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

THE SECRETARY TO GOVT. OF KERALA, IRRIGATIONDEPARTMENT AND OTHERS

JAMES VARGHESE AND OTHERS

(Civil Appeal No. 6258 of 2014)

MAY 04, 2022

[L. NAGESWARA RAO AND B. R. GAVAI, JJ.]

Kerala Revocation of Arbitration Clauses and Reopening ofAwards Act, 1998 – Constitutional validity of – Challenged, onground of legislative competence of the State Legislature –Agreements relating to State Irrigation Project – Disputes –Arbitration references – State enacted Kerala Act of 1998 whichprovided for cancellation of arbitration clauses in the agreements,revocation of authority of the arbitrators appointed thereunder andfiling of appeals against awards or decrees already passed in certainarbitration references in respect of which period of limitation hadexpired – Whether the State Legislature had the legislativecompetence to enact the Kerala Act of 1998 – Held: The Kerala Actof 1998 in pith and substance is referable to Entry 13 of List III ofSeventh Schedule to the Constitution and not to the Entries 12, 13,14 and 37 of List I of the Seventh Schedule nor to Art.253 of theConstitution – The Kerala Act of 1998, therefore, is within thelegislative competence of the State Legislature – In any case, inview of the Presidential assent u/Art.254(2) of the Constitution, theKerala Act of 1998 would prevail within the State of Kerala –Constitution of India, 1950 – Seventh Schedule, List III, Entry 13and Art.254(2) – Arbitration Act, 1940 – Doctrines / Principles –Doctrine of pith and substance.

Kerala Revocation of Arbitration Clauses and Reopening ofAwards Act, 1998 – Constitutional validity of – Challenged, onground of encroachment upon judicial powers of the State –Agreements relating to State Irrigation Project – Disputes –Arbitration references – State enacted Kerala Act of 1998 whichprovided for cancellation of arbitration clauses in the agreements,revocation of authority of the arbitrators appointed thereunder andfiling of appeals against awards or decrees already passed in certain

CDEFG

Aarbitration references in respect of which period of limitation hadexpired – Whether the Kerala Act of 1998 encroached on judicialpowers of the courts and as such, was hit by the doctrine ofseparation of powers – Held: Though law enacted by theLegislature may apparently seem to be within its competence but yetin substance if it is shown as an attempt to interfere with the judicialBprocess, such law may be invalidated being in breach of doctrineof separation of powers – The Kerala Act of 1998, which has theeffect of annulling the awards which have become “Rules of Court”,is transgression on the judicial functions of the State and therefore,violative of doctrine of “separation of powers” – The Kerala Act ofC1998 encroaches upon the judicial powers of the State and istherefore liable to be struck down as being unconstitutional on thiscount – Doctrines/Principles – Doctrine of “separation of powers”.Constitution of India, 1950 – Seventh Schedule, List III, Entry13 –Arbitration – Legislative competence of the State Legislature –DHeld: The subject of arbitration finds place in Entry 13 of List III,i.e., the Concurrent List of the Seventh Schedule to the Constitution– Since the subject of arbitration is in the Concurrent List, the Statecan also make law with regard to the same.

Constitution of India, 1950 – Art.254, clause (2) – ConflictEbetween the Central law and the State law – Held: Ordinarily, ifthere is any conflict between the Central law and the State law, inview of clause (1) of Art.254, the Central law would prevail –However, in view of clause (2) of Art.254, the State law would prevailwhen it is reserved for consideration and receives assent of thePresident of India.F

Legislature – State Legislature – Legislative competence of –Challenge to, on ground that it encroached upon the legislativecompetence of the Parliament – Held: In such situation, thedoctrine of pith and substance has to be applied to determine as towhich entry does given piece of legislation relate to – Once it isGso determined, any incidental trenching on the field reserved to theother legislature is of no consequence – Predominance of the UnionList would not prevent the State Legislature from dealing with anymatter within List II, though it may incidentally affect any item inList I – If the State is competent to legislate on the subject, anyHincidental encroachment on any item in List I would not affect the

State Legislature – Constitution of India, 1950 – Seventh Schedule– Lists I, II and III.

Arbitration Act, 1940 – Powers exercised by the court underprovisions of the Act in passing judgments and decrees for makingthe arbitration awards “Rule of Court” – Nature of – Held: Theyare judicial powers – Power to make an arbitration award “Rule ofCourt” is not mechanical power.

Doctrines / Principles – “Separation of powers doctrine”under the Constitution – Discussed.

United Nations Commission on International Trade Law(UNCITRAL) Model Law on International Commercial Arbitration– Resolution dated 11[th] December 1985 passed by the United NationsGeneral Assembly – Effect of – Held: The General Assembly onlyrecommended the adoption of UNCITRAL Model Law insofar asinternational commercial arbitration practices are concerned –Parliament, with certain modifications, has given due considerationto UNCITRAL Model Law for legislation on domestic arbitration –However, that cannot by itself be said to be binding on the Parliamentto enact the law in accordance with UNCITRAL Model Law –Arbitration and Conciliation Act, 1996.

Disposing the appeals, the Court

HELD:

LEGISLATIVE COMPETENCE OFTHE STATELEGISLATURE TO ENACTTHE KERALA REVOCATION OFARBITRATION CLAUSES AND REOPENING OFAWARDSACT, 1998:

1.1. The subject of arbitration finds place in Entry 13 ofList III, i.e., the Concurrent List of the Seventh Schedule to theConstitution of India. The legislation pertaining to the said entrycould be made either by the Parliament or the State Legislature.Since the subject of arbitration is in the Concurrent List, theState can also make law with regard to the same. The onlyrequirement is that to validate such law, it is necessary toreserve the same for consideration of the President of India andobtain his assent. When such an assent is obtained, the provisionsof the State Law or Act so enacted would prevail in the State

Aconcerned, notwithstanding its repugnancy with an earlierParliamentary enactment made on the subject. In the presentcase also, the Kerala Revocation of Arbitration Clauses andReopening of Awards Act, 1998 (the State Act) was reserved forconsideration of the President of India and the assent of thePresident of India has been obtained. As such, the State Act soBenacted would prevail in the State of Kerala. [Para 62][423-G-H;424-A-B]

1.2. Ordinarily, if there is any conflict between the Centrallaw and the State law, in view of clause (1) of Article 254 of theConstitution of India, the Central law would prevail. However, inCview of clause (2) of Article 254 of the Constitution of India, theState law would prevail when it is reserved for consideration andreceives assent of the President of India. [Para 66][425-G-H;426-A]

1.3. When the legislative competence of State LegislatureDis questioned on the ground that it encroaches upon thelegislative competence of the Parliament, since some entries arebound to be overlapping, in such situation, the doctrine of pithand substance has to be applied to determine as to which entrydoes given piece of legislation relate to. Once it is soEdetermined, any incidental trenching on the field reserved to theother legislature is of no consequence. The court has to look atthe substance of the matter. The true character of the legislationhas to be ascertained. Regard must be had to the enactment as awhole, to its main objects and to the scope and effect of itsprovisions. Incidental and superficial encroachments are to beFdisregarded. The predominance of the Union List would notprevent the State Legislature from dealing with any matter withinList II, though it may incidentally affect any item in List I.[Para 71][431-D-G]

1.4. If one looks at the scheme of the State enactment, theGsubject matter of the enactment is arbitration. If the State iscompetent to legislate on the subject, any incidentalencroachment on any item in List I would not affect the StateLegislature. [Para 72][431-G-H]

THE SECRETARY TO GOVT. OF KERALA, IRRIGATIONDEPARTMENT v. JAMES VARGHESE

State of West Bengal v. Kesoram Industries Ltd. andOthers (2004) 10 SCC 201 : [2004] 1 SCR 564 –followed.

