 9237 OF 2014
CIVIL APPEAL NO. 9225 OF 2014
CIVIL APPEAL NO. 9221 OF 2014
CIVIL APPEAL NO. 9238 OF 2014
CIVIL APPEAL NO. 9023 OF 2014
2
CIVIL APPEAL NO. 9243 OF 2014
CIVIL APPEAL NO. 9244 OF 2014
CIVIL APPEAL NO. 9224 OF 2014
CIVIL APPEAL NO. 9212 OF 2014
CIVIL APPEAL NO. 9211 OF 2014
CIVIL APPEAL NO. 9222 OF 2014
CIVIL APPEAL NO. 9020 OF 2014
CIVIL APPEAL NO. 9210 OF 2014
CIVIL APPEAL NO. 9239 OF 2014
CIVIL APPEAL NO. 3010 OF 2017
CIVIL APPEAL NO. 2824 OF 2022
CIVIL APPEAL NO. 2825 OF 2022
CIVIL APPEAL NO. 2826 OF 2022
J U D G M E N T
B.R. GAVAI, J.
1. Two important questions of law, with regard to the
legislative competence of the Kerala State Legislature to
enact the Kerala Revocation of Arbitration Clauses and
Reopening of Awards Act, 1998 (hereinafter referred to as the
“State Act”) and as to whether the State Act encroaches upon
the judicial power of the State, are involved in the present
appeals.
3
BACKGROUND :
2. The High Court of Kerala at Ernakulam, by the
impugned judgment dated 9
th
July 2013 delivered in O.P.
No.4206 of 1998 and companion matters, has held the State
Act to be beyond the legislative competence of the Kerala
State Legislature and as such, held the same to be
unconstitutional. The High Court has also held that the
State Act had an effect of annulling the awards of the
arbitrators and the judgments and decrees passed by the
courts. It was therefore held that the State Act encroaches
upon the judicial power of the State. Being aggrieved
thereby, the State of Kerala has approached this Court by
filing various appeals.
3. The State of Kerala had started the construction of
Kallada Irrigation Project (hereinafter referred to the “said
Project”) in the year 1961. The said project was proposed to
be executed with the financial assistance from the
International Bank for Reconstruction and Development (for
short “World Bank”) from June 1982 to March 1989. As
required by the World Bank, a special condition namely, the
4
Local Competitive Bidding Specification (hereinafter referred
to as “LCBS”) as envisaged by the World Bank Authorities
was included in the agreements relating to the works
connected with the said Project. Clauses 51 and 52 of the
LCBS provided for the settlement of matters in dispute or
difference through arbitration. The same was provided with
a view to enable speedy settlement of matters in dispute or
difference in a just and equitable manner. The State of
Kerala found that on account of various disputes and
differences, the arbitration references did not have the
desired effect inasmuch as several arbitrators had wrongly
and arbitrarily awarded unconscionable amounts against the
provisions of agreements and without material on record, in
collusion with the claimant contractors and officials of the
department, thereby causing heavy losses to the State. As
such, the State of Kerala considered it necessary, in public
interest, to cancel the arbitration clauses in the agreements
executed in terms of LCBS, to revoke the authority of the
arbitrators appointed thereunder and to enable the filing of
appeals against the awards or decrees already passed in
5
certain arbitration references in respect of which the period
of limitation had expired. As such, the State Act came to be
enacted with effect from 14
th
November 1997.
4. The State Act is a short Act and therefore, we deem
it appropriate to reproduce the same in its entirety as under:
“Kerala Revocation of Arbitration Clauses and
Reopening of Awards Act, 1998
Preamble …………..
………..
Section 1 Short title, extent, commencement
and application
(1) This Act may be called the Kerala Revocation of
Arbitration Clauses and Reopening of Awards Act,
1998.
(2) It extends to the whole of the State of Kerala.
(3) It shall be deemed to have come into force on the
14th day of November, 1997.
(4) It shall apply to all agreements executed in terms
of the local competitive bidding specification.
Section 2 Definitions
(1) In this Act, unless the context otherwise
requires,
(a) "agreement" means an agreement
executed in terms of the local competitive
bidding specification for various works of
the Government of Kerala;
(b) "local competitive bidding
specification" means the local competitive
bidding specification adopted by the
6
Government in their Order G.O. (Ms) No.
3/81/I&R dated the 20th January, 1981.
(2) Words and expressions used but not defined in
this Act and defined in
(a) the Arbitration Act, 1940 (Central Act
10 of 1940); or
(b) the Arbitration and Conciliation. Act,
1996 (Central Act 26 of 1996), in relation
to arbitration proceedings commenced on
or after the 25th day of January, 1996,
shall have the meanings, respectively, assigned to
them in those Acts.
Section 3 Cancellation of arbitration clauses
and revocation of authority of arbitrator
(1) Notwithstanding anything contained in the
Indian Contract Act, 1872 (Central Act 9 of 1872) or
in the Arbitration Act, 1940 (Central Act 10 of 1940)
or in the Arbitration and Conciliation Act, 1996
(Central Act 26 of 1996) or in any other law for the
time being in force or in any judgement, decree or
order of any court or other authority or in any
agreement or other instrument,
(i) the arbitration clauses in every
agreement shall stand cancelled;
(ii) the authority of an arbitrator
appointed under an agreement referred to
in clause (i) shall stand revoked; and
(iii) any agreement referred to in clause (i)
shall cease to have effect in so far as it
relates to the matters in dispute or
difference referred,
with effect on and from the date of commencement
of this Act.
(2) Nothing in subsection (1) shall be a bar for any
party to a agreement to file a suit in the court
having jurisdiction in the matter to which the
7
agreement relates and all questions regarding the
validity or effect of the agreement between the
parties to the agreement or persons claiming under
them and all matters in dispute or difference
between the parties to the agreement shall be
decided by the court, as if the arbitration clauses
had never been included in the agreement.
Section 4 Period of limitation for filing suits
Notwithstanding anything contained in the
Arbitration Act, 1940 (Central Act 10 of 1940) or in
the Arbitration and Conciliation Act, 1996 (Central
Act 26 of 1996) or in the Limitation Act, 1963
(Central Act 36 of 1963), a suit under subsection
(2) of section 3 may be filed within six months from
the date of commencement of this Act or within
such period as is allowed by the provisions of the
Limitation Act, 1963 (Central Act 36 of 1963), in
relation to such suits, whichever is later.
Section 5 Power of Government to file appeal
against certain awards
Notwithstanding anything contained in the
Arbitration Act, 1940 (Central Act 10 of 1940) or in
the Arbitration and Conciliation Act, 1996 (Central
Act 26 of 1996) or in the Limitation Act, 1963
(Central Act 36 of 1963) or in any other law for the
time being in force or in any judgement, decree or
order of any court or other authority or in any
agreement or other instrument, where it appears to
the Government that any award passed is not in
accordance with the terms of the agreement or there
was failure to produce relevant data or other
particulars before the Arbitrator before passing the
award or the award passed is of unconscionable
amounts, they may file appeal against such award
within ninety days of the date of commencement of
this Act.
Section 6 Procedure before court
8
For the removal of doubts, it is hereby clarified that
the provisions of the Code of Civil Procedure, 1908
(Central Act 5 of 1908), shall apply to all
proceedings before court and to all appeals under
this Act.
Section 7 Arbitration Act not to apply
The provisions of this Act shall apply to any
proceedings instituted under this Act
notwithstanding anything inconsistent herein with
the provisions of the Arbitration Act, 1940 (Central
Act 10 of 1940) or the Arbitration and Conciliation
Act, 1996 (Central Act 26 of 1996) or any other law
for the time being in force.
Section 8 Repeal and saving
(1) The Kerala Revocation of Arbitration Clauses and
Reopening of Awards Ordinance, 1998 (6 of 1998),
is hereby repealed.
(2) Notwithstanding such repeal, anything done or
deemed to have been done or any action taken or
deemed to have been taken under the said
Ordinance shall be deemed to have been done or
taken under this Act.”
5. Section 3 of the State Act provides for “Cancellation
of arbitration clauses and revocation of authority of
arbitrator”. Subsection (1) of Section 3 of the State Act
provides that notwithstanding anything contained in the
Indian Contract Act, 1872 or in the Arbitration Act, 1940
(hereinafter referred to as “1940 Act”) or in the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as “1996
9
Act”) or in any other law for the time being in force or in any
judgment, decree or order of any court or other authority or
in any agreement or other instrument, the arbitration
clauses in every agreement shall stand cancelled; the
authority of an arbitrator appointed under an agreement
referred to in clause (i) shall stand revoked; and any
agreement referred to in clause (i) shall cease to have effect
insofar as it relates to the matters in dispute or difference
referred. The same shall be with effect on and from the date
of commencement of the State Act. Subsection (2) of Section
3 of the State Act provides that nothing provided in sub
section (1) of Section 3 of the State Act shall be a bar for any
party to an agreement to file a suit in the court having
jurisdiction in the matter to which the agreement relates and
all questions regarding the validity or effect of the agreement
between the parties to the agreement or persons claiming
under them and all matters in dispute or difference between
the parties to the agreement shall be decided by the court, as
if the arbitration clauses had never been included in the
agreement.
10
6. Section 4 of the State Act enables a party to file a
suit under subsection (2) of Section 3 of the State Act within
a period of six months from the date of commencement of the
State Act or within such period as is allowed by the
provisions of the Limitation Act, 1963 (hereinafter referred to
as “1963 Act”), in relation to such suits whichever is later.
This is notwithstanding anything contained in the 1940 Act
or in the 1996 Act or in the 1963 Act.
7. Section 5 of the State Act enables the State
Government to file an appeal against any award within a
period of 90 days from the date of commencement of the
State Act, where it appears to the State Government that any
award passed is not in accordance with the terms of the
agreement or there was failure to produce relevant data or
other particulars before the Arbitrator before passing the
award or the award passed is of unconscionable amounts.
Again, this is notwithstanding anything contained in the
1940 Act or in the 1996 Act or in the 1963 Act or in any
other law for the time being in force or in any judgment,
11
decree or order of any court or other authority or in any
agreement or other instrument.
8. Section 6 of the State Act clarifies that the provisions
of the Code of Civil Procedure, 1908 (hereinafter referred to
as “CPC”) shall apply to all proceedings before the court and
to all appeals under the State Act.
9. Section 7 of the State Act provides that the
provisions of the State Act shall apply to any proceedings
instituted under the State Act notwithstanding anything
inconsistent therein with the provisions of the 1940 Act or
the 1996 Act or any other law for the time being in force.
10. Subsection (1) of Section 8 of the State Act repeals
the Kerala Revocation of Arbitration Clauses and Reopening
of Awards Ordinance, 1998. Subsection (2) of Section 8 of
the State Act provides that notwithstanding such repeal,
anything done or deemed to have been done or any action
taken or deemed to have been taken under the said
Ordinance shall be deemed to have been done or taken under
the State Act.
12
11. Immediately after the enactment of the State Act,
several petitions came to be filed before the High Court of
Kerala challenging the validity thereof. By the impugned
judgment, the High Court of Kerala allowed the petitions and
held and declared the State Act to be unconstitutional, being
beyond the legislative competence of the State Legislature.
12. It will be relevant to note that the State Act was
reserved for the consideration of the President of India and
had received his assent as required under Article 254 (2) of
the Constitution of India.
13. The reasons that weighed with the High Court of
Kerala for holding the State Act to be unconstitutional, are as
under:
(i)That the 1940 Act, Arbitration (Protocol and
Convention) Act, 1937 (hereinafter referred to as
“1937 Act”) and the Foreign Awards (Recognition and
Enforcement) Act, 1961 (hereinafter referred to as
“1961 Act”) had become outdated. As such, the
Parliament found it expedient to make a law with
respect to arbitration and conciliation, taking into
13
account the United Nations Commission on
International Trade Law (for short “UNCITRAL”)
Model Law and Rules. The 1996 Act was enacted
with the clear intention of harmonizing concepts on
arbitration and conciliation of different legal systems
of the world on the basis of UNCITRAL Model Law
and Rules. As such, the matters dealt with by the
1996 Act were not the matters merely falling under
Entry 13 of List III of the Seventh Schedule to the
Constitution of India but also falling within Entries
10 to 14 of List I of the Seventh Schedule to the
Constitution of India;
(ii)Since Entries 10 to 14 of List I of the Seventh
Schedule to the Constitution of India deal with
foreign affairs, relationship with foreign countries,
United Nations Organization, participation in
international conferences, associations and other
bodies and implementing of decisions made thereat,
entering into treaties and agreements and
implementing of treaties, agreements and
14
conventions, the issue of applicability of Article 253
of the Constitution of India would arise. As such, the
Union Parliament had an overriding legislative power
to make any law for the whole or any part of the
territory of India. Once a Central Legislation
referable to Article 253 of the Constitution of India
comes into being, then the State Act cannot be said
to be valid only in view of the Presidential assent
received under Article 254 (2) of the Constitution of
India;
(iii)That the executive power of the Union is coextensive
with the legislative power of the Parliament under
Article 73(1)(b) of the Constitution of India. As such,
the 1996 Act is enacted by the Central Legislation in
order to give effect to the executive power of the
Government of India, to give effect to the decisions
taken at the international conference. As such, if it
is held that the Presidential assent under Article 254
(2) of the Constitution of India would validate the
15
State Act, then the very purpose of Article 253 of the
Constitution of India would be destroyed;
(iv)That LCBS can be traced only to entries in the Union
List, in particular, to Entry 37, as also, Entries 10
and 14 of List I of the Seventh Schedule to the
Constitution of India. Entry 37 in List I of the
Seventh Schedule to the Constitution of India deals
with foreign loans. That Article 292 of the
Constitution of India specifically deals with the
borrowing by the Government of India. That the
assistance provided by the World Bank also primarily
falls within the executive power of the Union
referable to Article 73 (1)(b) of the Constitution of
India and as such, the State Act was beyond the
legislative competence of the State Legislature;
(v)That the proceedings which were made subject
matter of the State Act, could have been dealt with
only within the Judicial power of the State through
the courts in terms of the provisions of the 1940 Act
and 1996 Act. As such, the impugned legislation was
16
an encroachment into the Judicial power of the State
which was exercised through the courts in terms of
the laws already made and in force. It infracts the
quality doctrine and the avowed constitutional
principles insulating the Judicial function which is
cardinal to deliverance of justice as part of the
seminal constitutional values, including separation of
powers; and
(vi)That there was nothing on record to show that any
relevant material had gained the attention of the
legislature except the superfluous statements in the
Preamble to the State Act with regard to misconduct
by arbitrators. As such, the State Act suffers on the
said count also.
14. We have extensively heard Shri Jaideep Gupta, and
Shri Pallav Shishodia, learned Senior Counsel appearing on
behalf of the appellants. Shri Krishnan Venugopal, learned
Senior Counsel led the arguments on behalf of the
respondents. The arguments of Shri Venugopal were
concisely supplemented by Shri P.C. Sen, learned Senior
17
Counsel, Shri C.N. Sreekumar, learned Senior Counsel, Smt.
Haripriya Padmanabhan, learned counsel, Shri Kuriakose
Varghese, learned counsel, Shri John Mathew, learned
counsel and Shri Roy Abraham, learned counsel.
SUBMISSIONS ON BEHALF OF THE APPELLANTS :
15. Shri Gupta, learned Senior Counsel submitted that
the impugned judgment of the High Court of Kerala suffers
on various grounds. Shri Gupta further submitted that the
High Court of Kerala committed a basic error in holding that
the 1996 Act is universally applicable. He submitted that the
1996 Act would be applicable only when there is an
agreement between the parties, whereby they have agreed to
refer their dispute to arbitration. It is therefore submitted
that what has been done by the State Act is a cancellation of
contract by a statute and as such, the State Act or a part
thereof would be referable to Entry 7 of List III of the Seventh
Schedule to the Constitution of India.
