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.  
3
 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
4
Local Competitive Bidding Specification (hereinafter referred
to as “LCBS”) as envisaged by the World Bank Authorities
was   included   in   the   agreements   relating   to   the   works
connected with the said Project.  Clauses 51 and 52 of the
LCBS provided for the settlement of matters in dispute or
difference through arbitration.  The same was provided with
a view to enable speedy settlement of matters in dispute or
difference in  a just and equitable manner.   The  State of
Kerala   found   that   on   account   of   various   disputes   and
differences,   the   arbitration   references   did   not   have   the
desired effect inasmuch as several arbitrators had wrongly
and arbitrarily awarded unconscionable amounts against the
provisions of agreements and without material on record, in
collusion with the claimant contractors and officials of the
department, thereby causing heavy losses to the State.   As
such, the State of Kerala considered it necessary, in public
interest, to cancel the arbitration clauses in the agreements
executed in terms of LCBS, to revoke the authority of the
arbitrators appointed thereunder and to enable the filing of
appeals   against   the   awards   or   decrees   already   passed   in
5
certain arbitration references in respect of which the period
of limitation had expired.  As such, the State Act came to be
enacted with effect from 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
6
Government in their Order G.O. (Ms) No.
3/81/I&R dated the 20th January, 1981.
(2) Words and expressions used but not defined in
this Act and defined in 
(a) the Arbitration Act, 1940 (Central Act
10 of 1940); or 
(b) the Arbitration and Conciliation. Act,
1996 (Central Act 26 of 1996), in relation
to arbitration proceedings commenced on
or after the 25th day of January, 1996, 
shall have the meanings, respectively, assigned to
them in those Acts. 
Section   3   ­   Cancellation   of   arbitration   clauses
and revocation of authority of arbitrator
(1)   Notwithstanding   anything   contained   in   the
Indian Contract Act, 1872 (Central Act 9 of 1872) or
in the Arbitration Act, 1940 (Central Act 10 of 1940)
or   in   the   Arbitration   and   Conciliation   Act,   1996
(Central Act 26 of 1996) or in any other law for the
time being in force or in any judgement, decree or
order   of   any   court   or   other   authority   or   in   any
agreement or other instrument, 
(i)   the   arbitration   clauses   in   every
agreement shall stand cancelled; 
(ii)   the   authority   of   an   arbitrator
appointed under an agreement referred to
in clause (i) shall stand revoked; and 
(iii) any agreement referred to in clause (i)
shall cease to have effect in so far as it
relates   to   the   matters   in   dispute   or
difference referred, 
with effect on and from the date of commencement
of this Act. 
(2) Nothing in sub­section (1) shall be a bar for any
party   to   a   agreement   to   file   a   suit   in   the   court
having   jurisdiction   in   the   matter   to   which   the
7
agreement relates and all questions regarding the
validity   or   effect   of   the   agreement   between   the
parties to the agreement or persons claiming under
them   and   all   matters   in   dispute   or   difference
between   the   parties   to   the   agreement   shall   be
decided by the court, as if the arbitration clauses
had never been included in the agreement.
Section 4 ­ Period of limitation for filing suits
Notwithstanding   anything   contained   in   the
Arbitration Act, 1940 (Central Act 10 of 1940) or in
the Arbitration and Conciliation Act, 1996 (Central
Act   26   of   1996)   or   in   the   Limitation   Act,   1963
(Central Act 36 of 1963), a suit under sub­section
(2) of section 3 may be filed within six months from
the date of commencement of this  Act  or within
such period as is allowed by the provisions of the
Limitation Act, 1963 (Central Act 36 of 1963), in
relation to such suits, whichever is later. 
Section 5 ­ Power of Government to  file appeal
against certain awards
Notwithstanding   anything   contained   in   the
Arbitration Act, 1940 (Central Act 10 of 1940) or in
the Arbitration and Conciliation Act, 1996 (Central
Act   26   of   1996)   or   in   the   Limitation   Act,   1963
(Central Act 36 of 1963) or in any other law for the
time being in force or in any judgement, decree or
order   of   any   court   or   other   authority   or   in   any
agreement or other instrument, where it appears to
the Government that any award passed is not in
accordance with the terms of the agreement or there
was   failure   to   produce   relevant   data   or   other
particulars before the Arbitrator before passing the
award or the award passed is of unconscionable
amounts, they may file appeal against such award
within ninety days of the date of commencement of
this Act. 