G.C. Kanungo v. State of Orissa, (1995) 5 SCC 96:[1995] 1 Suppl. SCR 510; Madhya Pradesh Rural RoadDevelopment Authority and Another v. L.G. ChaudharyEngineers and Contractors (2018) 10 SCC 826 and G.Mohan Rao and Others v. State of Tamil Nadu andOthers, 2021 SCC online SC 440 – relied on.

Maharaj Umeg Singh and Others v. State of Bombayand Others [1955] 2 SCR 164; State of Gujarat throughChief Secretary and Another v. Amber Builders (2020)2 SCC 540; Madhya Pradesh Rural Road DevelopmentAuthority and Another v. L.G. Chaudhary Engineers andContractors (2012) 3 SCC 495 : [2012] 2 SCR 162;Hoechst Pharmaceutical Ltd. and Others v. State ofBihar and Others (1983) 4 SCC 45 : [1983] 3 SCR130; Kavalappara Kottarathil Kochuni @ Moopil Nayarv. States of Madras and Kerala and Others [1960] 3SCR 887; M. K. Ranganathan v. Government of Madrasand Others [1955] 2 SCR 374; Calcutta Gas Company(Proprietary) Ltd. v. State of West Bengal and Others[1962] Supp 3 SCR 1; Sri Venkataramana Devaru andOthers v. State of Mysore and Others [1958] SCR 895;Fuerst Day Lawson Limited v. Jindal Exports Limited(2011) 8 SCC 333 : [2011] 11 SCR 1; Rajiv Sarin andAnother v. State of Uttarakhand and Others (2011) 8SCC 708 : [2011] 9 SCR 1012; Maganbhai IshwarbhaiPatel Etc. v. Union of India and Another (1970) 3 SCC400 : [1969] 3 SCR 254; State of Bihar and Others v.Bihar Chamber of Commerce and Others (1996) 9 SCC136 : [1996] 2 SCR 184; Jayant Verma and Others v.Union of India and Others (2018) 4 SCC 743 : [2018]2 SCR 679; Suraj Mall Mohta and Co. v. A.V.Visvanatha Sastri and Another [1955] 1 SCR 448; B.B.Rajwanshi v. State of U.P. and Others (1988) 2 SCC415 : [1988] 3 SCR 469; Satish Kumar and Others v.Surinder Kumar and Others [1969] 2 SCR 244; Andhra

Pradesh Dairy Development Corporation Federationv. B. Narasimha Reddy and Others (2011) 9 SCC 286:[2011] 14 SCR 1; Ssangyong Engineering andConstruction Company Limited v. National HighwaysAuthority of India (NHAI) (2019) 15 SCC 131 : [2019]7 SCR 522; SREI Infrastructure Finance Limited v. TuffDrilling Private Limited (2018) 11 SCC 470 : [2017]12 SCR 933; Saverbhai Amaidas v. State of Bombay[1955] 1 SCR 799; T. Barai v. Henry Ah Hoe andAnother (1983) 1 SCC 177 : [1983] 1 SCR 90; GramPanchayat of Village Jamalpur v. Malwinder Singh andOthers (1985) 3 SCC 661 : [1985] 2 Suppl.SCR 28; State of Maharashtra v. Mrs. Kamal SukumarDurgule and Others (1985) 1 SCC 234 : [1985] 2 SCR 129; Ashok Kumar alias Golu v. Union of India andOthers (1991) 3 SCC 498 : [1991] 2 SCR 858; S.S.Bola and Others v. B.D. Sardana and Others (1997) 8SCC 522 : [1997] 2 Suppl. SCR 507; Madras BarAssociation v. Union of India and Another 2021 SCCOnLine SC 463; State of Kerala and Others v. MarAppraem Kuri Company Limited and Another (2012) 7SCC 106 : [2012 4 SCR 448; State of Tamil Nadu andOthers v. K. Shyam Sunder and Others (2011) 8 SCC737 : [2011] 11 SCR 1094; Deep Chand and Others v.State of Uttar Pradesh and Others [1959] Supp 2 SCR8; Ladli Construction Co. (P) Ltd. v. Punjab PoliceHousing Corpn. Ltd. and Others (2012) 4 SCC 609 :[2012] 4 SCR 780; Hindustan Construction Co. Ltd.and Another v. Union of India and Others (2020) 17SCC 324: [2019] 17 SCR 331; K. Nagaraj and Othersv. State of Andhra Pradesh and Another (1985) 1 SCC523 : [1985] 2 SCR 579; Nagpur Improvement Trustand Another v. Vithal Rao and Others (1973) 1 SCC500; State of Kerala and Others v. T.M. Peter and Others(1980) 3 SCC 554; Cauvery Water Disputes Tribunal,1993 Supp (1) SCC 96 (2) : [1991] 2 Suppl. SCR 497and State of Bombay and Another v. United Motors(India) Limited and Others [1953] SCR 1069 – referredto.

WHETHER THE ARBITRATION AND CONCILIATIONACT, 1996 HAVING BEEN ENACTED BY THE PARLIAMENTUNDER ARTICLE 253 OF THE CONSTITUTION AND INACCORDANCE WITH THE DECISION TAKEN AT THEINTERNATIONAL CONFERENCE TO IMPLEMENT THEUNCITRAL MODEL LAW, THE STATE LEGISLATURE ISNOT COMPETENT TO ENACT THE STATE ACT.

2.1. The Preamble of the Arbitration and Conciliation Act,1996 reveals that the recommendation of the General Assemblyof the United Nations is for adopting UNCITRAL Model Lawinsofar as international commercial arbitrations are concerned.Further, paragraphs (2) and (3) of the Statement of Objects andReasons of the 1996 Act clearly reveals that the General Assemblyof the United Nations has recommended that all countries givedue consideration to the UNCITRAL Model Law, in view of thedesirability of uniformity of the law of arbitral procedures and thespecific needs of international commercial arbitration practices.There is thus no binding decision at the General Assembly of theUnited Nations to implement the UNCITRAL Model Law. In anycase, that recommendation is with regard to only internationalcommercial arbitration practices. No doubt that the Parliament,with certain modifications, has given due consideration to theUNCITRAL Model Law for legislation on the domesticarbitration. However, that cannot by itself be said to be bindingon the Parliament to enact the law in accordance with UNCITRALModel Law. [Paras 77, 78 and 79][433-D-E; 434-D-F]

2.2. perusal of the Resolution dated 11[th] December 1985passed by the United Nations General Assembly (40/72. ModelLaw on International Commercial Arbitration of the UnitedNations Commission on International Trade Law) clearly revealsthat what has been done by the United Nations General Assemblyvide the aforesaid Resolution is to recommend to all the Statesto give due consideration to the Model Law on internationalcommercial arbitration. However, it does not create any bindingobligation on the States to enact the UNCITRAL Model Law asit is. [Paras 80, 81][435-G-H]

A2.3. The 1996 Act is enacted on the basis of the Resolutionpassed by the General Assembly of the United Nations in 1985,whereby the General Assembly only recommended the adoptionof UNCITRAL Model Law insofar as international commercialarbitration practices are concerned. The Resolution of the GeneralAssembly of the United Nations is only recommendatory in natureBand there is no binding decision taken thereat. [Para 85][437-F-H]

S. Jagannath v. Union of India and Others (1997) 2SCC 87 : [1996] 9 Suppl. SCR 848 and Mantri TechzonePrivateLimited v. Forward Foundation and OthersC(2019) 18 SCC 494 – held inapplicable.STATE LEGISLATURE’S ENCROACHMENT ONJUDICIAL POWERS:

3.1. The State Act is liable to be held unconstitutional onthe ground of encroachment upon the judicial powers of the State.D[Para 126][469-D]