16. Shri Gupta submitted that the rest of the legislation
deals with the consequences of cancellation of the Arbitration
18
clause in the Agreement. It is submitted that on cancellation
of an agreement, subsection (2) of Section 3 of the State Act
provides an opportunity to any party to the agreement to file
a suit in a competent civil court. He submitted that Section
4 of the State Act extends the period of limitation for filing of
the suit. Section 5 of the State Act enables the State
Government to challenge the award on various grounds
stated therein, within a specified period. It is, therefore,
submitted that the State Act is referable to Entries 7 and 13
of List III of the Seventh Schedule to the Constitution of India
and as such, within the legislative competence of the State
Legislature.
17. Shri Gupta further submitted that the legislative
competence of the State Legislature can only be
circumscribed by the express prohibition contained in the
Constitution of India itself. It is submitted that unless and
until there is any provision in the Constitution of India
expressly prohibiting legislation on the subject either
absolutely or conditionally, there can be no fetter or
limitation on the plenary power which the State Legislature
19
enjoys to legislate on the topic enumerated in Lists II and III
of the Seventh Schedule to the Constitution of India. In
support of this proposition, he relies on the judgment of this
Court in the case of Maharaj Umeg Singh and Others v.
State of Bombay and Others
1
.
18. Shri Gupta further submitted that there is no
repugnancy between the 1996 Act and the State Act. He
submitted that the 1996 Act would apply where there is an
arbitration clause in the agreement. If there is no arbitration
clause in the agreement, the 1996 Act would not apply. He
submitted that the 1996 Act itself is a legislation enacted
with reference to Entry 13 of List III of the Seventh Schedule
to the Constitution of India. In support of this proposition,
he relies on the judgments of this Court in the cases of G.C.
Kanungo v. State of Orissa
2
, State of Gujarat through
Chief Secretary and Another v. Amber Builders
3
, Madhya
Pradesh Rural Road Development Authority and Another
1 [1955] 2 SCR 164
2 (1995) 5 SCC 96
3 (2020) 2 SCC 540
20
v. L.G. Chaudhary Engineers and Contractors
4
(hereinafter referred to as “MP Rural 2012”), Madhya
Pradesh Rural Road Development Authority and Another
v. L.G. Chaudhary Engineers and Contractors
5
(hereinafter referred to as “MP Rural 2018”).
19. Shri Gupta submitted that assuming, but without
accepting, that there is some conflict between the 1996 Act
and the State Act, the State Act having been reserved for the
consideration of the President of India and having received
his assent, will prevail over the provisions of the 1996 Act, in
view of Article 254 (2) of the Constitution of India.
20. Shri Gupta submitted that the State Act does not
relate to any Entry in List I of the Seventh Schedule to the
Constitution of India. He submitted that the approach of the
High Court of Kerala has been totally erroneous. It is
submitted that since all the three Lists of the Seventh
Schedule to the Constitution of India contain a number of
entries, some overlapping is bound to happen. In such a
4 (2012) 3 SCC 495
5 (2018) 10 SCC 826
21
situation, the doctrine of pith and substance is required to be
applied to determine as to which entry does a given piece of
legislation relate to. He submitted that regard must be had
to the enactment as a whole, to its main object and to the
scope and effect of its provisions. He submitted that when a
legislation is traceable, in pith and substance, to an entry
with regard to which a State is competent to legislate, then
incidental and superficial encroachments on the other entry
will have to be disregarded. Reference in this respect is made
to the judgments of this Court in the cases of Hoechst
Pharmaceutical Ltd. and Others v. State of Bihar and
Others
6
and State of West Bengal v. Kesoram Industries
Ltd. and Others
7
. It is therefore submitted that since the
impugned legislation is in pith and substance a legislation in
the field covered by Entries 7 and 13 of List III of the Seventh
Schedule to the Constitution of India, the same would not
invalidate the State Act.
21. Shri Gupta submitted that the High Court of Kerala
has also erred in holding that the 1996 Act is referable to
6 (1983) 4 SCC 45
7 (2004) 10 SCC 201
22
Article 253 of the Constitution of India. He submitted that
the UNCITRAL Model Law which was adopted by the General
Assembly of the United Nations, recommended that all the
countries give due consideration to it while enacting the laws
governing international commercial arbitration practices. He
submitted that, in any case, the Model Law is neither a treaty
nor an agreement, convention, decision within the meaning
of Article 253 of the Constitution of India or for that matter
Entries 13 and 14 of List I of the Seventh Schedule to the
Constitution of India. He submitted that following the
principle of ejusdem generis, the word ‘decision’ will have to
be construed as one which will mean a binding obligation on
the States. In this respect, he relies on the judgment of this
Court in the case of Kavalappara Kottarathil Kochuni @
Moopil Nayar v. States of Madras and Kerala and
Others
8
.
22. Shri Gupta also relies on the rule of construction
known as Noscitur a sociis, that is, the meaning of a word is
to be judged by the company it keeps. In this respect, he
8 [1960] 3 SCR 887
23
relies on the judgment of this Court in the case of M.K.
Ranganathan v. Government of Madras and Others
9
.
23. Shri Gupta further submitted that it is a settled rule
of construction of the Constitution, that every attempt
should be made to harmonize apparently conflicting
provisions and entries, not only of different lists, but also of
the same list and to reject the construction that would rob
one of the entries of its entire content and make it nugatory.
In this respect, he relies on the judgments of this Court in
the cases of Calcutta Gas Company (Proprietary) Ltd. v.
State of West Bengal and Others
10
and Sri
Venkataramana Devaru and Others v. State of Mysore
and Others
11
.
24. Shri Gupta further submitted that since the
provisions of Article 253 of the Constitution of India have the
effect of restricting the power of the State Legislature, the
said Article should be given the narrowest possible meaning
in order to harmonize it with the Entries in Lists II and III of
9 [1955] 2 SCR 374
10 1962 Supp (3) SCR 1
11 [1958] SCR 895
24
the Seventh Schedule to the Constitution of India. He
submitted that this can be done by interpreting that only the
legislations enacted to give effect to binding obligation are
covered by the said Article.
25. Shri Gupta further submitted that the Model Law is
a suggested pattern for law makers which only recommends
the practices to be adopted in the international arbitration
and not for the domestic arbitration and as such, it cannot
be held that it has any binding obligation insofar as domestic
arbitration is concerned.
26. Shri Shishodia, learned Senior Counsel submitted
that in the earlier statutory scheme prior to the 1996 Act, the
1940 Act governed the domestic arbitration, whereas the
1937 Act and the 1961 Act governed international
commercial arbitrations. He submitted that in the 1996 Act,
the domestic arbitrations are governed by Part I, whereas
Part II governs international commercial arbitrations with
separate specific provisions for Geneva Convention Awards
and New York Convention Awards. He submitted that
however, even in the 1996 Act, the historical as well as
25
contemporary distinction between an international
commercial arbitration and domestic arbitration remains. In
this respect, he relies on the judgment of this Court in the
case of Fuerst Day Lawson Limited v. Jindal Exports
Limited
12
. He submitted that the 1996 Act actually
consolidates, amends and puts together three different
enactments.
27. Shri Shishodia further submitted that after the
Presidential assent was received under Article 254 (2) of the
Constitution of India, the test to be applied to the State Law
to be held repugnant to Central Law is that “there is no room
or possibility for both Acts to apply”. He submitted that no
such repugnancy has been pointed out by the respondents in
the State Act vis
àvis the 1940 Act and 1996 Act. In this
respect, he relies on the judgment of this Court in the case of
Rajiv Sarin and Another v. State of Uttarakhand and
Others
13
.
12 (2011) 8 SCC 333
13 (2011) 8 SCC 708
26
28. Shri Shishodia as well as Shri Gupta submitted that
merely because some part of the said Project is financed by
the World Bank, it cannot be a ground to invalidate the State
Act which is referable to Entry 13 of List III of the Seventh
Schedule to the Constitution of India.
SUBMISSIONS ON BEHALF OF THE RESPONDENTS :
29. Per contra, Shri Venugopal, learned Senior Counsel
appearing on behalf of some of the respondents submitted
that the State Act is wholly arbitrary and violative of Article
14 of the Constitution of India. He submitted that the State
Act arbitrarily singles out the said Project started in the year
1961 out of all the projects in Kerala, for revocation of
arbitration clauses in agreements. He submitted that the
High Court of Kerala has rightly held that no material was
placed by the State Government to show that collusive
awards had been made because of a nexus between
arbitrators and claimant contractors.
30. Learned Senior Counsel submitted that the State Act
is traceable to Entries 12, 13, 14 as well as Entry 37 of List I
of the Seventh Schedule to the Constitution of India. He
27
submitted that Entries 12 to 14 relate to United Nations
Organization, participation in international conferences,
associations and other bodies and implementing of decisions
made thereat and entering into treaties and agreements with
foreign countries and implementing of treaties, agreements
and conventions with foreign countries. He submitted that
the State has enacted a legislature which is related to these
entries, which are exclusively within the domain of the Union
Legislature. He further submitted that Entry 37 deals with
foreign loans. He submitted that since the State Act
attempts to deal with the loans taken from the World Bank, it
will be an encroachment on the legislative field reserved for
the Union Legislature. It is therefore submitted that the
State Act is enacted by the State Legislature in respect of
entries which are exclusively within the jurisdiction of the
Central Legislation and as such, beyond the competence of
the State Legislature. He submitted that the question of
Presidential assent under Article 254 (2) of the Constitution
of India would arise only when the legislation is in respect of
items covered in List III, i.e., the Concurrent List. Since the
28
State Act deals with the entries exclusively in List I, the
Presidential assent would be of no consequence to save the
State Act.
31. Shri Venugopal submitted that the 1996 Act is
clearly referable to the decision taken at international
conference, i.e., the General Assembly of United Nations held
on 11
th
December 1985. In support of the said submission,
he relies on the judgment of this Court in the case of
Maganbhai Ishwarbhai Patel Etc. v. Union of India and
Another
14
. Relying on the judgment of this Court in the case
of S. Jagannath v. Union of India and Others
15
, he
submitted that Article 253 of the Constitution of India would
also be applicable to the legislations enacted for giving effect
to the decisions taken at the international conference, which
are not binding in nature.
32. Shri Venugopal submitted that a law passed under
Article 253 of the Constitution of India would denude the
State Legislature of its competence to make any law on the
14 (1970) 3 SCC 400
15 (1997) 2 SCC 87
29
same subject matter regardless of whether the subject matter
falls in List II or List III. He therefore submitted that since
the 1996 Act has been enacted by the Parliament in exercise
of Legislative power under Article 253 of the Constitution of
India, the State Legislature would not have the power to
make a law which is repugnant thereto, even with regard to
subjects falling in List II or List III. A reference is again made
to the judgment of this Court in the case of Maganbhai
Ishwarbhai Patel (supra). In this regard, the learned Senior
Counsel also relies on the judgments of this Court in the
cases of Mantri Techzone Private Limited v. Forward
Foundation and Others
16
, State of Bihar and Others v.
Bihar Chamber of Commerce and Others
17
and Jayant
Verma and Others v. Union of India and Others
18
.
33. Shri Venugopal further submitted that the State Act
is also discriminatory inasmuch as the State Government
has been given an absolute discretion as to against which
award, it will prefer an appeal and against which, it will not
16 (2019) 18 SCC 494
17 (1996) 9 SCC 136
18 (2018) 4 SCC 743
30
prefer an appeal. He relies on the judgments of this Court in
the cases of Suraj Mall Mohta and Co. v. A.V. Visvanatha
Sastri and Another
19
and B.B. Rajwanshi v. State of U.P.
and Others
20
.
34. Shri Venugopal further submitted that the State Act
interferes with the doctrine of “separation of powers” and
encroaches upon the powers of the judiciary, inasmuch as
the State Act empowers the State to interfere with the
awards. He submitted that this is not permissible in view of
the law laid down by this Court in the case of B.B.
Rajwanshi (supra).
35. Shri Venugopal would further submit that assuming,
but without admitting that the State Act was not arbitrary
when it was originally passed, but by passage of time, it has
become arbitrary and unreasonable. He submitted that
much earlier to the enactment of the State Act, not only the
awards have become final but the amount awarded has
already been paid to the claimants. As such, if the State Act
19 [1955] 1 SCR 448
20 (1988) 2 SCC 415
31
is permitted to operate now, it will amount to arbitrariness
and unreasonableness. He therefore submitted that the
present appeals deserve to be dismissed.
36. Shri P.C. Sen, learned Senior Counsel appearing on
behalf of some of the respondents submitted that the State
Act has the effect of depriving the respondents’ settled right
of property under Article 300A of the Constitution of India
which has been acquired as per law. He submitted that the
awards passed, create a right in the property and are
enforceable when the same are made a decree of the court.
In this regard, he relies on the judgment of this Court in the
case of Satish Kumar and Others v. Surinder Kumar and
Others
21
.
37. Shri Sen further submitted that in the present case,
the awards have been acted upon and payments have been
made. Therefore, vested rights have been crystalized in
favour of the respondents. He submitted that such vested
rights cannot be taken away by the State Act. Reliance in
this respect is placed on the judgment of this Court in the
21 [1969] 2 SCR 244
32
case of Andhra Pradesh Dairy Development Corporation
Federation v. B. Narasimha Reddy and Others
22
.
38. Shri Sen further submitted that a unilateral
alteration of contract is violative of the fundamental principle
of justice. It is submitted that what has been sought to be
done by the State Act is unilateral addition or alteration of
the contract and foisting the same on unwilling parties. It is
submitted that the same would not be permissible. Reliance
in this respect is placed on the judgment of this Court in the
case of Ssangyong Engineering and Construction
Company Limited v. National Highways Authority of
India (NHAI)
23
.
39. Shri Sen further submitted that the impugned
legislation encroaches upon the judicial power and judicial
functions and in turn, amounts to infringement of the basic
structure of the Constitution of India. Reliance in this
respect is placed on the judgment of this Court in the case of
SREI Infrastructure Finance Limited v. Tuff Drilling
22 (2011) 9 SCC 286
23 (2019) 15 SCC 131
33
Private Limited
24
. He further submitted that the judgment
of this Court in the case of G.C. Kanungo (supra), rather
than supporting the case of the appellants, would support
the case of the respondents.
40. Shri Sen, relying on the judgment of this Court in
the case of S. Jagannath (supra), would submit that the
1996 Act is referable to Article 253 of the Constitution of
India and as such, the State Act which is repugnant thereto,
would not be valid in law.
41. Shri C.N. Sreekumar, learned Senior Counsel
appearing on behalf of some of the respondents submitted
that the State Act is liable to be declared invalid on the
ground of manifest arbitrariness. It is submitted that the
State Act has been enacted, which acts to the prejudice of
the private parties and undoubtedly favours the State
Government. It is submitted that Section 34 (2A) of the 1996
Act came into effect on 23
rd
October 2015, i.e., much after
the enactment of the State Act. It is therefore submitted that
assuming that the State Act was validly enacted, however
24 (2018) 11 SCC 470
34
upon introduction of Section 34 (2A) of the 1996 Act on 23
rd
October 2015, the State Act has been impliedly repealed.
Reliance in this respect is placed on the judgments of this
Court in the cases of Saverbhai Amaidas v. State of
Bombay
25
and T. Barai v. Henry Ah Hoe and Another
26
.
42. Smt. Padmanabhan, learned counsel appearing on
behalf of some of the respondents submitted that the assent
of the President of India under Article 254(2) of the
Constitution of India is not a matter of idle formality. She
submitted that unless the State satisfies that relevant
material was placed before the President of India and he was
made aware about the grounds on which the Presidential
assent was sought, the Presidential assent would not save
the State Act from being invalid. In this respect, she relies on
the judgment of this Court in the case of Gram Panchayat
of Village Jamalpur v. Malwinder Singh and Others
27
.
43. Smt. Padmanabhan submitted that the State Act is
also arbitrary and violative of Article 14 of the Constitution of
25 [1955] 1 SCR 799
26 (1983) 1 SCC 177
27 (1985) 3 SCC 661
35
India. She submitted that the State Act treats unequals
equally by failing to make a distinction between the cases
where there is a fraud and where there is no fraud. In this
respect, she relies on the judgment of this Court in the case
of State of Maharashtra v. Mrs. Kamal Sukumar Durgule
and Others
28
.
