THE SECRETARY TO GOVT. OF KERALA, IRRIGATION DEPARTMENT VS JAMES VARGHESE AND OTHERS

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION DEPARTMENT VS JAMES VARGHESE AND OTHERS

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

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

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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.  

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 BACKGROUND:

2. The   High   Court   of   Kerala   at   Ernakulam,   by   the

impugned judgment dated 9th  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

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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

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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 14th 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

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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 subsection (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

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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

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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

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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 Others1

.

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  Orissa2

,  State  of  Gujarat  through

Chief Secretary and Another v. Amber Builders3

, 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   Contractors4

(hereinafter   referred   to   as   “MP   Rural   2012”),  Madhya

Pradesh Rural Road Development Authority and Another

v.   L.G.   Chaudhary   Engineers   and   Contractors5

(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

Others6

 and State of West Bengal v. Kesoram Industries

Ltd. and Others7

.  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

Others8

.

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 Others9

.

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   Others10 and  Sri

Venkataramana  Devaru  and  Others  v.  State  of  Mysore

and Others11

.

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

Limited12.     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 vis­à­vis 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

Others13

.

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 11th 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

Another14

.  Relying on the judgment of this Court in the case

of  S.   Jagannath   v.   Union   of   India   and   Others15

,  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 Others16

,  State  of  Bihar  and Others  v.

Bihar   Chamber   of   Commerce  and  Others17  and  Jayant

Verma and Others v. Union of India and Others18

.

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 Another19 and B.B. Rajwanshi v. State of U.P.

and Others20

.

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

Others21

.

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 Others22

.

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 Limited24.  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 23rd  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 23rd

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

Bombay25 and T. Barai v. Henry Ah Hoe and Another26

.

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 Others27

.

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 Others28

.

44. Relying on the judgments of this Court in the cases

of  Ashok   Kumar   alias   Golu   v.   Union   of   India   and

Others29

,  S.S.   Bola   and   Others   v.   B.D.   Sardana   and

Others30  and  Madras  Bar  Association  v.  Union  of   India

and   Another31

, 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

Another32

.

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   Others33 and  Deep   Chand   and   Others   v.

State of Uttar Pradesh and Others34

.

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

Others35

.

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

Others36

, 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 Another37

.

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

Others38  and  State  of  Kerala  and  Others   v.  T.M.  Peter

and  Others39.   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   Others40

, 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. Rishikesh40:

“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 widest58

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 11th  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   wellsettled   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 decisionmaking,   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   wellsettled   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   Tribunal41.   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  Others42, 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   Others43

, 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

Others44, 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   Others45

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 Another46, 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  Another47, 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   Contractor48

, 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

Others49

, 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 Another50

, 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  Another51

,

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  Others52.   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

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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,

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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,

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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,

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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

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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.

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