3.2. In the present case, all the awards so also the judgmentsand decrees passed by the civil courts making such awards “Rulesof Court” have been passed under the Arbitration Act, 1940. Theperusal of the scheme of the Arbitration Act, 1940 would itselfEreveal that the passing of the judgment and decree under Section17 of the 1940 Act is not mere formality. The judgment can bepronounced only when the court is satisfied that no cause is madeout for remitting the award or setting aside the award. The courtis also entitled to remit or modify the awards. As such, it cannotbe said that the court, while passing judgment, which is followedFby decree, does not exercise judicial power. The court is notsupposed to act mechanically and be Post-Office. The powersexercised by the court under the provisions of the 1940 Act arejudicial powers and the power to make an award “Rule of Court”is not mechanical power. [Paras 94, 100 and 113][444-H; 445-GA; 447-E-G; 461-A-B]

3.3. Though law enacted by the Legislature may apparentlyseem to be within its competence but yet in substance if it isshown as an attempt to interfere with the judicial process, suchlaw may be invalidated being in breach of doctrine of separationof powers. [Para 120][466-D-E]H

3.4. perusal of the various provisions of the State Actwould clearly show that the State Act has been enacted since theState Government was aggrieved by various awards passed againstit. It was therefore found expedient, in the public interest, tocancel the arbitration clause in the agreement, to revoke theauthority of the arbitrators appointed thereunder and to enablethe filing of appeals against the awards or decrees. Most of theawards were made “Rules of Court” prior to 1993. In many ofthe cases, appeals were also preferred by the State Government.As such, it is found that the legislative prescriptions andlegislative directions in the State Act undoubtedly interfere withthe judicial functions. It is also clear that the legislation is targetedat the awards passed which have become “Rule of Court”. Thepowers exercised by the courts under Section 17 of the 1940 Actare judicial powers of the State. Upon consideration of the termsof the State Act, the issues with which it deals, it is clear that theState Act interferes with the judicial functions. [Para 121][466-G-H; 467-A-C]

3.5. What has been done by the State Act, is annulling theawards and the judgments and decrees passed by the court videwhich the awards were made “Rule of Court”. As such, the rightswhich accrued to the parties much prior to the enactment of theState Act have been sought to be taken away by it. The State Act,which has the effect of annulling the awards which have become“Rules of Court”, is transgression on the judicial functions ofthe State and therefore, violative of doctrine of “separation ofpowers”. As such, the State Act is liable to be declaredunconstitutional on this count. [Paras 122, 125][467-C-D;469-C]

G.C. Kanungo v. State of Orissa (1995) 5 SCC 96 :[1995] 1 Suppl. SCR 510 – held per incuriam and alsohit by rule of sub silentio.

Harinagar Sugar Mills Ltd. v. Shyam SundarJhunjhunwala and Others [1962] 2 SCR 339;Shankarlal Aggarwala and Others v. ShankarlalPoddar and Others (1964) 1 SCR 717; Bengal ImmunityCompany Limited v. State of Bihar and Others [1955] 2SCR 603; SBP & Co. v. Patel Engineering Ltd. and

AAnother (2005) 8 SCC 618 : [2005] 4 Suppl. SCR 688and State of Tamil Nadu v. State of Kerala and Another(2014) 12 SCC 696 : [2014] 12 SCR 875 – followed.

State of U.P. and Another v. Synthetics and ChemicalsLtd. and Another (1991) 4 SCC 139: [1991] 3 SCR 64;BSundeep Kumar Bafna v. State of Maharashtra andAnother (2014) 16 SCC 623 : [2014] 4 SCR 486; SteelAuthorityof India Ltd. v. J.C. Budharaja, Governmentand Mining Contractor (1999) 8 SCC 122 : [1999]2 Suppl. SCR 155; P. Tulsi Das and Others v. Govt. ofA.P. and Others (2003) 1 SCC 364 : [2002] 3 Suppl.CSCR 306 and Ramachandra Reddy & Co. v. State ofA.P. and Others (2001) 4 SCC 241 : [2001] 2 SCR 186– relied on.

CONCLUSION:D

D4.1. The State Act in pith and substance is referable to Entry13 of List III of the Seventh Schedule to the Constitution of Indiaand not to the Entries 12, 13, 14 and 37 of List I of the SeventhSchedule nor to Article 253 of the Constitution of India. The StateAct, therefore, is within the legislative competence of the StateLegislature. In any case, in view of the Presidential assent underEArticle 254(2) of the Constitution of India, the State Act wouldprevail within the State of Kerala. The finding of the HighCourt of Kerala, to the contrary, is erroneous in law.[Para 127][469-E-G]

4.2. The finding in the case of G.C. Kanungo to the effectFthat the powers exercised by the courts in passing judgmentsand decrees for making the arbitration awards “Rule of Court”is not an exercise of judicial power, is per incuriam the provisionsof the 1940 Act and the judgments of the Constitution Bench inthe cases of Harinagar Sugar Mills Ltd. and Shankarlal AggarwalaGand Others. [Para 127][469-G-H]

4.3. The High Court of Kerala is right in law in holding thatthe State Act encroaches upon the judicial power of the State andis therefore liable to be struck down as being unconstitutional.[Para 127][470-A-B]

THE SECRETARY TO GOVT. OF KERALA, IRRIGATIONDEPARTMENT v. JAMES VARGHESE

Case Law Reference

400SUPREME COURT REPORTS

[2022] 3 S.C.R.

CIVIL APPELLATE JURISDICTION : Civil Appeal No.6258of 2014.

From the Judgment and Order dated 09.07.2013 of the High Courtof Kerala at Ernakulam in O.P. No.4206 of 1998.

With

Civil Appeal Nos. 9236, 9241, 9226, 6268, 6264, 6265, 6266, 6260,6262, 6259, 6267 of 2014, Civil Appeal No.295 of 2015, Civil AppealNos.6261, 8995, 9022, 9016, 9005, 8998, 9009, 8997, 9002, 8996, 8999,9007, 9004, 9003, 9008, 9017, 9000, 9001, 9215, 9213, 9018, 9217, 9006,9019, 9219, 9237, 9225, 9221, 9238, 9023, 9243, 9244, 9224, 9212, 9211,9222, 9020, 9210 And 9239 of 2014, Civil Appeal No.3010 of 2017, CivilAppeal Nos.2824, 2825 And 2826 of 2022.

Krishnan Venugopal, Jaideep Gupta, Pallav Sisodia, PrashantoChandra Sen, C. N. Sreekumar, Sr. Advs., Kuriakose Varghese, V.Shyamohan, Surya Prakash, Kaushik Mishra, Ms. Deepanshi Ishar, Ms.Pallavi Srivastava, J. Rajesh, Ms. Astu Khandelwal, Akshat Gogna, M/s Kmnp Law, C. K. Sasi, Abdullah Naseeh, Ms. Meena P., Ms. ManikaPriya Saravanan, Riddhi Bose, Siddharth, Abraham C. Mathews,Mohammed Sadique T. A., Ms. Anu K. Joy, Alim Anvar, Rajeev Mishra,Sanand Ramakrishnan, Sunil Narayanan, John Mathew, Babu ThomasK., Wills Mathews, Ginesh P., Devendra Kumar Tiwari, Paul John Edison,Rabin Majumder, Ms. Abhisree Saujanya, Ms. Haripriya Padmanabhan,Ms. Ishita Chowdhury, Ms. Tanya Srivastava, Roy Abraham, Ms. ReenaRoy, Akhil Abraham, Aditya Koshy, Himinder Lal, Aljo K. Joseph, Ms.Shela K., Mrs. Sudha Gupta, Ranjan Kumar, Ritesh Kumar Chowdhary,Rajesh P., Ms. Anupama Kumar, Amit Sharma, Prakash Ranjan Nayak,P. I. Jose, Prashant K. Sharma, Ms. Jenis V. Francis, K. V. Mohan,Merry S. Mathew, Hitesh Kumar Sharma, Akhileshwar Jha, Ms. K. M.Kavitha, Pukhrambam Ramesh Kumar, Ms. Anupama Ngangom, KarunSharma, Nishe Rajen Shonker, Jogy Scaria, G. Prakash, Advs. for theappearing parties.