44. Relying on the judgments of this Court in the cases
of Ashok Kumar alias Golu v. Union of India and
Others
29
, S.S. Bola and Others v. B.D. Sardana and
Others
30
and Madras Bar Association v. Union of India
and Another
31
, Smt. Padmanabhan submitted that the
legislature does not have the competence to enact a
legislation which sets aside the judgment or an award passed
by a court.
45. Shri John Mathew, learned counsel appearing on
behalf of some of the respondents submitted that the State
Act is discriminatory in nature. He submitted that the State,
28 (1985) 1 SCC 234
29 (1991) 3 SCC 498
30 (1997) 8 SCC 522
31 2021 SCC OnLine SC 463
36
out of 343 cases, has chosen to file an appeal only insofar as
55 claims/cases are concerned. He also submitted that the
State Act has sought to alter the rights and remedies in the
contracts executed with the State nearly a decade before the
State Act was brought into effect. He submitted that certain
claimants are being denied the equal treatment as is
available to large number of similarly situated claimants who
are getting benefits under the 1996 Act.
46. Shri Mathew submitted that if the legislative power
is exercised by the State Legislature in transgression of
Constitutional limitations with respect to Article 13(2) of the
Constitution of India which prohibits the State from making
any law which takes away or abridges the rights conferred by
PartIII of the Constitution of India, such an exercise of
power would be invalid in law. In this regard, he relies on
the judgment of this Court in the case of State of Kerala
and Others v. Mar Appraem Kuri Company Limited and
Another
32
.
32 (2012) 7 SCC 106
37
47. Shri Mathew further submitted that the State Act is
not only in conflict with the 1996 Act but is also in conflict
with the Commercial Courts Act, 2015 (hereinafter referred
to as “2015 Act”). He submitted that all the disputes
involved in the present matters are commercial disputes as
defined under Section 2(c) of the 2015 Act. He submitted
that the 2015 Act is a subsequent Central enactment and
therefore, the State Act being an earlier Act enacted by the
State Legislature and repugnant to the Central enactment,
cannot exist. It is submitted that the enactment of the 2015
Act would amount to a pro tanto repeal of the State Act.
Reliance in this respect is placed on the judgments of this
Court in the cases of T. Barai (supra) and Mar Appraem
Kuri Company Limited and Another (supra).
48. Shri Mathew further submitted that only when the
proceedings went against the State, they illegally enacted the
State Act in order to either deny payments or delay them by
compelling the respondents to face or to undergo an
altogether different remedy for the very same cause of action.
In this regard, he relies on the judgments of this Court in the
38
cases of State of Tamil Nadu and Others v. K. Shyam
Sunder and Others
33
and Deep Chand and Others v.
State of Uttar Pradesh and Others
34
.
49. Shri Kuriakose Varghese, learned counsel appearing
on behalf of some of the respondents submitted that apart
from making the bald allegation that there was collusion
between the contractors and the officials, no material is
placed on record. He submitted that the State Act which has
been enacted, in the absence of sufficient material, would not
be sustainable in law. Reliance in this respect is placed on
the judgment of this Court in the case of Ladli Construction
Co. (P) Ltd. v. Punjab Police Housing Corpn. Ltd. and
Others
35
.
50. Shri Varghese submitted that though the State Act is
purportedly enacted in public interest, rather than it being in
public interest, it is contrary to the public interest. It is
submitted that this Court in the case of Hindustan
33 (2011) 8 SCC 737
34 [1959] Supp (2) SCR 8
35 (2012) 4 SCC 609
39
Construction Co. Ltd. and Another v. Union of India and
Others
36
, has held that reasonableness, adequate
determining principle and public interest have to march
hand in hand. He submitted that the State Act derogates
from the principle of speedy settlement of disputes in an
arbitrary and selective manner and therefore, is not valid
being contrary to public interest.
51. Shri Roy Abraham, learned counsel appearing on
behalf of some of the respondents also made submissions
which are on similar lines as are made by other counsel for
respondents.
SUBMISSIONS ON BEHALF OF THE APPELLANTS IN
REJOINDER:
52. Shri Gupta, learned Senior Counsel, in rejoinder,
submitted that the reliance placed by the respondents on the
judgment of this Court in the case of Kesoram Industries
Ltd. (supra) is misplaced inasmuch as the paragraphs which
are relied on by the respondents are from the minority
judgment. He submitted that, on the contrary, the majority
36 (2020) 17 SCC 324
40
judgment upholds the validity of the State Legislation. He
submitted that insofar as the reliance placed by the
respondents on the judgments of this Court in the cases of
S. Jagannath (supra) and Mantri Techzone Private
Limited (supra) are concerned, the same nowhere held that
the State Legislature would be denuded of the field
altogether, beyond what the treaty and/or the Parliamentary
legislation covered. He submitted that merely because the
said Project was, in part, financed by the World Bank, it
cannot be said that the State Act is, in pith and substance, a
legislation in the field of foreign loans and is therefore,
beyond the competence of the State Legislature.
53. Shri Gupta refuted the allegations with regard to
arbitrary and discriminatory nature of the State Act. He
submitted that the correctness of the reasons stated by the
State Legislature cannot be the subject matter of judicial
review. Reliance in this respect is placed on the judgment of
this Court in the case of K. Nagaraj and Others v. State of
Andhra Pradesh and Another
37
.
37 (1985) 1 SCC 523
41
54. Shri Gupta submitted that Section 9 of the CPC
provides for the plenary jurisdiction of the civil courts to
decide disputes of civil nature unless excluded by law. He
submitted that so long as the parties are governed by an
arbitration agreement, the civil courts, though having
jurisdiction to entertain civil suits in respect of disputes
arising out of the contract between the parties, are required
to refer the disputes, if any, to arbitration under Sections 8
and 11 of the 1996 Act and Sections 20 and 34 of the 1940
Act. However, once the arbitration agreement stands
cancelled, all fetters would stand removed and the civil
courts will have the jurisdiction to entertain the disputes. It
is submitted that the argument with regard to the forum to
which an appeal would lie, being not provided is without
substance. He submitted that by virtue of Section 6 of the
State Act, CPC is applicable to all the proceedings and an
appeal will lie to the court, based on the court which is
rendering the judgment or award and/or passing the decree
on award. As such, the argument regarding vagueness is
without substance.
42
55. Insofar as the argument with regard to the State
having the right to pick and choose cases in which appeals
are to be filed, Shri Gupta submitted that every litigant has a
choice to accept the judgment and order of a trial court or to
challenge the same. He submitted that it is not the case
where alternative proceedings are available to the State to
take administrative action against different parties, some of
which are more onerous than others. In this regard, he relies
on the judgments of this Court in the cases of Nagpur
Improvement Trust and Another v. Vithal Rao and
Others
38
and State of Kerala and Others v. T.M. Peter
and Others
39
. He further submitted that Section 5 of the
State Act itself provides sufficient guidelines regarding the
cases in which the State would be empowered to file an
appeal. As such, it cannot be said that the power given to
the State to file an appeal is unguided.
56. Shri Gupta concluded by submitting that the
argument that the State Act interferes with the judicial power
of the State is also devoid of any substance. The State Act
38 (1973) 1 SCC 500
39 (1980) 3 SCC 554
43
merely provides for an appeal against the decree which will
be tested in the appeal and as such, the final word still
remains with the judiciary. He therefore submitted that all
the contentions raised on behalf of the respondents are
without merit.
CONSIDERATION :
LEGISLATIVE COMPETENCE OF THE STATE
LEGISLATURE TO ENACT THE STATE LAW :
57. We first propose to consider the question as to
whether the State Act is within the legislative competence of
the State Legislature as contended by the appellants or as to
whether it is beyond the legislative competence of the State
Legislature as contended by the respondents. For that, the
question that will have to be answered is as to whether the
source of the impugned legislation (State Act) is Entry 13 of
List III of the Seventh Schedule to the Constitution of India
or as to whether the impugned legislation (State Act) is
referable to Entries 12, 13, 14 and 37 of List I of the Seventh
Schedule and Article 253 of the Constitution of India. We
44
will also have to examine the scope of clause (2) of Article
254 of the Constitution of India.
58. It will be relevant to reproduce Entries 12, 13, 14
and 37 of List I of the Seventh Schedule to the Constitution
of India as under:
“Seventh Schedule
(Article 246)
List I – Union List
………….
12. United Nations Organization.
13. Participation in international conferences,
associations and other bodies and implementing
of decisions made thereat.
14. Entering into treaties and agreements with
foreign countries and implementing of treaties,
agreements and conventions with foreign
countries.
……..
37. Foreign loans.
……….”
59. It will also be apposite to refer to Entry 13 of List III
of the Seventh Schedule to the Constitution of India, which
reads thus:
“Seventh Schedule
(Article 246)
List III – Concurrent List
45
…………
13. Civil procedure, including all matters
included in the Code of Civil Procedure at the
commencement of this Constitution, limitation
and arbitration.
……….”
60. Article 253 of the Constitution of India reads thus:
“253. Legislation for giving effect to
international agreements. – Notwithstanding
anything contained in the foregoing provisions of
this Chapter, Parliament has power to make any
law for the whole or any part of the territory of
India for implementing any treaty, agreement or
convention with any other country or countries or
any decision made at any international
conference, association or other body.”
61. For considering the question in hand, it will be
apposite to seek guidance from the precedents of this Court.
It will be relevant to refer to the following observations of this
Court in the case of G.C. Kanungo (supra):
“10. …… Subject of arbitration finds place in
Entry 13 of List III, i.e., the Concurrent List of
Seventh Schedule to the Constitution on which
the legislation could be made either by
Parliament or the State Legislature. When there is
already the legislation of Parliament made on this
subject, it operates in respect of all States in
India, if not excepted. Since it is open to a State
46
Legislature also to legislate on the same subject
of arbitration, in that, it lies within its field of
legislation falling in an entry in the Concurrent
List and when a particular State Legislature has
made a law or Act on that subject for making it
applicable to its State, all that becomes necessary
to validate such law is to obtain the assent of the
President by reserving it for his consideration.
When such assent is obtained, the provisions of
the State Law or Act so enacted prevails in the
State concerned, notwithstanding its repugnancy
to an earlier Parliamentary enactment made on
the subject. It was not disputed that insofar as
the 1991 Amendment is concerned, it has been
assented to by the President of India after it was
reserved for his consideration. Hence, the Orissa
State Legislature's enactment, the 1991
Amendment Act is that made on a subject within
its legislative field and when assent of the
President is obtained for it after reserving it for
his consideration it becomes applicable to the
State of Orissa, notwithstanding anything
contained therein repugnant to what is in the
Principal Act of Parliament, it cannot be held to
be unconstitutional as that made by the Orissa
State Legislature without the necessary legislative
competence.”
62. It could thus be seen that this Court has observed
that the subject of arbitration finds place in Entry 13 of List
III, i.e., the Concurrent List of the Seventh Schedule to the
Constitution of India. It has been held that the legislation
pertaining to the said entry could be made either by the
Parliament or the State Legislature. It has been held that
47
since the subject of arbitration is in the Concurrent List, the
State can also make a law with regard to the same. The only
requirement is that to validate such a law, it is necessary to
reserve the same for consideration of the President of India
and obtain his assent. When such an assent is obtained, the
provisions of the State Law or Act so enacted would prevail in
the State concerned, notwithstanding its repugnancy with an
earlier Parliamentary enactment made on the subject. It is
not in dispute that in the present case also, the State Act
was reserved for consideration of the President of India and
the assent of the President of India has been obtained. As
such, the State Act so enacted would prevail in the State of
Kerala.
63. It will further be pertinent to note that in the case of
MP Rural 2012, the M.P. Madhyastham Adhikaran
Adhiniyam, 1983 (State enactment) provided for mandatory
statutory arbitration in the State of M.P. irrespective of the
arbitration agreement in respect of works contracts in the
State of M.P. or its instrumentalities. An argument was
sought to be made on behalf of the claimants that the State
48
Act was repugnant to the 1996 Act and that in view of
Section 85 of the 1996 Act, the M.P. Act, 1983 stood
impliedly repealed. There was a difference of opinion
between the two learned Judges on the Bench. A.K.
Ganguly, J., on the Bench, observed thus:
“38. The argument of repugnancy is also not
tenable. Entry 13 of the Concurrent List in the
Seventh Schedule of the Constitution runs as
follows:
“13. Civil procedure, including all
matters included in the Code of Civil
Procedure at the commencement of
this Constitution, limitation and
arbitration.”
In view of the aforesaid entry, the State
Government is competent to enact laws in
relation to arbitration.
39. The M.P. Act of 1983 was made when the
previous Arbitration Act of 1940 was in the field.
That Act of 1940 was a Central law. Both the Acts
operated in view of Section 46 of the 1940 Act.
The M.P. Act, 1983 was reserved for the assent of
the President and admittedly received the same
on 17101983 which was published in the
Madhya Pradesh Gazette Extraordinary dated 12
101983. Therefore, the requirement of Article
254(2) of the Constitution was satisfied. Thus, the
M.P. Act of 1983 prevails in the State of Madhya
Pradesh. Thereafter, the AC Act, 1996 was
enacted by Parliament repealing the earlier laws
49
of arbitration of 1940. It has also been noted that
the AC Act, 1996 saves the provisions of the M.P.
Act, 1983 under Sections 2(4) and 2(5) thereof.
Therefore, there cannot be any repugnancy. (See
the judgment of this Court in T. Barai v. Henry
Ah Hoe [(1983) 1 SCC 177 : 1983 SCC (Cri) 143 :
AIR 1983 SC 150] .)
40. In this connection the observations made by
the Constitution Bench of this Court in M.
Karunanidhi v. Union of India [(1979) 3 SCC 431 :
1979 SCC (Cri) 691] are very pertinent and the
following observations are excerpted: (SCC p.
450, para 37)
“37. … It is, therefore, clear that in
view of this clear intention of the
legislature there can be no room for
any argument that the State Act was in
any way repugnant to the Central Acts.
We have already pointed out from the
decisions of the Federal Court and this
Court that one of the important tests to
find out as to whether or not there is
repugnancy is to ascertain the
intention of the legislature regarding
the fact that the dominant legislature
allowed the subordinate legislature to
operate in the same field pari passu
the State Act.”
41. It is clear from the aforesaid observations
that in the instant case the latter Act made by
Parliament i.e. the AC Act, 1996 clearly showed
an intention to the effect that the State law of
arbitration i.e. the M.P. Act should operate in the
State of Madhya Pradesh in respect of certain
specified types of arbitrations which are under
50
the M.P. Act, 1983. This is clear from Sections
2(4) and 2(5) of the AC Act, 1996. Therefore, there
is no substance in the argument of repugnancy
and is accordingly rejected.”
64. Since Gyan Sudha Mishra, J. disagreed with A.K.
Ganguly, J. in the said case, the matter was referred to a
larger Bench.
65. The Bench consisting of three learned Judges in the
case of MP Rural 2018, agreed with the view expressed by
Ganguly, J.
66. It could be seen that this Court in the case of G.C.
Kanungo (supra) as well as in the case of MP Rural 2018,
has held that the source of the enactment of the 1940 Act,
1996 Act so also the State Acts legislated by Orissa and MP
Legislatures is Entry 13 of List III of the Seventh Schedule to
the Constitution of India. Ordinarily, if there is any conflict
between the Central law and the State law, in view of clause
(1) of Article 254 of the Constitution of India, the Central law
would prevail. However, in view of clause (2) of Article 254 of
the Constitution of India, the State law would prevail when it
51
is reserved for consideration and receives assent of the
President of India.
67. Recently, this Court, in the case of G. Mohan Rao
and Others v. State of Tamil Nadu and Others
40
, has
observed thus:
“47. Article 254(2) is produced again for ready
reference thus:
“254. Inconsistency between laws
made by Parliament and laws made
by the Legislatures of States. —
(1) …
(2) Where a law made by the
Legislature of a State with
respect to one of the matters
enumerated in the Concurrent
List contains any provision
repugnant to the provisions of
an earlier law made by
Parliament or an existing law
with respect to that matter,
then, the law so made by the
Legislature of such State shall,
if it has been reserved for the
consideration of the President
and has received his assent,
prevail in that State:”
(emphasis supplied)
48. The basic ingredients for the application of
Article 254(2) can be noted thus:
40 2021 SCC OnLine SC 440
52
(i) A law made by the legislature of the
State (the 2019 Act in this case);
(ii) Such law is made on a subject
falling in the concurrent list (Entry42
of the Concurrent List in this case);
(iii) Such law is repugnant to the
provisions of an earlier/existing law
made by the Parliament (the 2013 Act
in this case); and
(iv) The State law is reserved for the
assent of the President and has
received the same.