Section 6 ­ Procedure before court
8
For the removal of doubts, it is hereby clarified that
the provisions of the Code of Civil Procedure, 1908
(Central   Act   5   of   1908),   shall   apply   to   all
proceedings before court and to all appeals under
this Act. 
Section 7 ­ Arbitration Act not to apply
The   provisions   of   this   Act   shall   apply   to   any
proceedings   instituted   under   this   Act
notwithstanding anything inconsistent herein with
the provisions of the Arbitration Act, 1940 (Central
Act 10 of 1940) or the Arbitration and Conciliation
Act, 1996 (Central Act 26 of 1996) or any other law
for the time being in force. 
Section 8 ­ Repeal and saving
(1) The Kerala Revocation of Arbitration Clauses and
Reopening of Awards Ordinance, 1998 (6 of 1998),
is hereby repealed. 
(2) Notwithstanding such repeal, anything done or
deemed to have been done or any action taken or
deemed   to   have   been   taken   under   the   said
Ordinance shall be deemed to have been done or
taken under this Act.”
5. Section 3 of the State Act provides for “Cancellation
of   arbitration   clauses   and   revocation   of   authority   of
arbitrator”.   Sub­section (1) of Section 3 of the State Act
provides   that   notwithstanding   anything   contained   in   the
Indian Contract Act, 1872 or in the Arbitration Act, 1940
(hereinafter referred to as “1940 Act”) or in the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as “1996
9
Act”) or in any other law for the time being in force or in any
judgment, decree or order of any court or other authority or
in   any   agreement   or   other   instrument,   the   arbitration
clauses   in   every   agreement   shall   stand   cancelled;   the
authority   of   an   arbitrator   appointed   under   an   agreement
referred   to   in   clause   (i)   shall   stand   revoked;   and   any
agreement referred to in clause (i) shall cease to have effect
insofar as it relates to the matters in dispute or difference
referred.  The same shall be with effect on and from the date
of commencement of the State Act.  Sub­section (2) of Section
3 of the State Act provides that nothing provided in 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
13
account   the   United   Nations   Commission   on
International   Trade   Law   (for   short   “UNCITRAL”)
Model Law and Rules.   The 1996 Act was enacted
with the clear intention of harmonizing concepts on
arbitration and conciliation of different legal systems
of the world on the basis of UNCITRAL Model Law
and Rules.   As such, the matters dealt with by the
1996 Act were not the matters merely falling under
Entry 13 of List III of the Seventh Schedule to the
Constitution of India but also falling within Entries
10 to 14 of List I of the Seventh Schedule to the
Constitution of India;
(ii) Since   Entries   10   to   14   of   List   I   of   the   Seventh
Schedule   to   the   Constitution   of   India   deal   with
foreign   affairs,   relationship   with   foreign   countries,
United   Nations   Organization,   participation   in
international   conferences,   associations   and   other
bodies and implementing of decisions made thereat,
entering   into   treaties   and   agreements   and
implementing   of   treaties,   agreements   and
14
conventions, the issue of applicability of Article 253
of the Constitution of India would arise.  As such, the
Union Parliament had an overriding legislative power
to make any law for the whole or any part of the
territory   of   India.     Once   a   Central   Legislation
referable to Article 253 of the Constitution of India
comes into being, then the State Act cannot be said
to be valid only in view of the Presidential assent
received under Article 254 (2) of the Constitution of
India;
(iii) That the executive power of the Union is coextensive
with the legislative power of the Parliament under
Article 73(1)(b) of the Constitution of India.  As such,
the 1996 Act is enacted by the Central Legislation in
order   to   give   effect   to   the   executive   power   of   the
Government of India, to give effect to the decisions
taken at the international conference.  As such, if it
is held that the Presidential assent under Article 254
(2) of the Constitution of India would validate the
15
State Act, then the very purpose of Article 253 of the
Constitution of India would be destroyed;
(iv) That LCBS can be traced only to entries in the Union
List, in particular, to Entry 37, as also, Entries 10
and   14   of   List   I   of   the   Seventh   Schedule   to   the
Constitution   of   India.     Entry   37   in   List   I   of   the
Seventh Schedule to the Constitution of India deals
with   foreign   loans.   That   Article   292   of   the
Constitution   of   India   specifically   deals   with   the
borrowing   by   the   Government   of   India.     That   the
assistance provided by the World Bank also primarily
falls   within   the   executive   power   of   the   Union
referable to Article 73 (1)(b) of the Constitution of
India and as such, the State Act was beyond the
legislative competence of the State Legislature; 
(v) That   the   proceedings   which   were   made   subject
matter of the State Act, could have been dealt with
only within the Judicial power of the State through
the courts in terms of the provisions of the 1940 Act
and 1996 Act.  As such, the impugned legislation was
16
an encroachment into the Judicial power of the State
which was exercised through the courts in terms of
the laws already made and in force.  It infracts the
quality   doctrine   and   the   avowed   constitutional
principles insulating the Judicial function which is
cardinal   to   deliverance   of   justice   as   part   of   the
seminal constitutional values, including separation of
powers; and 
(vi) That there was nothing on record to show that any
relevant   material   had   gained   the   attention   of   the
legislature except the superfluous statements in the
Preamble to the State Act with regard to misconduct
by arbitrators.  As such, the State Act suffers on the
said count also.