The Judgment of the Court was delivered by

B. R. GAVAI, J.

1. Two important questions of law, with regard to the legislativecompetence of the Kerala State Legislature to enact the KeralaRevocation of Arbitration Clauses and Reopening of Awards Act, 1998

DEF

A(hereinafter referred to as the “State Act”) and as to whether the StateAct encroaches upon the judicial power of the State, are involved in thepresent appeals.

• BACKGROUND:

2. The High Court of Kerala at Ernakulam, by the impugnedBjudgment dated 9[th] July 2013 delivered in O.P. No.4206 of 1998 andcompanion matters, has held the State Act to be beyond the legislativecompetence of the Kerala State Legislature and as such, held the sameto be unconstitutional. The High Court has also held that the State Acthad an effect of annulling the awards of the arbitrators and the judgmentsCand decrees passed by the courts. It was therefore held that the StateAct encroaches upon the judicial power of the State. Being aggrievedthereby, the State of Kerala has approached this Court by filing variousappeals.3. The State of Kerala had started the construction of KalladaDIrrigation Project (hereinafter referred to the “said Project”) in the year1961. The said project was proposed to be executed with the financialassistance from the International Bank for Reconstruction andDevelopment (for short “World Bank”) from June 1982 to March 1989.As required by the World Bank, special condition namely, the LocalCompetitive Bidding Specification (hereinafter referred to as “LCBS”)Eas envisaged by the World Bank Authorities was included in theagreements relating to the works connected with the said Project.Clauses 51 and 52 of the LCBS provided for the settlement of matters indispute or difference through arbitration. The same was provided with aview to enable speedy settlement of matters in dispute or difference in aFjust and equitable manner. The State of Kerala found that on account ofvarious disputes and differences, the arbitration references did not havethe desired effect inasmuch as several arbitrators had wrongly andarbitrarily awarded unconscionable amounts against the provisions ofagreements and without material on record, in collusion with the claimantcontractors and officials of the department, thereby causing heavy lossesGto the State. As such, the State of Kerala considered it necessary, inpublic interest, to cancel the arbitration clauses in the agreementsexecuted in terms of LCBS, to revoke the authority of the arbitratorsappointed thereunder and to enable the filing of appeals against the awardsor decrees already passed in certain arbitration references in respect ofH

which the period of limitation had expired. As such, the State Act cameto be enacted with effect from 14[th] November 1997.

4. The State Act is short Act and therefore, we deem itappropriate to reproduce the same in its entirety as under:

“Kerala Revocation of Arbitration Clauses and Reopeningof Awards Act, 1998

Preamble …………..

Section 1 - Short title, extent, commencement andapplication

(1) This Act may be called the Kerala Revocation of ArbitrationClauses 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 ofNovember, 1997.

(4) It shall apply to all agreements executed in terms of the localcompetitive bidding specification.

Section 2 - Definitions

(1) In this Act, unless the context otherwise requires,

(a) “agreement” means an agreement executed in terms ofthe local competitive bidding specification for various worksof the Government of Kerala;

(b) “local competitive bidding specification” means the localcompetitive bidding specification adopted by the Governmentin 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 anddefined in

(a) the Arbitration Act, 1940 (Central Act 10 of 1940); or

(b) the Arbitration and Conciliation. Act, 1996 (Central Act 26of 1996), in relation to arbitration proceedings commenced onor after the 25th day of January, 1996,

shall have the meanings, respectively, assigned to them in thoseActs.

Section 3 - Cancellation of arbitration clauses andrevocation of authority of arbitrator

(1) Notwithstanding anything contained in the Indian Contract Act,B1872 (Central Act 9 of 1872) or in the Arbitration Act, 1940 (CentralAct 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 inforce or in any judgement, decree or order of any court or otherauthority or in any agreement or other instrument,

(i) the arbitration clauses in every agreement shall standcancelled;

(ii) the authority of an arbitrator appointed under an agreementreferred to in clause (i) shall stand revoked; and

(iii) any agreement referred to in clause (i) shall cease to haveeffect in so far as it relates to the matters in dispute or differencereferred,

with effect on and from the date of commencement of this Act.

(2) Nothing in sub-section (1) shall be bar for any party to aEagreement to file suit in the court having jurisdiction in the matterto which the agreement relates and all questions regarding thevalidity or effect of the agreement between the parties to theagreement or persons claiming under them and all matters indispute or difference between the parties to the agreement shallbe decided by the court, as if the arbitration clauses had neverFbeen 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 ConciliationGAct, 1996 (Central Act 26 of 1996) or in the Limitation Act, 1963(Central Act 36 of 1963), suit under sub-section (2) of section 3may be filed within six months from the date of commencementof this Act or within such period as is allowed by the provisions ofthe Limitation Act, 1963 (Central Act 36 of 1963), in relation tosuch suits, whichever is later.

Section 5 - Power of Government to file appeal againstcertain awards

Notwithstanding anything contained in the Arbitration Act, 1940(Central Act 10 of 1940) or in the Arbitration and ConciliationAct, 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 inforce or in any judgement, decree or order of any court or otherauthority or in any agreement or other instrument, where it appearsto the Government that any award passed is not in accordancewith the terms of the agreement or there was failure to producerelevant data or other particulars before the Arbitrator beforepassing the award or the award passed is of unconscionableamounts, they may file appeal against such award within ninetydays of the date of commencement of this Act.

Section 6 - Procedure before court

For the removal of doubts, it is hereby clarified that the provisionsof the Code of Civil Procedure, 1908 (Central Act 5 of 1908),shall apply to all proceedings before court and to all appeals underthis Act.

Section 7 - Arbitration Act not to apply

The provisions of this Act shall apply to any proceedings institutedunder this Act notwithstanding anything inconsistent herein withthe provisions of the Arbitration Act, 1940 (Central Act 10 of1940) or the Arbitration and Conciliation Act, 1996 (Central Act26 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 Reopeningof Awards Ordinance, 1998 (6 of 1998), is hereby repealed.

(2) Notwithstanding such repeal, anything done or deemed to havebeen done or any action taken or deemed to have been takenunder the said Ordinance shall be deemed to have been done ortaken under this Act.”

5. Section 3 of the State Act provides for “Cancellation ofarbitration clauses and revocation of authority of arbitrator”. Sub-section(1) of Section 3 of the State Act provides that notwithstanding anything

Acontained in the Indian Contract Act, 1872 or in the Arbitration Act,1940 (hereinafter referred to as “1940 Act”) or in the Arbitration andConciliation Act, 1996 (hereinafter referred to as “1996 Act”) or in anyother law for the time being in force or in any judgment, decree or orderof any court or other authority or in any agreement or other instrument,the arbitration clauses in every agreement shall stand cancelled; theBauthority of an arbitrator appointed under an agreement referred to inclause (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 disputeor difference referred. The same shall be with effect on and from thedate of commencement of the State Act. Sub-section (2) of Section 3 ofCthe State Act provides that nothing provided in sub-section (1) of Section3 of the State Act shall be bar for any party to an agreement to file asuit in the court having jurisdiction in the matter to which the agreementrelates and all questions regarding the validity or effect of the agreementbetween the parties to the agreement or persons claiming under themDand all matters in dispute or difference between the parties to theagreement shall be decided by the court, as if the arbitration clauses hadnever been included in the agreement.