49. Upon fulfilment of the above conditions, such
State law would prevail in the State despite there
being a law made by the Parliament on the same
subject and despite being repugnant thereto. The
most peculiar feature of Article 254(2) is the
recognition of existence of repugnancy between
the law made by the Parliament and State law
and rendering that repugnancy inconsequential
upon procurement of Presidential assent. In this
case, the State legislature duly passed the 2019
Act (State law) on a subject of the concurrent list
in the presence of a law made by the Parliament
(2013 Act) and obtained the assent of the
President to the same on 02.12.2019 after duly
placing the State law before the President and
duly stating the reason for reserving it for his
assent. A priori, we hold that this is in
compliance of Article 254(2).
50. This understanding of Article 254(2) is well
settled and reference can be usefully made to the
following paragraph of Pt. Rishikesh
40
:
“15. Clause (2) of Article 254 is an
exception to clause (1). If law made
by the State Legislature is reserved
for consideration and receives
53
assent of the President though the
State law is inconsistent with the
Central Act, the law made by the
Legislature of the State prevails over
the Central law and operates in that
State as valid law. If Parliament
amends the law, after the amendment
made by the State Legislature has
received the assent of the President,
the earlier amendment made by the
State Legislature, if found inconsistent
with the Central amended law, both
Central law and the State Law cannot
coexist without colliding with each
other. Repugnancy thereby arises and
to the extent of the repugnancy the
State law becomes void under Article
254(1) unless the State Legislature
again makes law reserved for the
consideration of the President and
receives the assent of the President.
Full Bench of the High Court held that
since U.P. Act 57 of 1976 received the
assent of the President on 30121976,
while the Central Act was assented on
991976, the U.P. Act made by the
State Legislature, later in point of time
it is a valid law.”
(emphasis supplied)
51. The petitioners have advanced lengthy
arguments as to how the 2019 Act is repugnant
to the 2013 Act. We are constrained to observe
that the whole exercise of pointing out any
repugnancy after a validating Act has obtained
the assent of the President is otiose. For, the
whole purpose of Article 254(2) is to resuscitate
and operationalize a repugnant Act or repugnant
provisions in such Act. For, the Constitution
54
provides concurrent powers to the states as well
on subjects falling in ListIII. After duly complying
with the requirements of Article 254(2), the Court
is left with nothing to achieve by identifying
repugnancy between the laws because the same
has already been identified, accepted and
validated as per the sanction of the Constitution
under Article 254(2). To indulge in such an
exercise would be intuitive. Moreover, the Court
ought not to nullify a law made in compliance
with Article 254(2) on the sole ground of
repugnancy. For, repugnancy, in such cases, is
said to have been constitutionalized. To put it
differently, the very purpose of engaging in the
exercise, in terms of clause (2) of Article 254,
presupposes existence of repugnancy and is
intended to overcome such repugnancy.
Therefore, the endeavour of the petitioners in the
present matter to highlight repugnancy, is
misdirected, flimsy and inconsequential.”
68. As such, once the State Act was reserved for
consideration and received the assent of the President of
India, it would prevail. Once that is the position, any
endeavour to find out any repugnancy between the two,
would be futile. No doubt, that it is sought to be urged on
behalf of the appellants that there is no repugnancy between
the State Act and the Central Act and that applying the
principle of harmonization, both can exist. We find that in
55
view of the State Act receiving the Presidential assent, it will
not be necessary to consider the said issue.
69. It is next sought to be urged on behalf of the
respondents that the State Act is essentially within the
legislative competence of the Union. It is submitted by the
respondents that the State legislation is with respect to
Entries 12, 13, 14 and 37 of List I of the Seventh Schedule to
the Constitution of India and as such, exclusively within the
competence of the Central Legislation. Entry 12 deals with
United Nations Organization. Entry 13 deals with
participation in international conferences, associations and
other bodies and implementing of decisions made thereat.
Entry 14 deals with entering into treaties and agreements
with foreign countries and implementing of treaties,
agreements and conventions with foreign countries. Entry
37 deals with foreign loans.
70. It will be apposite to refer to the following
observations of the Constitution Bench in the case of
Kesoram Industries Ltd. and Others (supra). In the said
56
case, R.C. Lahoti, J., speaking for the majority, has observed
thus:
“31. Article 245 of the Constitution is the
fountain source of legislative power. It provides —
subject to the provisions of this Constitution,
Parliament may make laws for the whole or any
part of the territory of India, and the legislature of
a State may make laws for the whole or any part
of the State. The legislative field between
Parliament and the legislature of any State is
divided by Article 246 of the Constitution.
Parliament has exclusive power to make laws
with respect to any of the matters enumerated in
List I in the Seventh Schedule, called the “Union
List”. Subject to the said power of Parliament, the
legislature of any State has power to make laws
with respect to any of the matters enumerated in
List III, called the “Concurrent List”. Subject to
the abovesaid two, the legislature of any State
has exclusive power to make laws with respect to
any of the matters enumerated in List II, called
the “State List”. Under Article 248 the exclusive
power of Parliament to make laws extends to any
matter not enumerated in the Concurrent List or
State List. The power of making any law imposing
a tax not mentioned in the Concurrent List or
State List vests in Parliament. This is what is
called the residuary power vesting in Parliament.
The principles have been succinctly summarised
and restated by a Bench of three learned Judges
of this Court on a review of the available decision
in Hoechst Pharmaceuticals Ltd. v. State of
Bihar [(1983) 4 SCC 45 : 1983 SCC (Tax) 248] .
They are:
(1) The various entries in the three lists
are not “powers” of legislation but
“fields” of legislation. The Constitution
effects a complete separation of the
57
taxing power of the Union and of the
States under Article 246. There is no
overlapping anywhere in the taxing
power and the Constitution gives
independent sources of taxation to the
Union and the States.
(2) In spite of the fields of legislation
having been demarcated, the question
of repugnancy between law made by
Parliament and a law made by the
State Legislature may arise only in
cases when both the legislations
occupy the same field with respect to
one of the matters enumerated in the
Concurrent List and a direct conflict is
seen. If there is a repugnancy due to
overlapping found between List II on
the one hand and List I and List III on
the other, the State law will be ultra
vires and shall have to give way to the
Union law.
(3) Taxation is considered to be a
distinct matter for purposes of
legislative competence. There is a
distinction made between general
subjects of legislation and taxation.
The general subjects of legislation are
dealt with in one group of entries and
power of taxation in a separate
group. The power to tax cannot be
deduced from a general legislative entry
as an ancillary power.
(4) The entries in the lists being merely
topics or fields of legislation, they must
receive a liberal construction inspired
by a broad and generous spirit and not
in a narrow pedantic sense. The words
and expressions employed in drafting
the entries must be given the widest
58
possible interpretation. This is
because, to quote V. Ramaswami, J.,
the allocation of the subjects to the
lists is not by way of scientific or
logical definition but by way of a
mere simplex enumeratio of broad
categories. A power to legislate as to
the principal matter specifically
mentioned in the entry shall also
include within its expanse the
legislations touching incidental and
ancillary matters.
(5) Where the legislative competence of
the legislature of any State is
questioned on the ground that it
encroaches upon the legislative
competence of Parliament to enact a
law, the question one has to ask is
whether the legislation relates to any of
the entries in List I or III. If it does, no
further question need be asked and
Parliament's legislative competence
must be upheld. Where there are three
lists containing a large number of
entries, there is bound to be some
overlapping among them. In such a
situation the doctrine of pith and
substance has to be applied to
determine as to which entry does a
given piece of legislation relate. Once it
is so determined, any incidental
trenching on the field reserved to the
other legislature is of no consequence.
The court has to look at the substance
of the matter. The doctrine of pith and
substance is sometimes expressed in
terms of ascertaining the true
character of legislation. The name
given by the legislature to the
59
legislation is immaterial. Regard must
be had to the enactment as a whole, to
its main objects and to the scope and
effect of its provisions. Incidental and
superficial encroachments are to be
disregarded.
(6) The doctrine of occupied field
applies only when there is a clash
between the Union and the State Lists
within an area common to both. There
the doctrine of pith and substance is to
be applied and if the impugned
legislation substantially falls within the
power expressly conferred upon the
legislature which enacted it, an
incidental encroaching in the field
assigned to another legislature is to be
ignored. While reading the three lists,
List I has priority over Lists III and II
and List III has priority over List II.
However, still, the predominance of the
Union List would not prevent the State
Legislature from dealing with any
matter within List II though it may
incidentally affect any item in List I.
(emphasis supplied)
71. It could thus be seen that the Constitution Bench
has held that when the legislative competence of a State
Legislature is questioned on the ground that it encroaches
upon the legislative competence of the Parliament, since
some entries are bound to be overlapping, in such a
situation, the doctrine of pith and substance has to be
60
applied to determine as to which entry does a given piece of
legislation relate to. Once it is so determined, any incidental
trenching on the field reserved to the other legislature is of
no consequence. The court has to look at the substance of
the matter. The true character of the legislation has to be
ascertained. Regard must be had to the enactment as a
whole, to its main objects and to the scope and effect of its
provisions. It has been held that incidental and superficial
encroachments are to be disregarded. It has been held that
the predominance of the Union List would not prevent the
State Legislature from dealing with any matter within List II,
though it may incidentally affect any item in List I.
72. If we look at the scheme of the State enactment, the
subject matter of the enactment is arbitration. As has been
held by the Constitution Bench in the case of Kesoram
Industries Ltd. and Others (supra), if the State is
competent to legislate on the subject, any incidental
encroachment on any item in List I would not affect the State
Legislature. In any case, as already observed hereinabove,
this Court, in the cases of G.C. Kanungo (supra) and MP
61
Rural 2018, has specifically held that the 1940 Act, the
1996 Act and the State Acts legislated by the Orissa and M.P.
Legislatures are referable to Entry 13 of List III of the
Seventh Schedule to the Constitution of India. As such, in
view of the Presidential assent under clause (2) of Article 254
of the Constitution of India, the State Legislature would
prevail.
73. Shri Venugopal, learned Senior Counsel has strongly
relied on paragraphs 234, 238, 239 and 293 in the case of
Kesoram Industries Ltd. and Others (supra), in support of
the proposition that the State Act is not within the legislative
competence of the State Legislature, which read thus:
“234. The Constitutionmakers found the need
for powersharing devices between the Centre and
the State having regard to the imperatives of the
State's security and stability and, thus, propelled
the thrust towards centralisation by using non
obstante clause under Article 246 so as to see
that the federal supremacy is achieved.
…………..
238. It can be seen that Article 253 contains non
obstante clause. Article 253, thus, operates
notwithstanding anything contained in Article
245 and Article 246. Article 246 confers power on
Parliament to enact laws with respect to matters
62
enumerated in List I of the Seventh Schedule to
the Constitution. Entries 10 to 21 of List I of the
Seventh Schedule pertain to international law. In
making any law under any of these entries,
Parliament is required to keep Article 51 in mind.
239. Article 253 of the Constitution provides that
while giving effect to an international treaty,
Parliament assumes the role of the State
Legislature and once the same is done the power
of the State is denuded.
………….
293. Parliament in enacting the Tea Act has
exercised its superior power in the matter in
terms of Article 253 of the Constitution of India.
Such superior power in certain situations can
also be exercised in terms of Entry 33 List III as
also overriding powers of Parliament during
national emergency including those under
Articles 249, 250, 251 and 252 of the
Constitution of India. (See ITC Ltd. [(2002) 9 SCC
232])”
74. It is to be noted that the aforesaid paragraphs are
from the minority view expressed by Sinha, J. As such, the
view expressed by the learned Judge, contrary to the majority
judgment in the Constitution Bench, would not support the
case of the respondents any further.
UNCITRAL MODEL LAW A DECISION OR
RECOMMENDATION? :
63
75. That leaves us to consider the contention on behalf
of the respondents that the 1996 Act is enacted by the
Parliament under Article 253 of the Constitution of India and
since the said Act has been enacted in accordance with the
decision taken at the international conference to implement
the UNCITRAL Model law, the State Legislature is not
competent to enact the State Law.
76. It is submitted that since the 1996 Act has been
enacted in accordance with the decision taken by the General
Assembly of the United Nations, the same would be referable
to Article 253 of the Constitution of India.
77. In this respect, it is to be noted that the Preamble of
the 1996 Act would reveal that the recommendation of the
General Assembly of the United Nations is for adopting
UNCITRAL Model Law insofar as international commercial
arbitrations are concerned. It will further be relevant to refer
to paragraphs (2) and (3) of the Statement of Objects and
Reasons of the 1996 Act:
“Statement of Objects and Reasons
1. ……………
64
2. The United Nations Commission on
International Trade Law (UNCITRAL) adopted in
1985 the Model Law on International Commercial
Arbitration. The General Assembly of the United
Nations has recommended that all countries give
due consideration to the said Model Law, in view
of the desirability of uniformity of the law of
arbitral procedures and the specific needs of
international commercial arbitration practice.
The UNCITRAL also adopted din 1980 a set of
Conciliation Rules. The General Assembly of the
United Nations has recommended the use of
these Rules in cases where the disputes arise in
the context of international commercial relations
and the parties seek amicable settlement of their
disputes by recourse to conciliation. An
important feature of the said UNCITRAL Model
Law and Rules is that they have harmonized
concepts on arbitration and conciliation of
different legal systems of the world and thus
contain provisions which are designed for
universal application.
3. Though the said UNCITRAL Model Law and
Rules are intended to deal with international
commercial arbitration and conciliation, they
could, with appropriate modifications, serve as a
model for legislation on domestic arbitration and
conciliation. The present Bill seeks to consolidate
and amend the law relating to domestic
arbitration, international commercial arbitration,
enforcement of foreign arbitral awards and to
define the law relating to conciliation, taking into
account the said UNCITRAL Model Law and
Rules.
…………”
65
78. A perusal thereof would clearly reveal that the
General Assembly of the United Nations has recommended
that all countries give due consideration to the UNCITRAL
Model Law, in view of the desirability of uniformity of the law
of arbitral procedures and the specific needs of international
commercial arbitration practices are concerned.
79. It could thus be seen that there is no binding
decision at the General Assembly of the United Nations to
implement the UNCITRAL Model Law. In any case, that
recommendation is with regard to only international
commercial arbitration practices. No doubt that the
Parliament, with certain modifications, has given due
consideration to the UNCITRAL Model Law for legislation on
the domestic arbitration. However, that cannot by itself be
said to be binding on the Parliament to enact the law in
accordance with UNCITRAL Model Law.
80. It will also be relevant to refer to the Resolution
dated 11
th
December 1985 passed by the United Nations
General Assembly, which reads thus:
66
“40/72.Model Law on International
Commercial Arbitration of the
United Nations Commission on
International Trade Law
The General Assembly,
Recognizing the value of arbitration as a method
of settling disputes arising in international
commercial relations,
Convinced that the establishment of a model law
on arbitration that is acceptable to States with
different legal, social and economic systems
contributes to the development of harmonious
international economic relations,
Noting that the Model law on International
Commercial Arbitration was adopted by the
United Nations Commission on International
Trade Law at its eighteenth session, after due
deliberation and extensive consultation with
arbitral institutions and individual experts on
international commercial arbitration,
Convinced that the Model Law, together with the
Convention on the Recognition and Enforcement
of Foreign Arbitral Awards and the Arbitration
Rules of the United Nations Commission on
International Trade Law recommended by the
General Assembly in its resolution 31/98 of 15
December 1976, significantly contributes to the
establishment of a unified legal framework for the
fair and efficient settlement of disputes arising in
international commercial relations,
1. Requests the SecretaryGeneral to transmit the
text of the Modern Law on International
Commercial Arbitration of the United Nations
Commission on International Trade Law, together
with the travaux preparatoires from the
eighteenth session of the Commission, to
67
Governments and to arbitral institutions and
other interested bodies, such as chambers of
commerce;
2. Recommends that all States give due
consideration to the Model Law on
International Commercial Arbitration, in view
of the desirability of uniformity of the law of
arbitral procedures and the specific needs of
international commercial arbitration
practice.”