14. We have extensively heard Shri Jaideep Gupta, and
Shri Pallav Shishodia, learned Senior Counsel appearing on
behalf of the appellants. Shri Krishnan Venugopal, learned
Senior   Counsel   led   the   arguments   on   behalf   of   the
respondents.     The   arguments   of   Shri   Venugopal   were
concisely   supplemented   by   Shri   P.C.   Sen,   learned   Senior
17
Counsel, Shri C.N. Sreekumar, learned Senior Counsel, Smt.
Haripriya   Padmanabhan,   learned   counsel,   Shri   Kuriakose
Varghese,   learned   counsel,   Shri   John   Mathew,   learned
counsel and Shri Roy Abraham, learned counsel.
 SUBMISSIONS ON BEHALF OF THE APPELLANTS:
15. Shri Gupta, learned Senior Counsel submitted that
the impugned judgment of the High Court of Kerala suffers
on various grounds.  Shri Gupta further submitted that the
High Court of Kerala committed a basic error in holding that
the 1996 Act is universally applicable.  He submitted that the
1996   Act   would   be   applicable   only   when   there   is   an
agreement between the parties, whereby they have agreed to
refer their dispute to arbitration.   It is therefore submitted
that what has been done by the State Act is a cancellation of
contract by a statute and as such, the State Act or a part
thereof would be referable to Entry 7 of List III of the Seventh
Schedule to the Constitution of India.  
16. Shri Gupta submitted that the rest of the legislation
deals with the consequences of cancellation of the Arbitration
18
clause in the Agreement.  It is submitted that on cancellation
of an agreement, sub­section (2) of Section 3 of the State Act
provides an opportunity to any party to the agreement to file
a suit in a competent civil court.  He submitted that Section
4 of the State Act extends the period of limitation for filing of
the   suit.     Section   5   of   the   State   Act   enables   the   State
Government   to   challenge   the   award   on   various   grounds
stated therein, within a specified period.   It is, therefore,
submitted that the State Act is referable to Entries 7 and 13
of List III of the Seventh Schedule to the Constitution of India
and as such, within the legislative competence of the State
Legislature.
17. Shri   Gupta   further   submitted   that   the   legislative
competence   of   the   State   Legislature   can   only   be
circumscribed by the express prohibition contained in the
Constitution of India itself.  It is submitted that unless and
until   there   is   any   provision   in   the   Constitution   of   India
expressly   prohibiting   legislation   on   the   subject   either
absolutely   or   conditionally,   there   can   be   no   fetter   or
limitation on the plenary power which the State Legislature
19
enjoys to legislate on the topic enumerated in Lists II and III
of the Seventh Schedule to the Constitution of India.   In
support of this proposition, he relies on the judgment of this
Court in the case of Maharaj  Umeg Singh and Others v.
State of Bombay and 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
120
other respects there could not be any acquisition of
rights validly, so as to disentitle the State to enact
the law of the nature under challenge to set right
serious anomalies which had crept in and deserved
to be undone, does not merit our acceptance. It is
by now well settled that in the absence of rules
under Article 309 of the Constitution in respect of a
particular area, aspect or subject, it is permissible
for the State to make provisions in exercise of its
executive   powers   under   Article   162   which   is
coextensive   with   its   legislative   powers   laying
conditions   of   service   and   rights   accrued   to   or
acquired   by   a   citizen   would   be   as   much   rights
acquired under law and protected to that extent.