6. Section 4 of the State Act enables party to file suit undersub-section (2) of Section 3 of the State Act within period of six monthsEfrom the date of commencement of the State Act or within such periodas is allowed by the provisions of the Limitation Act, 1963 (hereinafterreferred to as “1963 Act”), in relation to such suits whichever is later.This is notwithstanding anything contained in the 1940 Act or in the 1996Act or in the 1963 Act.

F7. Section 5 of the State Act enables the State Government to filean appeal against any award within period of 90 days from the date ofcommencement of the State Act, where it appears to the StateGovernment that any award passed is not in accordance with the termsof the agreement or there was failure to produce relevant data or otherGparticulars before the Arbitrator before passing the award or the awardpassed is of unconscionable amounts. Again, this is notwithstandinganything contained in the 1940 Act or in the 1996 Act or in the 1963 Actor in any other law for the time being in force or in any judgment, decreeor order of any court or other authority or in any agreement or otherinstrument.H

8. Section 6 of the State Act clarifies that the provisions of theCode of Civil Procedure, 1908 (hereinafter referred to as “CPC”) shallapply to all proceedings before the court and to all appeals under theState Act.

9. Section 7 of the State Act provides that the provisions of theState Act shall apply to any proceedings instituted under the State Actnotwithstanding anything inconsistent therein with the provisions of the1940 Act or the 1996 Act or any other law for the time being in force.

10. Sub-section (1) of Section 8 of the State Act repeals the KeralaRevocation of Arbitration Clauses and Reopening of Awards Ordinance,1998. Sub-section (2) of Section 8 of the State Act provides thatnotwithstanding such repeal, anything done or deemed to have beendone or any action taken or deemed to have been taken under the saidOrdinance shall be deemed to have been done or taken under the StateAct.

11. Immediately after the enactment of the State Act, severalpetitions came to be filed before the High Court of Kerala challengingthe validity thereof. By the impugned judgment, the High Court of Keralaallowed the petitions and held and declared the State Act to beunconstitutional, being beyond the legislative competence of the StateLegislature.

12. It will be relevant to note that the State Act was reserved forthe consideration of the President of India and had received his assentas required under Article 254 (2) of the Constitution of India.

13. The reasons that weighed with the High Court of Kerala forholding 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”) andthe Foreign Awards (Recognition and Enforcement) Act,1961 (hereinafter referred to as “1961 Act”) hadbecome outdated. As such, the Parliament found itexpedient to make law with respect to arbitration andconciliation, taking into account the United NationsCommission on International Trade Law (for short“UNCITRAL”) Model Law and Rules. The 1996 Actwas enacted with the clear intention of harmonizingconcepts on arbitration and conciliation of different legal

systems of the world on the basis of UNCITRAL ModelLaw and Rules. As such, the matters dealt with by the1996 Act were not the matters merely falling under Entry13 of List III of the Seventh Schedule to the Constitutionof India but also falling within Entries 10 to 14 of List Iof the Seventh Schedule to the Constitution of India;

(ii)Since Entries 10 to 14 of List I of the Seventh Scheduleto the Constitution of India deal with foreign affairs,relationship with foreign countries, United NationsOrganization, participation in international conferences,associations and other bodies and implementing ofCdecisions made thereat, entering into treaties andagreements and implementing of treaties, agreementsand conventions, the issue of applicability of Article 253of the Constitution of India would arise. As such, theUnion Parliament had an overriding legislative powerDto make any law for the whole or any part of the territoryof India. Once Central Legislation referable to Article253 of the Constitution of India comes into being, thenthe State Act cannot be said to be valid only in view ofthe Presidential assent received under Article 254 (2)of the Constitution of India;

(iii)That the executive power of the Union is coextensivewith the legislative power of the Parliament under Article73(1)(b) of the Constitution of India. As such, the 1996Act is enacted by the Central Legislation in order togive effect to the executive power of the GovernmentFof India, to give effect to the decisions taken at theinternational conference. As such, if it is held that thePresidential assent under Article 254 (2) of theConstitution of India would validate the State Act, thenthe very purpose of Article 253 of the Constitution ofGIndia would be destroyed;

(iv)That LCBS can be traced only to entries in the UnionList, in particular, to Entry 37, as also, Entries 10 and 14of List I of the Seventh Schedule to the Constitution ofIndia. Entry 37 in List I of the Seventh Schedule to theHConstitution of India deals with foreign loans. That

Article 292 of the Constitution of India specifically dealswith the borrowing by the Government of India. Thatthe assistance provided by the World Bank also primarilyfalls within the executive power of the Union referableto Article 73 (1)(b) of the Constitution of India and assuch, the State Act was beyond the legislativecompetence of the State Legislature;

(v)That the proceedings which were made subject matterof the State Act, could have been dealt with only withinthe Judicial power of the State through the courts interms of the provisions of the 1940 Act and 1996 Act.As such, the impugned legislation was an encroachmentinto the Judicial power of the State which was exercisedthrough the courts in terms of the laws already madeand in force. It infracts the quality doctrine and theavowed constitutional principles insulating the Judicialfunction which is cardinal to deliverance of justice aspart of the seminal constitutional values, includingseparation of powers; and

(vi)That there was nothing on record to show that anyrelevant material had gained the attention of thelegislature except the superfluous statements in thePreamble to the State Act with regard to misconductby arbitrators. As such, the State Act suffers on thesaid count also.

14. We have extensively heard Shri Jaideep Gupta, and Shri PallavShishodia, learned Senior Counsel appearing on behalf of the appellants.Shri Krishnan Venugopal, learned Senior Counsel led the arguments onbehalf of the respondents. The arguments of Shri Venugopal wereconcisely supplemented by Shri P.C. Sen, learned Senior Counsel, ShriC.N. Sreekumar, learned Senior Counsel, Smt. Haripriya Padmanabhan,learned counsel, Shri Kuriakose Varghese, learned counsel, Shri JohnMathew, learned counsel and Shri Roy Abraham, learned counsel.

• SUBMISSIONS ON BEHALF OF THE APPELLANTS:

15. Shri Gupta, learned Senior Counsel submitted that the impugnedjudgment of the High Court of Kerala suffers on various grounds. ShriGupta further submitted that the High Court of Kerala committed basic

Aerror in holding that the 1996 Act is universally applicable. He submittedthat the 1996 Act would be applicable only when there is an agreementbetween the parties, whereby they have agreed to refer their dispute toarbitration. It is therefore submitted that what has been done by theState Act is cancellation of contract by statute and as such, the StateAct or part thereof would be referable to Entry 7 of List III of theBSeventh Schedule to the Constitution of India.

16. Shri Gupta submitted that the rest of the legislation deals withthe consequences of cancellation of the Arbitration clause in theAgreement. It is submitted that on cancellation of an agreement, sub-section (2) of Section 3 of the State Act provides an opportunity to anyCparty to the agreement to file suit in competent civil court. Hesubmitted that Section 4 of the State Act extends the period of limitationfor filing of the suit. Section 5 of the State Act enables the StateGovernment to challenge the award on various grounds stated therein,within specified period. It is, therefore, submitted that the State Act isDreferable to Entries 7 and 13 of List III of the Seventh Schedule to theConstitution of India and as such, within the legislative competence ofthe State Legislature.