[emphasis supplied]
81. A perusal of the aforesaid Resolution would clearly
reveal that what has been done by the United Nations
General Assembly vide the aforesaid Resolution is to
recommend to all the States to give due consideration to the
Model Law on international commercial arbitration.
However, a perusal of the Resolution itself would reveal that
it does not create any binding obligation on the States to
enact the UNCITRAL Model Law as it is.
82. Shri Venugopal, in support of his contention, has
strongly relied on the following observations of this Court in
the case of S. Jagannath (supra):
“48. At this stage we may deal with a question
which has incidentally come up for our
consideration. Under para 2 of the CRZ
68
Notification, the activities listed thereunder are
declared as prohibited activities. Various State
Governments have enacted coastal aquaculture
legislations regulating the industries set up in the
coastal areas. It was argued before us that certain
provisions of the State legislations including that
of the State of Tamil Nadu are not in consonance
with the CRZ Notification issued by the
Government of India under Section 3(3) of the
Act. Assuming that be so, we are of the view that
the Act being a Central legislation has the
overriding effect. The Act (the Environment
Protection Act, 1986) has been enacted under
Entry 13 of List I Schedule VII of the Constitution
of India. The said entry is as under:
“Participation in international
conferences, assessment and other
bodies and implementing of decisions
made thereat.”
The preamble to the Act clearly states that it was
enacted to implement the decisions taken at the
United Nations' Conference on the Human
Environment held at Stockholm in June 1972.
Parliament has enacted the Act under Entry 13 of
List I Schedule VII read with Article 253 of the
Constitution of India. The CRZ Notification having
been issued under the Act shall have overriding
effect and shall prevail over the law made by the
legislatures of the States.”
83. Shri Venugopal further relied on the following
observations of this Court in the case of Mantri Techzone
Private Limited (supra):
“40. The Tribunal has been established under a
constitutional mandate provided in Schedule VII
69
List I Entry 13 of the Constitution of India, to
implement the decision taken at the United
Nations Conference on Environment and
Development. The Tribunal is a specialised
judicial body for effective and expeditious
disposal of cases relating to environmental
protection and conservation of forests and other
natural resources including enforcement of any
legal right relating to environment. The right to
healthy environment has been construed as a
part of the right to life under Article 21 by way of
judicial pronouncements. Therefore, the Tribunal
has special jurisdiction for enforcement of
environmental rights.”
84. At this juncture, it will be relevant to note that the
Preamble to the Environment (Protection) Act, 1986
(hereinafter referred to as the “1986 Act”) would itself reveal
that it refers to the decision taken at United Nations
Conference on the Human Environment held at Stockholm in
June 1972, in which India participated and wherein, a
decision was taken to take appropriate steps for the
protection and improvement of human environment. It
further states that it was considered necessary to implement
the decisions aforesaid insofar as they relate to the protection
and improvement of environment and the prevention of
hazards to human beings and other living creatures. So also,
70
the National Green Tribunal Act, 2010 (hereinafter referred to
as the “NGT Act”) refers to India being a party to the decision
taken at the United Nations Conference on the Human
Environment held at Stockholm in June 1972, in which India
had participated and the decisions were taken to call upon
the States to take appropriate steps for the protection and
improvement of human environment. It further refers to the
decision taken at the United Nations Conference on
Environment and Development held at Rio de Janeiro in
June 1992, in which India had participated. The States were
called upon to provide effective access to judicial and
administrative proceedings including redress and remedy,
and to develop national laws regarding liability and
compensation for the victims of pollution and other
environment damage. It further observes that it is
considered expedient to implement the decision taken at the
aforesaid conferences.
85. It is thus clear that whereas, the 1986 Act and the
NGT Act have been enacted specifically to implement the
decisions taken at the international conferences, the 1996
71
Act is enacted on the basis of the Resolution passed by the
General Assembly of the United Nations in 1985, whereby
the General Assembly only recommended the adoption of
UNCITRAL Model Law insofar as international commercial
arbitration practices are concerned. As such, the 1986 Act
and the NGT Act are directly referable to Entry 13 of List I of
the Seventh Schedule and Article 253 of the Constitution of
India. Therefore, reliance on the above referred judgments,
in our view, would not be of any assistance to the case of the
respondents, inasmuch as the Resolution of the General
Assembly of the United Nations is only recommendatory in
nature and there is no binding decision taken thereat.
STATE LEGISLATURE’S ENCROACHMENT ON
JUDICIAL POWERS :
86. We next consider the finding of the High Court that
since the State Act, in effect, annuls the awards passed by
the Arbitrators and/or the judgments or decrees passed by
the courts, it will amount to encroachment on judicial
72
powers of the courts and as such, is hit by the doctrine of
separation of powers.
87. A perusal of the list containing details of the Kerala
arbitration cases involved in the present matters would
reveal that in most of the cases, the awards were passed
prior to the year 1992 and the awards were made rule of the
court prior to the year 1993. In some of the matters, on the
date of the enactment of the State Act, the appeals preferred
by the State under Section 39 of the 1940 Act were pending
before the competent courts.
88. The appellants have heavily relied on the judgment
of this Court in the case of G.C. Kanungo (supra), wherein
this Court has observed thus:
“15. What is of importance and requires our
examination is, whether such court when makes an
award of the Special Arbitration Tribunal filed
before it, a “Rule of Court” by its judgment and
decree, as provided under Section 17 of the
Principal Act, does such award of the Special
Arbitration Tribunal merge in the judgment and
decree, as argued on behalf of the petitioners. We
find it difficult to accede to the argument. What
cannot be overlooked is, that the award of a Special
Arbitration Tribunal, as that of an award of an
arbitrator, is, as we have already pointed out, a
73
decision made by it on the claim or cause referred
for its decision by way of arbitral dispute. When the
court makes such award of a Special Arbitration
Tribunal a “Rule of Court” by means of its judgment
and decree, it is not deciding the claim or cause as
it would have done, if it had come before it as a suit
for its judgment and decree in the course of exercise
of its ordinary civil jurisdiction. Indeed, when such
award is made to come by a party to the dispute
before court for being made a “Rule of Court” by its
judgment and decree, it is to obtain the superadded
seal of the court for such award, as provided for
under the Principal Act, to make it enforceable
against the other party through the machinery of
court. Therefore, the judgment and decree rendered
by the civil court in respect of an award is merely to
superadd its seal thereon for making such award
enforceable through the mechanism available with it
for enforcement of its own judgments and decrees.
The mere fact that such judgments or decrees of
courts by which the awards of Special Arbitration
Tribunals are made “Rules of Court” or are affirmed
by judgments and decrees of superior courts in
appeals, revisions or the like, cannot make the
awards the decisions of courts. Hence, when the
awards of Special Arbitration Tribunals are made by
the judgments and decrees of court, “Rules of
Court” for enforcing them through its execution
process, they (the awards) do not merge in the
judgments and decrees of courts, as would make
them the decisions of court. The legal position as to
nonmerger of awards in judgments and decrees of
courts, which we have stated, receives support from
certain observations in the decision of this Court
in Satish Kumar v. Surinder Kumar [(1969) 2 SCR
244 : AIR 1970 SC 833] . There, this Court was
confronted with the question, whether an award
74
made by an arbitrator which had become
unenforceable for want of registration under the
Registration Act, ceased to be a decision of the
arbitrator, which binds the parties or their privies.
In that context, this Court observed that an award
is entitled to that respect which is due to the
judgment and decree of last resort. And if the award
which had been pronounced between the parties
has become final, a second reference of the subject
of the award becomes incompetent. It further
observed that if the award is final and binding on
the parties, it can hardly be said that it is a waste
paper unless it is made a “Rule of Court”. Hegde, J.
who agreed with the above observations of Sikri, J.
(as his Lordship then was) while speaking for
Bachawat, J. also observed that the arbitration has
the first stage which commences with arbitration
agreement and ends with the making of the award,
and then a second stage which relates to the
enforcement of the award. He also observed that it
was one thing to say that a right is not created by
the award but it is an entirely different thing to say
that the right created cannot be enforced without
further steps.
16. Therefore, our answer to the point is that the
awards of Special Arbitration Tribunals did not
merge in judgments and decrees of the courts even
though the courts by their judgments and decrees
made such awards “Rules of Court” for their
enforceability through the courts availing their
machinery used for execution of their decisions,
that is, their own judgments and decrees.
17. It is true, as argued on behalf of the petitioners,
that a legislature has no legislative power to render
ineffective the earlier judicial decisions by making a
law which simply declares the earlier judicial
decisions as invalid or not binding, for such power if
75
exercised would not be a legislative power exercised
by it but a judicial power exercised by it
encroaching upon the judicial power of the State
exclusively vested in courts. The said argument
advanced, since represents the correct and well
settled position in law, we have thought it
unnecessary to refer to the decisions of this Court
cited by learned counsel for the petitioners, in that
behalf and hence have not referred to them.
18. For the 1991 Amendment Act to become
unconstitutional on the ground that it has
rendered judgments and decrees of courts by
which the Special Arbitration Tribunals' awards
are made “Rules of Court”, invalid or ineffective,
such judgments and decrees must be decisions
of courts rendered by them in exercise of their
judicial power of decisionmaking in respect of
the subjects of dispute before them and not
where they render judgments and decrees to
make the awards of the Special Arbitration
Tribunals “Rules of Court” so that they could be
made enforceable through the machinery of
courts. Thus, the awards of the Special
Arbitration Tribunals when get the superadded
seals of courts for such awards, by the courts
making them “Rules of Court” by their
judgments and decrees, such awards do not get
merged in judgments and decrees of courts so as
to make them the decisions of courts, rendered
in exercise of State's judicial power of decision
making, as it happens in the causes directly
brought before them by way of suits for their
decisions. As we have already pointed out, question
of claim or cause of a party which gets merged in
the award of a Special Arbitration Tribunal, in turn,
getting merged in judgment and decree made by
civil court, for the purpose of making the award a
76
“Rule of Court”, so as to make it enforceable, cannot
arise. What needs to be noted is, that courts even if
render their judgments and decrees for making the
awards “Rules of Court”, those judgments and
decrees cannot substitute their own decisions for
the decisions of Special Arbitration Tribunals
contained in their awards. This situation makes it
clear that power exercised by the civil courts in
making the awards of Special Arbitration Tribunals
“Rules of Court” by their judgments and decrees is
not their judicial power exercised in rendering
judgments and decrees, as civil courts exercise their
powers vested in them for resolving disputes
between parties. To be precise, judgments and
decrees made by civil courts in making the
awards of the Special Arbitration Tribunals the
“Rules of Court” for the sole purpose of their
enforceability through the machinery of court,
cannot make such judgments and decrees of
civil court, the decisions rendered by civil courts
in exercise of judicial power of the State
exclusively invested in them under our
Constitution. Thus, when the judgments and
decrees made by civil courts in making the awards
of Special Arbitration Tribunals “Rules of Court” are
not those judgments and decrees of courts made in
exercise of judicial power of State vested in them
under our Constitution, the 1991 Amendment Act
when nullifies the judgments and decrees of courts
by which awards of Special Arbitration Tribunals
are made “Rules of Court”, cannot be regarded as
that enacted by the Orissa State Legislature
encroaching upon the judicial powers of State
exercisable under our Constitution by courts as
sentinels of Rule of Law, a basic feature of our
Constitution. Hence, the 1991 Amendment Act
insofar as it nullifies judgments and decrees of
courts by which awards of Special Arbitration
Tribunals are made “Rules of Court”, even where
77
they are affirmed by higher courts, cannot be
regarded as that made by the Orissa State
Legislature transgressing upon the judicial power of
State vested in courts as would make it
unconstitutional.”
[emphasis supplied]
89. It could be seen that this Court has observed that
the judgments and decrees made by the civil courts in
making the awards of the Special Arbitration Tribunals the
“Rules of Court” are for the sole purpose of their
enforceability through the machinery of courts and therefore,
cannot be such judgments and decrees of civil courts made
in exercise of the judicial power of the State exclusively
vested in them under the Constitution of India. This Court,
therefore, held that the 1991 Amendment Act, which nullifies
the judgments and decrees of the court by which awards of
Special Arbitration Tribunals are made “Rules of Court”,
cannot be said to be an encroachment upon the judicial
powers of the State exercisable by the courts under the
Constitution of India.
90. However, it is to be noted that in the very same
judgment, this Court observed thus:
78
“28. Thus, the impugned 1991 Amendment Act
seeks to nullify the awards made by the Special
Arbitration Tribunals constituted under the 1984
Amendment Act, in exercise of the power conferred
upon them by that Act itself. When the awards
made under the 1984 Amendment Act by the
Special Arbitration Tribunals in exercise of the
State's judicial power conferred upon them which
cannot be regarded as those merged in Rules of
Court or judgments and decrees of courts, are
sought to be nullified by the 1991 Amendment Act,
it admits of no doubt that legislative power of the
State Legislature is used by enacting the impugned
1991 Amendment Act to nullify or abrogate the
awards of the Special Arbitration Tribunals by
arrogating to itself, a judicial power. [See Cauvery
Water Disputes Tribunal, Re [1993 Supp (1) SCC 96
(2) : AIR 1992 SC 522 : 1991 Supp (2) SCR 497] ].
From this, it follows that the State Legislature by
enacting the 1991 Amendment Act has encroached
upon the judicial power entrusted to judicial
authority resulting in infringement of a basic
feature of the Constitution — the Rule of Law.
Thus, when the 1991 Amendment Act nullifies
the awards of the Special Arbitration Tribunals,
made in exercise of the judicial power conferred
upon them under the 1984 Amendment Act, by
encroaching upon the judicial power of the
State, we have no option but to declare it as
unconstitutional having regard to the well
settled and undisputed legal position that a
legislature has no legislative power to render
ineffective the earlier judicial decisions by
making a law which simply declares the earlier
judicial decisions as invalid and not binding, for
such powers, if exercised, would not be
legislative power exercised by it, but judicial
power exercised by it encroaching upon the
79
judicial power of the State vested in a judicial
tribunal as the Special Arbitration Tribunal
under the 1984 Amendment Act. Moreover,
where the arbitral awards sought to be nullified
under the 1991 Amendment Act are those made
by Special Arbitration Tribunals constituted by
the State itself under the 1984 Amendment Act
to decide arbitral disputes to which State was a
party, it cannot be permitted to undo such
arbitral awards which have gone against it, by
having recourse to its legislative power for grant
of such permission as could result in allowing
the State, if nothing else, abuse of its power of
legislation.”
[emphasis supplied]
91. The court further held that under the 1984
Amendment Act, the Special Arbitration Tribunals were
constituted by the State itself to decide arbitral disputes. It
held that the State was a party before such Tribunals and
therefore, it cannot be permitted to undo such arbitral
awards which had gone against it. It further held that if
such an exercise is permitted to be done, by having recourse
to its legislative power, it would result in nothing else but
allowing the State, abuse of its power of legislation.
80
92. The Court goes on to hold that the awards made
under the 1984 Amendment Act by the Special Arbitration
Tribunals are sought to be nullified by the 1991 Amendment
Act. As such, the legislative power of the State Legislature is
used by enacting the impugned 1991 Amendment Act to
nullify or abrogate the awards of the Special Arbitration
Tribunals by abrogating to itself a judicial power. In this
respect, the Court relied on the judgment of this Court in the
case of Cauvery Water Disputes Tribunal
41
. This Court
further goes on to hold that the State Legislature by enacting
the 1991 Amendment Act has encroached upon the judicial
power vested in judicial authorities and as such, infringed
the basic feature of the Constitution of India the “Rule of
Law”. As such, this Court held the 1991 Amendment Act to
be unconstitutional on the ground that the arbitral awards
passed by the Special Arbitration Tribunals under the 1984
Amendment Act are sought to be nullified by the 1991
Amendment Act.