The orders passed by the Government, from time to
time beginning from February 1967 till 1985 and at
any rate up to the passing of the Act, to meet the
administrative exigencies and cater to the needs of
public   interest   really   and   effectively   provided
sufficient legal basis for the acquisition of rights
during the period when they were in full force and
effect. The orders of the High Court as well as the
Tribunal   also   recognised  and   upheld   such   rights
and   those   orders   attained   finality   without   being
further   challenged   by   the   Government,   in   the
manner known to law. Such rights, benefits and
perquisites   acquired   by   the   teachers   concerned
cannot be said to be rights acquired otherwise than
in   accordance   with   law   or   brushed   aside   and
trampled   at   the   sweet   will   and   pleasure   of   the
Government, with impunity. Consequently, we are
unable   to   agree   that   the   legislature   could   have
validly   denied   those   rights   acquired   by   the
appellants retrospectively not only depriving them of
such rights but also enact a provision to repay and
restore the amounts paid to them to the State. The
provisions of the Act, though can be valid in its
operation “in futuro” cannot be held valid insofar as
it purports to restore status quo ante for the past
period taking away the benefits already available,
121
accrued and acquired by them. For all the reasons
stated above the reasons assigned by the majority
opinion of the Tribunal could not be approved in
our hands. The provisions of Sections 2 and 3(a)
insofar as they  purport to  take away the rights
from   10­2­1967   and   obligate   those   who   had
them to repay or restore them back to the State
are   hereby   struck   down   as   arbitrary,
unreasonable and expropriatory and as such are
violative   of   Articles   14   and   16   of   the
Constitution   of   India.  No   exception   could   be
taken, in our view, to the prospective exercise of
powers   thereunder   without   infringing   the   rights
already acquired by the appellants and the category
of   the   persons   similarly   situated   whether
approached   the   courts   or   not   seeking   relief
individually. The provisions contained in Section 2
have   to   be   read   down   so   as   to   make   it   only
prospective,   to   save   the   same   from   the
unconstitutionality arising out of its retrospective
application.”
[emphasis supplied]
124. It could be seen that this Court has held that the
provisions   of   Sections   2   and   3(a)   of   the   Andhra   Pradesh
Education Service Untrained Teachers (Regulation of Services
and Fixation of Pay) Act, 1991 insofar as they purport to take
away   the   rights   accrued   in   favour   of   the   citizens   and
requiring them to repay or restore them back to the State, are
arbitrary, unreasonable and expropriatory.  It has, therefore,
122
been held that the said provisions are violative of Articles 14
and 16 of the Constitution of India.
125. As already discussed hereinabove, what has been
done   by   the   State   Act,   is   annulling   the   awards   and   the
judgments and decrees passed by the court vide which the
awards were made “Rule of Court”.  As such, the rights which
accrued to the parties much prior to the enactment of the
State Act have been sought to be taken away by it.  
126. Though, elaborate arguments have been advanced
before us on various other issues, since we have held that the
State Act is liable to be held unconstitutional on the ground
of encroachment upon the judicial powers of the State, we do
not find it necessary to deal with the submissions made on
behalf of the parties with regard to other issues. 
 CONCLUSION:
127. In the result, we hold as under:
(i) That the State Act in pith and substance is referable
to Entry 13 of List III of the Seventh Schedule to the
Constitution of India and not to the Entries 12, 13,
123
14 and 37 of List I of the Seventh Schedule nor to
Article 253 of the Constitution of India.   The State
Act, therefore, is within the legislative competence of
the State Legislature.   In any case, in view of the
Presidential   assent   under   Article   254(2)   of   the
Constitution   of   India,   the   State   Act   would   prevail
within the State of Kerala.   The finding of the High
Court of Kerala, to the contrary, is erroneous in law;
(ii) That the finding in the case of G.C. Kanungo (supra)
to the effect that the powers exercised by the courts
in  passing  judgments and  decrees for making the
arbitration awards “Rule of Court” is not an exercise
of judicial power, is per incuriam the provisions of the
1940   Act   and   the   judgments   of   the   Constitution
Bench in the cases of  Harinagar Sugar Mills Ltd.
(supra)   and  Shankarlal   Aggarwala   and   Others
(supra); and
(iii) That   the   High   Court   of   Kerala   is   right   in   law   in
holding   that   the   State   Act   encroaches   upon   the
124
judicial power of the State and is therefore liable to
be struck down as being unconstitutional.
128. The   present   appeals   are   accordingly   disposed   of.
Pending application(s), if any, shall stand disposed of in the
above terms. No order as to costs.
129. Before   we   part   with   the   judgment,   we   place   on
record   our   deep   appreciation   for   the   valuable   assistance
rendered by the learned counsel appearing on behalf of the
parties.
……..….......................J.
[L. NAGESWARA RAO]
 …….........................J.       
[B.R. GAVAI]
NEW DELHI;
MAY 04, 2022.
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