17. Shri Gupta further submitted that the legislative competenceof the State Legislature can only be circumscribed by the expressEprohibition contained in the Constitution of India itself. It is submittedthat unless and until there is any provision in the Constitution of Indiaexpressly prohibiting legislation on the subject either absolutely orconditionally, there can be no fetter or limitation on the plenary powerwhich the State Legislature enjoys to legislate on the topic enumeratedin Lists II and III of the Seventh Schedule to the Constitution of India. InFsupport of this proposition, he relies on the judgment of this Court in thecase of Maharaj Umeg Singh and Others v. State of Bombay andOthers[1].18. Shri Gupta further submitted that there is no repugnancybetween the 1996 Act and the State Act. He submitted that the 1996GAct would apply where there is an arbitration clause in the agreement.If there is no arbitration clause in the agreement, the 1996 Act would notapply. He submitted that the 1996 Act itself is legislation enacted withreference to Entry 13 of List III of the Seventh Schedule to the

Constitution of India. In support of this proposition, he relies on thejudgments of this Court in the cases of G.C. Kanungo v. State of Orissa[2],State of Gujarat through Chief Secretary and Another v. AmberBuilders[3], Madhya Pradesh Rural Road Development Authority andAnother v. L.G. Chaudhary Engineers and Contractors[4 ](hereinafterreferred to as “MP Rural 2012”), Madhya Pradesh Rural RoadDevelopment Authority and Another v. L.G. Chaudhary Engineersand Contractors[5 ](hereinafter referred to as “MP Rural 2018”).

19. Shri Gupta submitted that assuming, but without accepting,that there is some conflict between the 1996 Act and the State Act, theState Act having been reserved for the consideration of the President ofIndia and having received his assent, will prevail over the provisions ofthe 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 anyEntry in List I of the Seventh Schedule to the Constitution of India. Hesubmitted that the approach of the High Court of Kerala has been totallyerroneous. It is submitted that since all the three Lists of the SeventhSchedule to the Constitution of India contain number of entries, someoverlapping is bound to happen. In such situation, the doctrine of pithand substance is required to be applied to determine as to which entrydoes given piece of legislation relate to. He submitted that regard mustbe had to the enactment as whole, to its main object and to the scopeand effect of its provisions. He submitted that when legislation istraceable, in pith and substance, to an entry with regard to which Stateis competent to legislate, then incidental and superficial encroachmentson the other entry will have to be disregarded. Reference in this respectis made to the judgments of this Court in the cases of HoechstPharmaceutical Ltd. and Others v. State of Bihar and Others[6] andState of West Bengal v. Kesoram Industries Ltd. and Others[7]. It istherefore submitted that since the impugned legislation is in pith andsubstance legislation in the field covered by Entries 7 and 13 of List IIIof the Seventh Schedule to the Constitution of India, the same would notinvalidate the State Act.

2 (1995) 5 SCC 96

3 (2020) 2 SCC 540

4 (2012) 3 SCC 495

5 (2018) 10 SCC 826

6 (1983) 4 SCC 45

7 (2004) 10 SCC 201

A21. Shri Gupta submitted that the High Court of Kerala has alsoerred in holding that the 1996 Act is referable to Article 253 of theConstitution of India. He submitted that the UNCITRAL Model Lawwhich was adopted by the General Assembly of the United Nations,recommended that all the countries give due consideration to it whileenacting the laws governing international commercial arbitrationBpractices. He submitted that, in any case, the Model Law is neither atreaty nor an agreement, convention, decision within the meaning ofArticle 253 of the Constitution of India or for that matter Entries 13 and14 of List I of the Seventh Schedule to the Constitution of India. Hesubmitted that following the principle of ejusdem generis, the wordC‘decision’ will have to be construed as one which will mean bindingobligation on the States. In this respect, he relies on the judgment of thisCourt in the case of Kavalappara Kottarathil Kochuni @ MoopilNayar v. States of Madras and Kerala and Others[8].

22. Shri Gupta also relies on the rule of construction known asDNoscitur sociis, that is, the meaning of word is to be judged by thecompany it keeps. In this respect, he relies on the judgment of this Courtin the case of M.K. Ranganathan v. Government of Madras andOthers[9].

23. Shri Gupta further submitted that it is settled rule ofEconstruction of the Constitution, that every attempt should be made toharmonize apparently conflicting provisions and entries, not only ofdifferent lists, but also of the same list and to reject the construction thatwould 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 ofCalcutta Gas Company (Proprietary) Ltd. v. State of West BengalFand Others[10 ]and Sri Venkataramana Devaru and Others v. State ofMysore and Others[11].

24. Shri Gupta further submitted that since the provisions of Article253 of the Constitution of India have the effect of restricting the powerof the State Legislature, the said Article should be given the narrowestGpossible meaning in order to harmonize it with the Entries in Lists II andIII of the Seventh Schedule to the Constitution of India. He submitted

8 [1960] 3 SCR 8879 [1955] 2 SCR 37410 1962 Supp (3) SCR 1H11 [1958] SCR 895

that this can be done by interpreting that only the legislations enacted togive effect to binding obligation are covered by the said Article.

25. Shri Gupta further submitted that the Model Law is suggestedpattern for law makers which only recommends the practices to beadopted in the international arbitration and not for the domestic arbitrationand as such, it cannot be held that it has any binding obligation insofar asdomestic arbitration is concerned.

26. Shri Shishodia, learned Senior Counsel submitted that in theearlier statutory scheme prior to the 1996 Act, the 1940 Act governedthe domestic arbitration, whereas the 1937 Act and the 1961 Act governedinternational commercial arbitrations. He submitted that in the 1996 Act,the domestic arbitrations are governed by Part I, whereas Part II governsinternational commercial arbitrations with separate specific provisionsfor Geneva Convention Awards and New York Convention Awards. Hesubmitted that however, even in the 1996 Act, the historical as well ascontemporary distinction between an international commercial arbitrationand domestic arbitration remains. In this respect, he relies on the judgmentof this Court in the case of Fuerst Day Lawson Limited v. JindalExports Limited[12]. He submitted that the 1996 Act actually consolidates,amends and puts together three different enactments.

27. Shri Shishodia further submitted that after the Presidentialassent 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 CentralLaw is that “there is no room or possibility for both Acts to apply”. Hesubmitted that no such repugnancy has been pointed out by therespondents in the State Act vis-à-vis the 1940 Act and 1996 Act. Inthis respect, he relies on the judgment of this Court in the case of RajivSarin and Another v. State of Uttarakhand and Others[13].

28. Shri Shishodia as well as Shri Gupta submitted that merelybecause some part of the said Project is financed by the World Bank, itcannot be ground to invalidate the State Act which is referable toEntry 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 appearingon behalf of some of the respondents submitted that the State Act is12 (2011) 8 SCC 33313 (2011) 8 SCC 708

EFG

Awholly arbitrary and violative of Article 14 of the Constitution of India.He submitted that the State Act arbitrarily singles out the said Projectstarted in the year 1961 out of all the projects in Kerala, for revocationof arbitration clauses in agreements. He submitted that the High Courtof Kerala has rightly held that no material was placed by the StateGovernment to show that collusive awards had been made because of aBnexus between arbitrators and claimant contractors.

30. Learned Senior Counsel submitted that the State Act is traceableto Entries 12, 13, 14 as well as Entry 37 of List I of the Seventh Scheduleto the Constitution of India. He submitted that Entries 12 to 14 relate toUnited Nations Organization, participation in international conferences,Cassociations and other bodies and implementing of decisions made thereatand entering into treaties and agreements with foreign countries andimplementing of treaties, agreements and conventions with foreigncountries. He submitted that the State has enacted legislature which isrelated to these entries, which are exclusively within the domain of theDUnion Legislature. He further submitted that Entry 37 deals with foreignloans. He submitted that since the State Act attempts to deal with theloans taken from the World Bank, it will be an encroachment on thelegislative field reserved for the Union Legislature. It is thereforesubmitted that the State Act is enacted by the State Legislature in respectof entries which are exclusively within the jurisdiction of the CentralELegislation 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 inrespect of items covered in List III, i.e., the Concurrent List. Since theState Act deals with the entries exclusively in List I, the PresidentialFassent would be of no consequence to save the State Act.