41 1993 Supp (1) SCC 96 (2)
81
93. A perusal of the aforesaid observations made in the
case of G.C. Kanungo (supra) would reveal that on one
hand, this Court goes on to hold that the judgments and
decrees by which the civil courts make the awards “Rules of
Court” are not passed in exercise of its judicial powers. As
such, the awards do not merge in the judgments and decrees
of the court. But on the other hand, the Court goes on to
hold that the awards passed by the Special Arbitration
Tribunals are the awards passed by the Tribunals exercising
the judicial power and as such, when the State nullifies such
awards, it abrogates to itself a judicial power and the Statute
which annuls it, is unconstitutional being encroachment on
the judicial power of the State.
94. Since G.C. Kanungo (supra) has ultimately held the
1991 Amendment Act to be unconstitutional on the ground
that it annuls the awards passed by the Special Arbitration
Tribunals, it may not be necessary to consider the question
as to whether G.C. Kanungo (supra) was right in holding
that the judgments and decrees vide which the awards are
made “Rules of Court”, are not passed in exercise of judicial
82
power. However, the perusal of paragraph 17 in the case of
G.C. Kanungo (supra) would reveal that this Court recorded
the submissions made on behalf of the petitioners therein
that, a Legislature has no legislative power to render
ineffective the earlier judicial decisions by making a law
which simply declares the earlier judicial decisions as invalid
or not binding. It also recorded that if such a power is
exercised, it will not be legislative power exercised by it but a
judicial power, encroaching upon the judicial power of the
State exclusively vested in courts. It further appears that
various decisions of this Court were cited by the counsel for
the petitioners therein, however, this Court did not find it
necessary to refer to the said decisions, since this Court
found that the said submissions represent a correct and
wellsettled position in law. It will be worthwhile to note that
in the said case, this Court was considering the provisions of
the 1940 Act as against the provisions of the Orissa State
Act. In the present case also, all the awards so also the
judgments and decrees passed by the civil courts making
such awards “Rules of Court” have been passed under the
83
1940 Act. We, therefore, find that it will be appropriate to
examine the correctness of the said finding.
95. It will be necessary to consider the scheme of the
1940 Act as will be found in Sections 15, 16, 17 and 30
thereof, which read thus:
“15. Power of Court to modify award.—The Court
may by order modify or correct an award—
(a) where it appears that a part of the
award is upon a matter not referred to
arbitration and such part can be
separated from the other part and does
not affect the decision on the matter
referred; or
(b) where the award is imperfect in form,
or contains any obvious error which can
be amended without affecting such
decision; or
(c) where the award contains a clerical
mistake or an error arising from an
accidental slip or omission.
16. Power to remit award .—(1) The Court may
from time to time remit the award or any matter
referred to arbitration to the arbitrators or umpire
for reconsideration upon such terms as it thinks fit
—
(a) where the award has left
undetermined any of the matters referred
to arbitration, or where it determines any
matter not referred to arbitration and
such matter cannot be separated without
affecting the determination of the matters
referred; or
84
(b) where the award is so indefinite as to
be incapable of execution; or
(c) where an objection to the legality of
the award is apparent upon the face of it.
(2) Where an award is remitted under subsection
(1) the Court shall fix the time within which the
arbitrator or umpire shall submit his decision to the
Court:
Provided that any time so fixed may be extended by
subsequent order of the Court.
(3) An award remitted under subsection (1) shall
become void on the failure of the arbitrator or
umpire to reconsider it and submit his decision
within the time fixed.
17. Judgment in terms of award.—Where the
Court sees no cause to remit the award or any of
the matters referred to arbitration for
reconsideration or to set aside the award, the Court
shall, after the time for making an application to set
aside the award has expired, or such application
having been made, after refusing it, proceed to
pronounce judgment according to the award, and
upon the judgment so pronounced a decree shall
follow, and no appeal shall lie from such decree
except on the ground that it is in excess of, or not
otherwise in accordance with the award.
……………..
30. Grounds for setting aside award.— An award
shall not be set aside except on one or more of the
following grounds, namely—
(a) that an arbitrator or umpire has
misconducted himself or the proceedings;
(b) that an award has been made after the
issue of an order by the Court
superseding the arbitration or after
85
arbitration proceedings have become
invalid under Section 35;
(c) that an award has been improperly
procured or is otherwise invalid.”
96. A perusal of Section 15 of the 1940 Act would reveal
that the court, by an order, may modify or correct an award,
where it appears that a part of the award is upon a matter
not referred to arbitration and such part can be separated
from the other part and does not affect the decision on the
matter referred. The Court may also modify or correct the
award, where the award is imperfect in form, or contains any
obvious error which can be amended without affecting such
decision. The power under Section 15 of the 1940 Act could
also be exercised, where the award contains a clerical
mistake or an error arising from an accidental slip or
omission.
97. Section 16 of the 1940 Act empowers the court to
remit the award or any matter referred to arbitration to the
arbitrators or umpire for reconsideration, where it finds that
the award has left undetermined any of the matters referred
86
to arbitration, or where it determines any matter not referred
to arbitration and such matter cannot be separated without
affecting the determination of the matters referred. Such
power can also be exercised, where the award is so indefinite
as to be incapable of execution. So also, where an objection
to the legality of the award is apparent upon the face of it,
the court would be empowered to remit the award.
98. Section 30 of the 1940 Act provides the grounds on
which an award could be set aside. It provides that the
award could be set aside when an arbitrator or umpire has
misconducted himself or the proceedings. It could be set
aside when it is found that the award has been made after
the issue of an order by the Court superseding the
arbitration or after arbitration proceedings have become
invalid under Section 35. The award could also be set aside
when the court finds that the award has been improperly
procured or is otherwise invalid.
99. Section 17 of the 1940 Act empowers the court to
pronounce a judgment according to the award, and upon the
judgment so pronounced a decree is to follow. It further
87
provides that no appeal shall lie on such decree except on the
ground that it is in excess of, or not otherwise in accordance
with, the award. However, prior to pronouncing the
judgment, the court is required to be satisfied that no cause
to remit the award or any of the matters referred to
arbitration for reconsideration or to set aside the award, is
made out. The Court is also required to wait till the time for
making an application to set aside the award has expired, or
such application having been made, has been refused.
100. The perusal of the scheme of the 1940 Act would
itself reveal that the passing of the judgment and decree
under Section 17 of the 1940 Act is not a mere formality.
The judgment can be pronounced only when the court is
satisfied that no cause is made out for remitting the award or
setting aside the award. The court is also entitled to remit or
modify the awards. As such, it cannot be said that the court,
while passing a judgment, which is followed by a decree, does
not exercise judicial power. The court is not supposed to act
mechanically and be a PostOffice.
88
101. A Constitution Bench of this Court in the case of
Harinagar Sugar Mills Ltd. v. Shyam Sundar
Jhunjhunwala and Others
42
, had an occasion to consider
the scope of Section 111 of the Companies Act, 1956. It was
sought to be urged before this Court that the authority of the
Central Government under Section 111 of the Companies
Act, 1956 was an administrative authority. Rejecting the
said submission, J.C. Shah, J. observed thus:
“………But that in an appeal under Section
111 clause (3) there is a lis or dispute between the
contesting parties relating to their civil rights, and
the Central Government is invested with the power
to determine that dispute according to law i.e. it has
to consider and decide the proposal and the
objections in the light of the evidence, and not on
grounds of policy or expediency. The extent of the
power which may be exercised by the Central
Government is not delimited by express
enactment, but the power is not on that account
unrestricted. The power in appeal to order
registration of transfers has to be exercised
subject to the limitations similar to those
imposed upon the exercise of the power of the
court in a petition for that relief under Section
155: the restrictions which inhere the exercise
of the power of the court also apply to the
exercise of the appellate power by the Central
Government i.e. the Central Government has to
42 [1962] 2 SCR 339
89
decide whether in exercising their power, the
directors are acting oppressively, capriciously or
corruptly, or in some way mala fide. The
decision has manifestly to stand those objective
tests, and has not merely to be founded on the
subjective satisfaction of the authority deciding
the question. The authority cannot proceed to
decide the question posed for its determination on
grounds of expediency: the statute empowers the
Central Government to decide the disputes arising
out of the claims made by the transferor or
transferee which claim is opposed by the company,
and by rendering a decision upon the respective
contentions, the rights of the contesting parties are
directly affected. Prima facie, the exercise of such
authority would be judicial. It is immaterial that
the statute which confers the power upon the
Central Government does not expressly set out
the extent of the power: but the very nature of
the jurisdiction requires that it is to be
exercised subject to the limitations which apply
to the court under Section 155. The proviso to
subsection (8) of Section 111 clearly indicates that
in circumstances specified therein reasonable
compensation may be awarded in lieu of the shares.
This compensation which is to be reasonable has to
be ascertained by the Central Government; and
reasonable compensation cannot be ascertained
except by the application of some objective
standards of what is just having regard to all the
circumstances of the case.
In The Province of Bombay v. Kusaldas S.
Advani [(1950) SCR 621] this Court considered the
distinction between decisions quasijudicial and
administrative or ministerial for the purpose of
ascertaining whether they are subject to the
90
jurisdiction to issue a writ of certiorari, Fazl Ali, J.
at p. 642 observed:
“The word ‘decision’ in common parlance
is more or less a neutral expression and
it can be used with reference to purely
executive acts as well as judicial orders.
The mere fact that an executive authority
has to decide something does not make
the decision judicial. It is the manner in
which the decision has to be arrived at
which makes the difference, and the real
test is: Is there any duty to decide
judicially?”
The Court also approved of the following test
suggested in King v. London County Council [(1931)
2 KB 215, 233] by Scrutton, L.J.:
“It is not necessary that it should be a
court in the sense in which this Court is
a court; it is enough if it is exercising,
after hearing evidence, judicial functions
in the sense that it has to decide on
evidence between a proposal and an
opposition; and it is not necessary to be
strictly a court; if it is a tribunal which
has to decide rights after hearing
evidence and opposition, it is amenable to
the writ of certiorari.”
In Bharat Bank Ltd., Delhi v. Employees [(1950)
SCR 459] the question whether an adjudication by
an Industrial Tribunal functioning under the
Industrial Tribunals Act was subject to the
jurisdiction of this Court under Article 136 of the
91
Constitution fell to be determined: Mahajan, J. in
that case observed:
“There can be no doubt that varieties of
Administrative Tribunals and Domestic
Tribunals are known to exist in this
country as well as in other countries of
the world but the real question to decide
in each case is as to the extent of judicial
power of the State exercised by them.
Tribunals which do not derive authority
from the sovereign power cannot fall
within the ambit of Article 136. The
condition precedent for bringing a
tribunal within the ambit of Article 136 is
that it should be constituted by the State.
Again a tribunal would be outside the
ambit of Article 136 if is not invested with
any part of the judicial functions of the
State but discharges purely
administrative or executive duties.
Tribunals however which are found
invested with certain functions of a court
of justice and have some of its trappings
also would fall within the ambit of Article
136 and would be subject to the appellate
control of this Court whenever it is found
and necessary to exercise that control in
the interests of justice.”
It was also observed by Fazi Ali, J. at p.
463, that a body which is required to act
judicially and which exercises judicial power of
the State does not cease to be one exercising
judicial or quasijudicial functions merely
because it is not expressly required to be guided
by any recognised substantive law in deciding
the disputes which come before it.
92
The authority of the Central Government
entertaining an appeal under Section 111(3) being
an alternative remedy to an aggrieved party to a
petition under Section 155 the investiture of
authority is in the exercise of the judicial power of
the State. Clause (7) of Section 111 declares the
proceedings in appeal to be confidential, but that
does not dispense with a judicial approach to the
evidence. Under Section 54 of the Indian Income
Tax Act (which is analogous) all particulars
contained in any statement made, return furnished
or account or documents produced under the
provisions of the Act or in any evidence given, or
affidavit or deposition made, in the course of any
proceedings under the Act are to be treated as
confidential; but that does not make the decision of
the taxing authorities merely executive. As the
dispute between the parties relates to the civil
rights and the Act provides for a right of appeal
and makes detailed provisions about hearing and
disposal according to law, it is impossible to
avoid the inference that a duty is imposed upon
the Central Government in deciding the appeal
to act judicially.”
[emphasis supplied]
102. It has been held by this Court that the restrictions
which inhere the exercise of the power of the court also apply
to the exercise of the appellate power by the Central
Government. It has been held that the Central Government
has to decide whether in exercising their power, the directors
93
are acting oppressively, capriciously or corruptly, or in some
way mala fide. The decision has manifestly to stand those
objective tests, and has not merely to be founded on the
subjective satisfaction of the authority deciding the question.
It has been held that the very nature of the jurisdiction
requires that it is to be exercised subject to the limitations
which apply to the court under Section 155 of the Companies
Act, 1956. It could be seen that this Court has held that
since the dispute between the parties relates to the civil
rights and the Act provides for a right of appeal and makes
detailed provisions about hearing and disposal according to
law, it is impossible to avoid the inference that a duty is
imposed upon the Central Government in deciding the appeal
to act judicially.
103. M. Hidayatullah, J., in a separate but concurring
judgment, observed thus:
“Courts and tribunals act “judicially” in both
senses, and in the term “court” are included the
ordinary and permanent tribunals and in the term
“tribunal” are included all others, which are not so
included. Now, the matter would have been
simple, if the Companies Act, 1956 had
designated a person or persons whether by name
94
or by office for the purpose of hearing an appeal
under Section 111. It would then have been
clear that though such person or persons were
not “courts” in the sense explained, they were
clearly “tribunals”. The Act says that an appeal
shall lie to the Central Government. We are,
therefore, faced with the question whether the
Central Government can be said to be a tribunal.
Reliance is placed upon a recent decision of this
Court in Shivji Nathubai v. Union of India [(1960) 2
SCR 775] where it was held that the Central
Government in exercising power of review under the
Mineral Concession Rules, 1949, was subject to the
appellate jurisdiction conferred by Article 136. In
that case which came to this Court on appeal from
the High Court's order under Article 226, it was
held on the authority of Province of
Bombay v. Kushaldas S. Advani [(1950) SCR 621]
and Rex v. Electricity Commissioners [(1924) 1 KB
171] that the action of the Central Government was
quasijudicial and not administrative. It was then
observed:
“It is in the circumstances apparent that
as soon as Rule 52 gives a right to an
aggrieved party to apply for review a lis is
created between him and the party in
whose favour the grant has been made.
Unless therefore there is anything in the
statute to the contrary it will be the duty
of the authority to act judicially and its
decision would be a quasijudicial act.”
This observation only establishes that the decision
is a quasijudicial one, but it does not say that the
Central Government can be regarded as a tribunal.
In my opinion, these are very different matters, and
95
now that the question has been raised, it should be
decided.
The function that the Central Government
performs under the Act and the Rules is to hear
an appeal against the action of the Directors.
For that purpose, a memorandum of appeal
setting out the grounds has to be filed, and the
company, on notice, is required to make
representations, if any, and so also the other
side, and both sides are allowed to tender
evidence to support their representations. The
Central Government by its order then directs
that the shares be registered or need not be
registered. The Central Government is also
empowered to include in its orders, directions as
to payment of costs or otherwise. The function
of the Central Government is curial and not
executive. There is provision for a hearing and a
decision on evidence, and that is indubitably a
curial function.
Now, in its functions the Government often
reaches decisions, but all decisions of the
Government cannot be regarded as those of a
tribunal. Resolutions of the Government may affect
rights of parties, and yet, they may not be in the
exercise of the judicial power. Resolutions of the
Government may be amenable to writs under
Articles 32 and 226 in appropriate cases, but may
not be subject to a direct appeal under Article 136
as the decisions of a tribunal. The position,
however, changes when Government embarks
upon curial functions, and proceeds to exercise
judicial power and decide disputes. In those
circumstances, it is legitimate to regard the
officer who deals with the matter and even
Government itself as a tribunal. The officer who
96
decides, may even be anonymous; but the decision
is one of a tribunal, whether expressed in his name
or in the name of the Central Government. The
word “tribunal” is a word of wide import, and the
words “court” and “tribunal” embrace within
them the exercise of judicial power in all its
forms. The decision of the Government thus falls
within the powers of this Court under Article 136.”