31. Shri Venugopal submitted that the 1996 Act is clearly referableto the decision taken at international conference, i.e., the GeneralAssembly of United Nations held on 11[th] December 1985. In support ofthe said submission, he relies on the judgment of this Court in the case ofGMaganbhai Ishwarbhai Patel Etc. v. Union of India and Another[14].Relying on the judgment of this Court in the case of S. Jagannath v.Union of India and Others[15], he submitted that Article 253 of theConstitution of India would also be applicable to the legislations enacted

14 (1970) 3 SCC 400H15 (1997) 2 SCC 87

for giving effect to the decisions taken at the international conference,which are not binding in nature.

32. Shri Venugopal submitted that law passed under Article 253of the Constitution of India would denude the State Legislature of itscompetence to make any law on the same subject matter regardless ofwhether the subject matter falls in List II or List III. He thereforesubmitted that since the 1996 Act has been enacted by the Parliament inexercise of Legislative power under Article 253 of the Constitution ofIndia, the State Legislature would not have the power to make lawwhich is repugnant thereto, even with regard to subjects falling in List IIor List III. reference is again made to the judgment of this Court in thecase of Maganbhai Ishwarbhai Patel (supra). In this regard, the learnedSenior Counsel also relies on the judgments of this Court in the cases ofMantri Techzone Private Limited v. Forward Foundation andOthers[16], State of Bihar and Others v. Bihar Chamber of Commerceand Others[17] and Jayant Verma and Others v. Union of India andOthers[18].33. Shri Venugopal further submitted that the State Act is alsodiscriminatory inasmuch as the State Government has been given anabsolute discretion as to against which award, it will prefer an appealand against which, it will not prefer an appeal. He relies on the judgmentsof this Court in the cases of Suraj Mall Mohta and Co. v. A.V.Visvanatha Sastri and Another[19] and B.B. Rajwanshi v. State of U.P.and Others[20].

34. Shri Venugopal further submitted that the State Act interfereswith the doctrine of “separation of powers” and encroaches upon thepowers of the judiciary, inasmuch as the State Act empowers the Stateto interfere with the awards. He submitted that this is not permissible inview 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 withoutadmitting that the State Act was not arbitrary when it was originallypassed, but by passage of time, it has become arbitrary and unreasonable.

16 (2019) 18 SCC 49417 (1996) 9 SCC 13618 (2018) 4 SCC 74319 [1955] 1 SCR 44820 (1988) 2 SCC 415

AHe submitted that much earlier to the enactment of the State Act, notonly the awards have become final but the amount awarded has alreadybeen paid to the claimants. As such, if the State Act is permitted tooperate now, it will amount to arbitrariness and unreasonableness. Hetherefore submitted that the present appeals deserve to be dismissed.

B36. Shri P.C. Sen, learned Senior Counsel appearing on behalf ofsome of the respondents submitted that the State Act has the effect ofdepriving the respondents’ settled right of property under Article 300-Aof the Constitution of India which has been acquired as per law. Hesubmitted that the awards passed, create right in the property and areenforceable when the same are made decree of the court. In thisCregard, he relies on the judgment of this Court in the case of SatishKumar and Others v. Surinder Kumar and Others[21].

37. Shri Sen further submitted that in the present case, the awardshave been acted upon and payments have been made. Therefore, vestedrights have been crystalized in favour of the respondents. He submittedDthat such vested rights cannot be taken away by the State Act. Reliancein this respect is placed on the judgment of this Court in the case ofAndhra Pradesh Dairy Development Corporation Federation v. B.Narasimha Reddy and Others[22].

38. Shri Sen further submitted that unilateral alteration of contractEis violative of the fundamental principle of justice. It is submitted thatwhat has been sought to be done by the State Act is unilateral addition oralteration of the contract and foisting the same on unwilling parties. It issubmitted that the same would not be permissible. Reliance in this respectis placed on the judgment of this Court in the case of SsangyongFEngineering and Construction Company Limited v. NationalHighways Authority of India (NHAI)[23].

39. Shri Sen further submitted that the impugned legislationencroaches upon the judicial power and judicial functions and in turn,amounts to infringement of the basic structure of the Constitution ofIndia. Reliance in this respect is placed on the judgment of this Court inGthe case of SREI Infrastructure Finance Limited v. Tuff DrillingPrivate Limited[24]. He further submitted that the judgment of this Court

21 [1969] 2 SCR 24422 (2011) 9 SCC 28623 (2019) 15 SCC 131H24 (2018) 11 SCC 470

in the case of G.C. Kanungo (supra), rather than supporting the case ofthe appellants, would support the case of the respondents.

40. Shri Sen, relying on the judgment of this Court in the case ofS. Jagannath (supra), would submit that the 1996 Act is referable toArticle 253 of the Constitution of India and as such, the State Act whichis repugnant thereto, would not be valid in law.

41. Shri C.N. Sreekumar, learned Senior Counsel appearing onbehalf of some of the respondents submitted that the State Act is liableto be declared invalid on the ground of manifest arbitrariness. It issubmitted that the State Act has been enacted, which acts to the prejudiceof the private parties and undoubtedly favours the State Government. Itis submitted that Section 34 (2A) of the 1996 Act came into effect on23[rd] October 2015, i.e., much after the enactment of the State Act. It istherefore submitted that assuming that the State Act was validly enacted,however upon introduction of Section 34 (2A) of the 1996 Act on 23[rd]October 2015, the State Act has been impliedly repealed. Reliance inthis respect is placed on the judgments of this Court in the cases ofSaverbhai Amaidas v. State of Bombay[25] and T. Barai v. Henry AhHoe and Another[26].

42. Smt. Padmanabhan, learned counsel appearing on behalf ofsome of the respondents submitted that the assent of the President ofIndia under Article 254(2) of the Constitution of India is not matter ofidle formality. She submitted that unless the State satisfies that relevantmaterial was placed before the President of India and he was madeaware 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 ofGram Panchayat of Village Jamalpur v. Malwinder Singh andOthers[27].

43. Smt. Padmanabhan submitted that the State Act is also arbitraryand violative of Article 14 of the Constitution of India. She submittedthat the State Act treats unequals equally by failing to make distinctionbetween the cases where there is fraud and where there is no fraud.In this respect, she relies on the judgment of this Court in the case of

State of Maharashtra v. Mrs. Kamal Sukumar Durgule and Others[28].

25 [1955] 1 SCR 79926 (1983) 1 SCC 17727 (1985) 3 SCC 66128 (1985) 1 SCC 234

A44. Relying on the judgments of this Court in the cases of AshokKumar alias Golu v. Union of India and Others[29], S.S. Bola andOthers v. B.D. Sardana and Others[30] and Madras Bar Associationv. Union of India and Another[31],Smt. Padmanabhan submitted thatthe legislature does not have the competence to enact legislation whichsets aside the judgment or an award passed by court.B

45. Shri John Mathew, learned counsel appearing on behalf ofsome of the respondents submitted that the State Act is discriminatory innature. He submitted that the State, out of 343 cases, has chosen to filean appeal only insofar as 55 claims/cases are concerned. He alsosubmitted that the State Act has sought to alter the rights and remediesCin the contracts executed with the State nearly decade before theState Act was brought into effect. He submitted that certain claimantsare being denied the equal treatment as is available to large number ofsimilarly situated claimants who are getting benefits under the 1996 Act.