[emphasis supplied]
104. M. Hidayatullah, J. proceeded to consider as to
whether the Central Government, while exercising its powers
under Section 111 of the Companies Act, 1956, can be said
to be a “Tribunal”. On perusal of the scheme of Section 111
of the Companies Act, 1956, His Lordship has observed that
the function of the Central Government under the said
section is curial and not executive. There is a provision for a
hearing and a decision on evidence, and that is indubitably a
curial function. His Lordship further held that in its various
functions, Government often reaches a decision, but all
decisions of the Government cannot be regarded as those of a
tribunal. However, when Government embarks upon curial
functions, and proceeds to exercise judicial power and decide
disputes, it is legitimate to regard the officer who deals with
97
the matter and even Government itself as a tribunal. His
Lordship further goes on to hold that the officer who decides,
may even be anonymous; but the decision is one of a
tribunal, whether expressed in his name or in the name of
the Central Government.
105. A Constitution Bench of this Court in the case of
Shankarlal Aggarwala and Others v. Shankarlal
Poddar and Others
43
, was considering a question as to
whether the order passed by the Company Judge confirming
the sale was an administrative order or a judicial order.
Answering the said question, this Court, speaking through N.
Rajagopala Ayyangar, J., observed thus:
“On the basis of these provisions, we shall
proceed to consider whether the confirmation of the
sale was merely an order in the course of
administration and not a judicial order. The sale by
the liquidator was, of course, effected in the course
of the realisation of the assets of the company and
for the purpose of the amount realised being applied
towards the discharge of the liabilities and the
surplus to be distributed in the manner provided by
the Act. It would also be correct to say that when a
liquidator effects a sale he is not discharging any
judicial function. Still it does not follow that every
order of the Court merely for the reason that it is
43 [1964] 1 SCR 717
98
passed in the course of the realisation of the assets
of the company must always be treated as merely
an administrative one. The question ultimately
depends upon the nature of the order that is
passed. An order according sanction to a sale
undoubtedly involves a discretion and cannot be
termed merely a ministerial order, for before
confirming the sale the Court has to be satisfied,
particularly where the confirmation is opposed,
that the sale has been held in accordance with
the conditions subject to which alone the
liquidator has been permitted to effect it, and
that even otherwise the sale has been fair and
has not resulted in any loss to the parties who
would ultimately have to share the realisation.
The next question is whether such an order
could be classified as an administrative order. One
thing is clear, that the mere fact that the order is
passed in the course of the administration of the
assets of the company and for realising those assets
is not by itself sufficient to make it an
administrative, as distinguished from a judicial
order. For instance, the determination of amounts
due to the company from its debtors which is also
part of the process of the realisation of the assets of
the company is a matter which arises in the course
of the administration. It does not on that account
follow that the determination of the particular
amount due from a debtor who is brought before
the Court is an administrative order.
It is perhaps not possible to formulate a
definition which would satisfactorily distinguish, in
this context, between an administrative and a
judicial order. That the power is entrusted to or
wielded by a person who functions as a Court is not
decisive of the question whether the act or decision
99
is administrative or judicial. But we conceive that
an administrative order would be one which is
directed to the regulation or supervision of
matters as distinguished from an order which
decides the rights of parties or confers or refuses
to confer rights to property which are the
subject of adjudication before the Court. One of
the tests would be whether a matter which
involves the exercise of discretion is left for the
decision of the authority, particularly if that
authority were a Court, and if the discretion has
to be exercised on objective, as distinguished
from a purely subjective, consideration, it would
be a judicial decision. It has sometimes been said
that the essence of a judicial proceeding or of a
judicial order is that there should be two parties
and a lis between them which is the subject of
adjudication, as a result of that order or a decision
on an issue between a proposal and an opposition.
No doubt, it would not be possible to describe an
order passed deciding a lis before the authority, that
it is not a judicial order but it does not follow that
the absence of a lis necessarily negatives the order
being judicial. Even viewed from this narrow
standpoint it is possible to hold that there was
a lis before the Company Judge which he decided by
passing the order. On the one hand were the Claims
of the highest bidder who put forward the
contention that he had satisfied the requirements
laid down for the acceptance of his bid and was
consequently entitled to have the sale in his favour
confirmed, particularly so as he was supported in
this behalf by the official liquidators. On the other
hand there was the 1st respondent and not to speak
of him, the large body of unsecured creditors whose
interests, even if they were not represented by the
1st respondent, the Court was bound to protect. If
100
the sale of which confirmation was sought was
characterised by any deviation from the conditions
subject to which the sale was directed to be held or
even otherwise was for a gross undervalue in the
sense that very much more could reasonably be
expected to be obtained if the sale were properly
held in view of the figure of Rs 3,37,000 which had
been bid by Nandlal Agarwalla, it would be the duty
of the Court to refuse the confirmation in the
interests of the general body of creditors and this
was the submission made by the 1st respondent.
There were thus two points of view presented to the
Court by two contending parties or interests and the
Court was called upon to decide between them. And
the decision vitally affected the rights of the parties
to property. In this view we are clearly of the
opinion that the order of the Court was, in the
circumstances, a judicial order and not an
administrative one and was therefore not inherently
incapable of being brought up in appeal.
[emphasis supplied]
106. The Constitution Bench in the case of Shankarlal
Aggarwala and Others (supra) held that the question as to
whether the order passed by a court is administrative or
judicial, would depend upon the nature of the order that is
passed. The order undoubtedly involves a discretion and
cannot be termed merely a ministerial order. His Lordship
distinguished an administrative order to be one which is
101
directed to the regulation or supervision of matters as against
an order which decides the rights of parties or confers or
refuses to confer rights to property which are the subject of
adjudication before the court. It has further been held that
one of the tests for deciding whether the power exercised is
administrative or judicial, would be whether a matter, which
involves the exercise of discretion, is left for the decision of
the authority, particularly if that authority were a court, and
if the discretion has to be exercised on objective, as
distinguished from a purely subjective, consideration, it
would be a judicial decision.
107. We have, hereinabove, elaborately considered the
scheme under Sections 15, 16 and 17 of the 1940 Act. The
perusal of the said scheme would clearly reveal that before
making an award “Rule of Court” by passing a judgment and
decree, the court is required to take into consideration
various factors, apply its mind and also exercise its
discretion judicially. We find that the aforesaid provisions
have not been considered in the case of G.C. Kanungo
(supra). The perusal of the aforesaid provisions, as has been
102
considered by us hereinabove, would clearly show that the
power exercised by the court under Section 17 of the 1940
Act is a judicial power. We are therefore of the view that the
findings in this respect as recorded by this Court in
paragraphs 15 to 18 in the case of G.C. Kanungo (supra)
would be per incuriam the provisions of the 1940 Act.
108. We further find that the two Constitution Benches in
the cases of Harinagar Sugar Mills Ltd. (supra) and
Shankarlal Aggarwala and Others (supra) have
elaborately considered as to what could be construed as
judicial power of a court. In the case of Harinagar Sugar
Mills Ltd. (supra), though the power to be exercised was by
the Central Government, the Constitution Bench, upon
examining the scope of Section 111 of the Companies Act,
1956, held the said power to be a judicial one. In the case of
Shankarlal Aggarwala and Others (supra), the
Constitution Bench distinguished between the administrative
and judicial powers of the court. This Court in paragraph 17
in the case of G.C. Kanungo (supra) rightly observed that the
103
State Legislature has no legislative power to render ineffective
the earlier judicial decisions by making a law. It cannot
simply declare the earlier decisions invalid or not binding.
However, observing this, in paragraph 18, this Court held
that the power exercised by the court in making the awards
of the Special Arbitration Tribunals the “Rules of Court”, is
not a judicial power. We are of the considered view that the
aforesaid finding is not only per incuriam the provisions of the
1940 Act but also the two judgments of the Constitution
Bench in the cases of Harinagar Sugar Mills Ltd. (supra)
and Shankarlal Aggarwala and Others (supra).
109. A sevenJudge Bench of this Court in the case of
Bengal Immunity Company Limited v. State of Bihar and
Others
44
, was considering the question as to whether the
majority decision in the case of State of Bombay and
Another v. United Motors (India) Limited and Others
45
laid down a correct law. The authority of the court to go
beyond the majority decision was questioned. While
44 [1955] 2 SCR 603
45 [1953] SCR 1069
104
considering the said objection, before going into the merits of
the matter, S.R. Das, Acting C.J., observed thus:
“……..Learned counsel for some of the
interveners question our authority to go behind the
majority decision. It is, therefore, necessary at this
stage to determine this preliminary question before
entering upon a detailed discussion on the question
of construction of Article 286.
In England, the Court of Appeal has imposed
upon its power of review of earlier precedents a
limitation, subject to certain exceptions. The
limitation thus accepted is that it is bound to follow
its own decisions and those of courts of Coordinate
jurisdiction, and the “full” court is in the same
position in this respect as a division Court
consisting of three members. The only exceptions to
this Rule are: (1) the court is entitled and bound to
decide which of the two conflicting decisions of its
own it will follow; (2) the Court is bound to refuse to
follow a decision of its own which, though not
expressly overruled, cannot, in its opinion stand
with a decision of the House of Lords; and (3) the
court is not bound to follow a decision of its own, if
it is satisfied that the decision was given per
incuriam e.g. where a statute or a rule having
statutory effect which would have affected the
decision was not brought to the attention of the
earlier court. [See Young v. Bristol Aeroplane Co.
Ltd. [LR 1944 KB 718 CA] which, on appeal to the
House of Lords, was approved by Viscount Simon in
LR 1946 AC 163 at p. 169]. A decision of the House
of Lords upon a question of law is conclusive and
binds the House in subsequent case. An erroneous
decision of the House of Lords can be set right only
by an Act of Parliament. [See Street
Tramways v. London County Council [1898 AC 375]
This limitation was repeated by Lord Wright
105
in Radcliffe v. Ribble Motor Services Ltd. [1939 AC
215 at p. 245]”
110. In the case of State of U.P. and Another v.
Synthetics and Chemicals Ltd. and Another
46
, this Court
observed thus:
“40. ‘Incuria’ literally means ‘carelessness’. In
practice per incuriam appears to mean per
ignoratium. English courts have developed this
principle in relaxation of the rule of stare decisis.
The ‘quotable in law’ is avoided and ignored if it is
rendered, ‘in ignoratium of a statute or other binding
authority’. (Young v. Bristol Aeroplane Co.
Ltd. [(1944) 1 KB 718 : (1944) 2 All ER 293] ). Same
has been accepted, approved and adopted by this
Court while interpreting Article 141 of the
Constitution which embodies the doctrine of
precedents as a matter of law. In Jaisri
Sahu v. Rajdewan Dubey [(1962) 2 SCR 558 : AIR
1962 SC 83] this Court while pointing out the
procedure to be followed when conflicting decisions
are placed before a bench extracted a passage
from Halsbury's Laws of England incorporating one
of the exceptions when the decision of an appellate
court is not binding.
41. Does this principle extend and apply to a
conclusion of law, which was neither raised nor
preceded by any consideration. In other words can
such conclusions be considered as declaration of
law? Here again the English courts and jurists have
carved out an exception to the rule of precedents. It
46 (1991) 4 SCC 139
106
has been explained as rule of subsilentio. “A
decision passes subsilentio, in the technical sense
that has come to be attached to that phrase, when
the particular point of law involved in the decision is
not perceived by the court or present to its mind.”
(Salmond on Jurisprudence 12th Edn., p. 153).
In Lancaster Motor Company (London)
Ltd. v. Bremith Ltd. [(1941) 1 KB 675, 677 : (1941) 2
All ER 11] the Court did not feel bound by earlier
decision as it was rendered ‘without any argument,
without reference to the crucial words of the rule
and without any citation of the authority’. It was
approved by this Court in Municipal Corporation of
Delhi v. Gurnam Kaur. [(1989) 1 SCC 101] The
bench held that, ‘precedents subsilentio and
without argument are of no moment’. The courts
thus have taken recourse to this principle for
relieving from injustice perpetrated by unjust
precedents. A decision which is not express and is
not founded on reasons nor it proceeds on
consideration of issue cannot be deemed to be a law
declared to have a binding effect as is contemplated
by Article 141. Uniformity and consistency are core
of judicial discipline. But that which escapes in the
judgment without any occasion is not ratio
decidendi. In B. Shama Rao v. Union Territory of
Pondicherry [AIR 1967 SC 1480 : (1967) 2 SCR 650 :
20 STC 215] it was observed, ‘it is trite to say that a
decision is binding not because of its conclusions
but in regard to its ratio and the principles, laid
down therein’. Any declaration or conclusion arrived
without application of mind or preceded without any
reason cannot be deemed to be declaration of law or
authority of a general nature binding as a
precedent. Restraint in dissenting or overruling is
for sake of stability and uniformity but rigidity
107
beyond reasonable limits is inimical to the growth of
law.”
111. This Court further in the case of Sundeep Kumar
Bafna v. State of Maharashtra and Another
47
, observed
thus:
“19. It cannot be overemphasised that the discipline
demanded by a precedent or the disqualification or
diminution of a decision on the application of
the per incuriam rule is of great importance, since
without it, certainty of law, consistency of rulings
and comity of courts would become a costly
casualty. A decision or judgment can be per
incuriam any provision in a statute, rule or
regulation, which was not brought to the notice of
the court. A decision or judgment can also be per
incuriam if it is not possible to reconcile
its ratio with that of a previously pronounced
judgment of a coequal or larger Bench; or if the
decision of a High Court is not in consonance with
the views of this Court. It must immediately be
clarified that the per incuriam rule is strictly and
correctly applicable to the ratio decidendi and not
to obiter dicta. It is often encountered in High
Courts that two or more mutually irreconcilable
decisions of the Supreme Court are cited at the Bar.
We think that the inviolable recourse is to apply the
earliest view as the succeeding ones would fall in
the category of per incuriam.”
47 (2014) 16 SCC 623
108
112. The perusal of the judgment in the case of G.C.
Kanungo (supra) would reveal that though the court has
recorded the submissions of the counsel for the petitioners
therein, that the Legislature has no power to render
ineffective the earlier judicial decisions by making a law and
though judgments were cited in support of the said
proposition, the court did not consider it necessary to refer to
the said decisions. However, without considering the
provisions of the 1940 Act or the two judgments of the
Constitution Bench in the cases of Harinagar Sugar Mills
Ltd. (supra) and Shankarlal Aggarwala and Others
(supra), it went on to hold that the powers exercised by a
court while making an award “Rule of Court”, are not judicial
powers. We find that the finding to that effect in the case of
G.C. Kanungo (supra), apart from being per incuriam the
provisions of the 1940 Act and the law laid down by the
Constitution Bench in the cases of Harinagar Sugar Mills
Ltd. (supra) and Shankarlal Aggarwala and Others
(supra), would also be hit by the rule of sub silentio.
109
113. The perusal of the subsequent judgments of this
Court would also fortify the position that the powers
exercised by the court under the provisions of the 1940 Act
are judicial powers and that the power to make an award
“Rule of Court” is not a mechanical power.
114. In the case of Steel Authority of India Ltd. v. J.C.
Budharaja, Government and Mining Contractor
48
, this
Court observed thus:
“17. ……Whether the arbitrator has acted beyond
the terms of the contract or has travelled beyond his
jurisdiction would depend upon facts, which
however would be jurisdictional facts, and are
required to be gone into by the court……”
[emphasis supplied]
115. While considering the discretion to be exercised by
the court under Section 16 of the 1940 Act, this Court, in the
case of Ramachandra Reddy & Co. v. State of A.P. and
Others
49
, observed thus:
“5. Under the Arbitration Act, Section 16 is the
provision under which the court may remit the
award for reconsideration of an arbitrator and
necessity for remitting the award arises when there
48 (1999) 8 SCC 122
49 (2001) 4 SCC 241
110
are omissions and defects in the award, which
cannot be modified or corrected. Remission of an
award is in the discretion of the court and the
powers of the court are circumscribed by the
provisions of Section 16 itself. Ordinarily,
therefore, a court may be justified in remitting
the matter if the arbitrator leaves any of the
matters undetermined or a part of the matter
which had not been referred to and answered
and that part cannot be separated from the
remaining part, without affecting the decision on
the matter, which was referred to arbitration or the
award is so indefinite as to be incapable of
execution or that the award is erroneous on the face
of it. Discretion having been conferred on the
court to remit an award, the said discretion has
to be judicially exercised and an appellate court
would not be justified in interfering with the
exercise of discretion unless the discretion has
been misused. What is an error apparent on the
face of an award which requires to be corrected, has
always been a subjectmatter of discussion. An
error of law on the face of the award would mean
that one can find in the award or a document
actually incorporated thereto stating the reasons for
a judgment some legal propositions which are the
basis of the award and which can be said to be
erroneous. Documents not incorporated directly or
indirectly into the award cannot be looked into for
the purpose of finding out any alleged error. The
courts are not to investigate beyond the award of
the arbitrators and the documents actually
incorporated therein and, therefore, when there
would be no patent error on the face of the award, it
would not be open for the court to go into the
proceedings of the award. If the application for
remittance filed by the claimants invoking
jurisdiction of the court under Section 16 is
111
examined from the aforesaid standpoint and if the
order of the learned civil court, remitting Claim Item
1 is tested in the light of the discussions made
above, the conclusion is irresistible that no case for
remittance had been made out and the learned trial
Judge exercised his discretion on the grounds
which do not come within the four corners of the
provisions of Section 16 of the Arbitration Act. In
fact no reasons had been ascribed for interference
with the award, rejecting Claim Item 1 and for
remittance of the same. The High Court being the
court of appeal, was therefore, fully justified in
exercise of its appellate power in correcting the error
made by the Civil Judge in remitting Claim Item 1.”
[emphasis supplied]
116. A sevenJudge Bench of this Court, in the case of
SBP & Co. v. Patel Engineering Ltd. and Another
50
, was
considering the question as to whether the powers of the
Chief Justice of High Court or Chief Justice of India under
Sections 11(6) and 8 of the 1996 Act are administrative or
judicial.
117. After referring to the earlier decisions, P.K.
Balasubramanyan, J., delivering a majority judgment,
observed thus:
“36. Going by the above test it is seen that at least
in the matter of deciding his own jurisdiction and in
the matter of deciding on the existence of an
arbitration agreement, the Chief Justice when
confronted with two points of view presented by the
50 (2005) 8 SCC 618
112
rival parties, is called upon to decide between them
and the decision vitally affects the rights of the
parties in that, either the claim for appointing an
Arbitral Tribunal leading to an award is denied to a
party or the claim to have an arbitration proceeding
set in motion for entertaining a claim is facilitated
by the Chief Justice. In this context, it is not
possible to say that the Chief Justice is merely
exercising an administrative function when called
upon to appoint an arbitrator and that he need not
even issue notice to the opposite side before
appointing an arbitrator.
37. It is fundamental to our procedural
jurisprudence, that the right of no person shall be
affected without he being heard. This necessarily
imposes an obligation on the Chief Justice to issue
notice to the opposite party when he is moved under
Section 11 of the Act. The notice to the opposite
party cannot be considered to be merely an
intimation to that party of the filing of the
arbitration application and the passing of an
administrative order appointing an arbitrator or an
Arbitral Tribunal. It is really the giving of an
opportunity of being heard. There have been cases
where claims for appointment of an arbitrator based
on an arbitration agreement are made ten or twenty
years after the period of the contract has come to an
end. There have been cases where the appointment
of an arbitrator has been sought, after the parties
had settled the accounts and the party concerned
had certified that he had no further claims against
the other contracting party. In other words, there
have been occasions when dead claims are sought
to be resurrected. There have been cases where
assertions are made of the existence of arbitration
agreements when, in fact, such existence is strongly
disputed by the other side who appears on issuance
113
of notice. Controversies are also raised as to
whether the claim that is sought to be put forward
comes within the purview of the arbitration clause
concerned at all. The Chief Justice has necessarily
to apply his mind to these aspects before coming to
a conclusion one way or the other and before
proceeding to appoint an arbitrator or declining to
appoint an arbitrator. Obviously, this is an
adjudicatory process. An opportunity of hearing to
both parties is a must. Even in administrative
functions if rights are affected, rules of natural
justice step in. The principles settled
by Ridge v. Baldwin [(1963) 2 All ER 66 : 1964 AC
40 : (1963) 2 WLR 935 (HL)] are well known.
Therefore, to the extent, Konkan Rly. [(2002) 2 SCC
388] states that no notice need be issued to the
opposite party to give him an opportunity of being
heard before appointing an arbitrator, with respect,
the same has to be held to be not sustainable.”
118. It could thus be seen that this Court in unequivocal
terms has held that the powers exercised by the Chief Justice
of the High Court or Chief Justice of India under Section
11(6) of the 1996 Act are not administrative but are judicial
powers. It would thus not sound to reason, that when a
power under Section 11(6) of the 1996 Act for appointment of
an arbitrator has been held to be a judicial power, the power
to make an award a “Rule of Court”, which can be made only
upon the satisfaction of the court on the existence of the
114
eventualities set out in Section 17 of the 1940 Act, is not an
exercise of judicial power.
119. A Constitution Bench of this Court in the case of
State of Tamil Nadu v. State of Kerala and Another
51
,
after an elaborate survey of all the earlier judgments, has
summed up the Law on “separation of powers doctrine”
under the Constitution of India, as under:
“Summary of separation of powers doctrine
under the Indian Constitution
126. On deep reflection of the above discussion, in
our opinion, the constitutional principles in the
context of Indian Constitution relating to separation
of powers between the legislature, executive and
judiciary may, in brief, be summarised thus:
126.1. Even without express provision of the
separation of powers, the doctrine of separation of
powers is an entrenched principle in the
Constitution of India. The doctrine of separation of
powers informs the Indian constitutional structure
and it is an essential constituent of rule of law. In
other words, the doctrine of separation of power
though not expressly engrafted in the Constitution,
its sweep, operation and visibility are apparent from
the scheme of Indian Constitution. Constitution has
made demarcation, without drawing formal lines
between the three organs—legislature, executive
and judiciary. In that sense, even in the absence of
express provision for separation of powers, the
separation of powers between the legislature,
51 (2014) 12 SCC 696
115
executive and judiciary is not different from the
Constitutions of the countries which contain
express provision for separation of powers.
126.2. Independence of courts from the executive
and legislature is fundamental to the rule of law
and one of the basic tenets of Indian Constitution.
Separation of judicial power is a significant
constitutional principle under the Constitution of
India.
126.3. Separation of powers between three organs—
the legislature, executive and judiciary—is also
nothing but a consequence of principles of equality
enshrined in Article 14 of the Constitution of India.
Accordingly, breach of separation of judicial power
may amount to negation of equality under Article
14. Stated thus, a legislation can be invalidated on
the basis of breach of the separation of powers since
such breach is negation of equality under Article 14
of the Constitution.
126.4. The superior judiciary (High Courts and
Supreme Court) is empowered by the Constitution
to declare a law made by the legislature (Parliament
and State Legislatures) void if it is found to have
transgressed the constitutional limitations or if it
infringed the rights enshrined in Part III of the
Constitution.
126.5. The doctrine of separation of powers applies
to the final judgments of the courts. The legislature
cannot declare any decision of a court of law to be
void or of no effect. It can, however, pass an
amending Act to remedy the defects pointed out by
a court of law or on coming to know of it aliunde. In
other words, a court's decision must always bind
unless the conditions on which it is based are so
fundamentally altered that the decision could not
have been given in the altered circumstances.
116
126.6. If the legislature has the power over the
subjectmatter and competence to make a validating
law, it can at any time make such a validating law
and make it retrospective. The validity of a
validating law, therefore, depends upon whether the
legislature possesses the competence which it
claims over the subjectmatter and whether in
making the validation law it removes the defect
which the courts had found in the existing law.
126.7. The law enacted by the legislature may
apparently seem to be within its competence but yet
in substance if it is shown as an attempt to interfere
with the judicial process, such law may be
invalidated being in breach of doctrine of separation
of powers. In such situation, the legal effect of the
law on a judgment or a judicial proceeding must be
examined closely, having regard to legislative
prescription or direction. The questions to be asked
are:
(i) Does the legislative prescription or
legislative direction interfere with the
judicial functions?
(ii) Is the legislation targeted at the
decided case or whether impugned law
requires its application to a case already
finally decided?
(iii) What are the terms of law; the issues
with which it deals and the nature of the
judgment that has attained finality?
If the answer to Questions (i) and (ii) is in the
affirmative and the consideration of aspects noted
in Question (iii) sufficiently establishes that the
117
impugned law interferes with the judicial functions,
the Court may declare the law unconstitutional.”
120. It could thus be seen that the Constitution Bench in
the aforesaid case held that, though a law enacted by the
Legislature may apparently seem to be within its competence
but yet in substance if it is shown as an attempt to interfere
with the judicial process, such law may be invalidated being
in breach of doctrine of separation of powers. The
Constitution Bench stipulated three questions to be asked in
such a situation, which are reproduced hereinabove.
121. We have already held that since the State Act is
referable to Entry 13 of List III of the Seventh Schedule to the
Constitution of India, it is within the competence of the State
Legislature. The question that will have to be considered is
whether it is an attempt to interfere with the judicial process.
For that, we will have to consider the three questions framed
by the Constitution Bench in the case of State of Tamil
Nadu v. State of Kerala and Another (supra). A perusal of
the various provisions of the State Act would clearly show
118
that the State Act has been enacted since the State
Government was aggrieved by various awards passed against
it. It was therefore found expedient, in the public interest, to
cancel the arbitration clause in the agreement, to revoke the
authority of the arbitrators appointed thereunder and to
enable the filing of appeals against the awards or decrees. As
already discussed hereinabove, most of the awards were
made “Rules of Court” prior to 1993. In many of the cases,
appeals were also preferred by the State Government. As
such, we find that the legislative prescriptions and legislative
directions in the State Act undoubtedly interfere with the
judicial functions. It is also clear that the legislation is
targeted at the awards passed which have become “Rule of
Court”. As already discussed hereinabove, the powers
exercised by the courts under Section 17 of the 1940 Act are
judicial powers of the State. As such, we are of the
considered view that question Nos. 1 and 2 as framed by the
Constitution Bench in the case of State of Tamil Nadu v.
State of Kerala and Another (supra) are required to be
answered in the affirmative. Upon consideration of the terms
119
of the State Act, the issues with which it deals, it is clear that
the State Act interferes with the judicial functions.
122. We are therefore of the considered view that the
State Act, which has the effect of annulling the awards which
have become “Rules of Court”, is a transgression on the
judicial functions of the State and therefore, violative of
doctrine of “separation of powers”. As such, the State Act is
liable to be declared unconstitutional on this count.
123. We may also gainfully refer to the observations of
this Court in the case of P. Tulsi Das and Others v. Govt.
of A.P. and Others
52
. In the said case, this Court, while
considering the legislative power of the State to enact a law,
which amounted to taking away the rights, which are already
accrued to the parties long back, has observed thus:
“14. On a careful consideration of the principles laid
down in the above decisions in the light of the fact
situation in these appeals we are of the view that
they squarely apply on all fours to the cases on
hand in favour of the appellants. The submissions
on behalf of the respondent State that the rights
derived and claimed by the appellants must be
under any statutory enactment or rules made under
Article 309 of the Constitution of India and that in
52 (2003) 1 SCC 364
120
other respects there could not be any acquisition of
rights validly, so as to disentitle the State to enact
the law of the nature under challenge to set right
serious anomalies which had crept in and deserved
to be undone, does not merit our acceptance. It is
by now well settled that in the absence of rules
under Article 309 of the Constitution in respect of a
particular area, aspect or subject, it is permissible
for the State to make provisions in exercise of its
executive powers under Article 162 which is
coextensive with its legislative powers laying
conditions of service and rights accrued to or
acquired by a citizen would be as much rights
acquired under law and protected to that extent.
The orders passed by the Government, from time to
time beginning from February 1967 till 1985 and at
any rate up to the passing of the Act, to meet the
administrative exigencies and cater to the needs of
public interest really and effectively provided
sufficient legal basis for the acquisition of rights
during the period when they were in full force and
effect. The orders of the High Court as well as the
Tribunal also recognised and upheld such rights
and those orders attained finality without being
further challenged by the Government, in the
manner known to law. Such rights, benefits and
perquisites acquired by the teachers concerned
cannot be said to be rights acquired otherwise than
in accordance with law or brushed aside and
trampled at the sweet will and pleasure of the
Government, with impunity. Consequently, we are
unable to agree that the legislature could have
validly denied those rights acquired by the
appellants retrospectively not only depriving them of
such rights but also enact a provision to repay and
restore the amounts paid to them to the State. The
provisions of the Act, though can be valid in its
operation “in futuro” cannot be held valid insofar as
it purports to restore status quo ante for the past
period taking away the benefits already available,
121
accrued and acquired by them. For all the reasons
stated above the reasons assigned by the majority
opinion of the Tribunal could not be approved in
our hands. The provisions of Sections 2 and 3(a)
insofar as they purport to take away the rights
from 1021967 and obligate those who had
them to repay or restore them back to the State
are hereby struck down as arbitrary,
unreasonable and expropriatory and as such are
violative of Articles 14 and 16 of the
Constitution of India. No exception could be
taken, in our view, to the prospective exercise of
powers thereunder without infringing the rights
already acquired by the appellants and the category
of the persons similarly situated whether
approached the courts or not seeking relief
individually. The provisions contained in Section 2
have to be read down so as to make it only
prospective, to save the same from the
unconstitutionality arising out of its retrospective
application.”
[emphasis supplied]
124. It could be seen that this Court has held that the
provisions of Sections 2 and 3(a) of the Andhra Pradesh
Education Service Untrained Teachers (Regulation of Services
and Fixation of Pay) Act, 1991 insofar as they purport to take
away the rights accrued in favour of the citizens and
requiring them to repay or restore them back to the State, are
arbitrary, unreasonable and expropriatory. It has, therefore,
122
been held that the said provisions are violative of Articles 14
and 16 of the Constitution of India.
125. As already discussed hereinabove, what has been
done by the State Act, is annulling the awards and the
judgments and decrees passed by the court vide which the
awards were made “Rule of Court”. As such, the rights which
accrued to the parties much prior to the enactment of the
State Act have been sought to be taken away by it.
126. Though, elaborate arguments have been advanced
before us on various other issues, since we have held that the
State Act is liable to be held unconstitutional on the ground
of encroachment upon the judicial powers of the State, we do
not find it necessary to deal with the submissions made on
behalf of the parties with regard to other issues.
CONCLUSION :
127. In the result, we hold as under:
(i)That the State Act in pith and substance is referable
to Entry 13 of List III of the Seventh Schedule to the
Constitution of India and not to the Entries 12, 13,
123
14 and 37 of List I of the Seventh Schedule nor to
Article 253 of the Constitution of India. The State
Act, therefore, is within the legislative competence of
the State Legislature. In any case, in view of the
Presidential assent under Article 254(2) of the
Constitution of India, the State Act would prevail
within the State of Kerala. The finding of the High
Court of Kerala, to the contrary, is erroneous in law;
(ii)That the finding in the case of G.C. Kanungo (supra)
to the effect that the powers exercised by the courts
in passing judgments and decrees for making the
arbitration awards “Rule of Court” is not an exercise
of judicial power, is per incuriam the provisions of the
1940 Act and the judgments of the Constitution
Bench in the cases of Harinagar Sugar Mills Ltd.
(supra) and Shankarlal Aggarwala and Others
(supra); and
(iii)That the High Court of Kerala is right in law in
holding that the State Act encroaches upon the
124
judicial power of the State and is therefore liable to
be struck down as being unconstitutional.
128. The present appeals are accordingly disposed of.
Pending application(s), if any, shall stand disposed of in the
above terms. No order as to costs.
129. Before we part with the judgment, we place on
record our deep appreciation for the valuable assistance
rendered by the learned counsel appearing on behalf of the
parties.
……..….......................J.
[L. NAGESWARA RAO]
…….........................J.
[B.R. GAVAI]
NEW DELHI;
MAY 04, 2022.
125
Legal Notes
Add a Note....