46. Shri Mathew submitted that if the legislative power is exercisedDby the State Legislature in transgression of Constitutional limitations withrespect to Article 13(2) of the Constitution of India which prohibits theState from making any law which takes away or abridges the rightsconferred by Part-III of the Constitution of India, such an exercise ofpower would be invalid in law. In this regard, he relies on the judgmentof this Court in the case of State of Kerala and Others v. Mar AppraemEKuri Company Limited and Another[32].47. Shri Mathew further submitted that the State Act is not only inconflict with the 1996 Act but is also in conflict with the CommercialCourts Act, 2015 (hereinafter referred to as “2015 Act”). He submittedthat all the disputes involved in the present matters are commercialFdisputes as defined under Section 2(c) of the 2015 Act. He submittedthat the 2015 Act is subsequent Central enactment and therefore, theState Act being an earlier Act enacted by the State Legislature andrepugnant to the Central enactment, cannot exist. It is submitted that theenactment of the 2015 Act would amount to pro tanto repeal of theState Act. Reliance in this respect is placed on the judgments of thisGCourt in the cases of T. Barai (supra) and Mar Appraem KuriCompany Limited and Another (supra).

29 (1991) 3 SCC 49830 (1997) 8 SCC 52231 2021 SCC OnLine SC 463H32 (2012) 7 SCC 106

48. Shri Mathew further submitted that only when the proceedingswent against the State, they illegally enacted the State Act in order toeither deny payments or delay them by compelling the respondents toface or to undergo an altogether different remedy for the very samecause of action. In this regard, he relies on the judgments of this Court inthe cases of State of Tamil Nadu and Others v. K. Shyam Sunderand Others[33 ]and Deep Chand and Others v. State of Uttar Pradeshand Others[34].

49. Shri Kuriakose Varghese, learned counsel appearing on behalfof some of the respondents submitted that apart from making the baldallegation that there was collusion between the contractors and theofficials, no material is placed on record. He submitted that the StateAct which has been enacted, in the absence of sufficient material, wouldnot be sustainable in law. Reliance in this respect is placed on the judgmentof this Court in the case of Ladli Construction Co. (P) Ltd. v. PunjabPolice Housing Corpn. Ltd. and Others[35].

50. Shri Varghese submitted that though the State Act is purportedlyenacted in public interest, rather than it being in public interest, it iscontrary to the public interest. It is submitted that this Court in the caseof Hindustan Construction Co. Ltd. and Another v. Union of Indiaand Others[36], has held that reasonableness, adequate determiningprinciple and public interest have to march hand in hand.He submittedthat the State Act derogates from the principle of speedy settlement ofdisputes in an arbitrary and selective manner and therefore, is not validbeing contrary to public interest.

51. Shri Roy Abraham, learned counsel appearing on behalf ofsome of the respondents also made submissions which are on similarlines as are made by other counsel for respondents.

• SUBMISSIONS ON BEHALF OF THE APPELLANTSIN REJOINDER:

52. Shri Gupta, learned Senior Counsel, in rejoinder, submittedthat the reliance placed by the respondents on the judgment of this Courtin the case of Kesoram Industries Ltd. (supra) is misplaced inasmuch

33 (2011) 8 SCC 737

34 [1959] Supp (2) SCR 8

35 (2012) 4 SCC 609

36 (2020) 17 SCC 324

Aas the paragraphs which are relied on by the respondents are from theminority judgment. He submitted that, on the contrary, the majorityjudgment upholds the validity of the State Legislation. He submitted thatinsofar as the reliance placed by the respondents on the judgments ofthis Court in the cases of S. Jagannath (supra) and Mantri TechzonePrivate Limited (supra) are concerned, the same nowhere held that theBState Legislature would be denuded of the field altogether, beyond whatthe treaty and/or the Parliamentary legislation covered. He submittedthat merely because the said Project was, in part, financed by the WorldBank, it cannot be said that the State Act is, in pith and substance, alegislation in the field of foreign loans and is therefore, beyond theCcompetence of the State Legislature.53. Shri Gupta refuted the allegations with regard to arbitrary anddiscriminatory nature of the State Act. He submitted that the correctnessof the reasons stated by the State Legislature cannot be the subjectmatter of judicial review. Reliance in this respect is placed on the judgmentDof this Court in the case of K. Nagaraj and Others v. State of AndhraPradesh and Another[37].

54. Shri Gupta submitted that Section 9 of the CPC provides forthe plenary jurisdiction of the civil courts to decide disputes of civil natureunless excluded by law. He submitted that so long as the parties areEgoverned by an arbitration agreement, the civil courts, though havingjurisdiction to entertain civil suits in respect of disputes arising out of thecontract between the parties, are required to refer the disputes, if any, toarbitration under Sections 8 and 11 of the 1996 Act and Sections 20 and34 of the 1940 Act. However, once the arbitration agreement standsFcancelled, all fetters would stand removed and the civil courts will havethe jurisdiction to entertain the disputes. It is submitted that the argumentwith regard to the forum to which an appeal would lie, being not providedis without substance. He submitted that by virtue of Section 6 of theState Act, CPC is applicable to all the proceedings and an appeal will lieto the court, based on the court which is rendering the judgment or awardGand/or passing the decree on award. As such, the argument regardingvagueness is without substance.

55. Insofar as the argument with regard to the State having theright to pick and choose cases in which appeals are to be filed, Shri

Gupta submitted that every litigant has choice to accept the judgmentand order of trial court or to challenge the same. He submitted that itis not the case where alternative proceedings are available to the Stateto take administrative action against different parties, some of which aremore onerous than others. In this regard, he relies on the judgments ofthis Court in the cases of Nagpur Improvement Trust and Another v.Vithal Rao and Others[38] and State of Kerala and Others v. T.M.Peter and Others[39]. He further submitted that Section 5 of the StateAct itself provides sufficient guidelines regarding the cases in which theState would be empowered to file an appeal. As such, it cannot be saidthat the power given to the State to file an appeal is unguided.

56. Shri Gupta concluded by submitting that the argument that theState Act interferes with the judicial power of the State is also devoid ofany substance. The State Act merely provides for an appeal against thedecree which will be tested in the appeal and as such, the final word stillremains with the judiciary. He therefore submitted that all the contentionsraised on behalf of the respondents are without merit.

• CONSIDERATION:

�LEGISLATIVE COMPETENCE OF THE STATELEGISLATURE TO ENACT THE STATE LAW:

57. We first propose to consider the question as to whether theState Act is within the legislative competence of the State Legislature ascontended by the appellants or as to whether it is beyond the legislativecompetence of the State Legislature as contended by the respondents.For that, the question that will have to be answered is as to whether thesource of the impugned legislation (State Act) is Entry 13 of List III ofthe Seventh Schedule to the Constitution of India or as to whether theimpugned legislation (State Act) is referable to Entries 12, 13, 14 and 37of List I of the Seventh Schedule and Article 253 of the Constitution ofIndia. We will also have to examine the scope of clause (2) of Article254 of the Constitution of India.

58. It will be relevant to reproduce Entries 12, 13, 14 and 37 ofList I of the Seventh Schedule to the Constitution of India as under:

38 (1973) 1 SCC 50039 (1980) 3 SCC 554

“Seventh Schedule

(Article 246)

List I – Union List

12. United Nations Organization.

13. Participation in international conferences, associations andother bodies and implementing of decisions made thereat.

14. Entering into treaties and agreements with foreign countriesand implementing of treaties, agreements and conventions withforeign countries.

37. Foreign loans.

59. It will also be apposite to refer to Entry 13 of List III of theSeventh Schedule to the Constitution of India, which reads thus:

“Seventh Schedule

(Article 246)

List III – Concurrent List

13. Civil procedure, including all matters included in the Code ofCivil Procedure at the commencement of this Constitution, limitationand arbitration.

60. Article 253 of the Constitution of India reads thus:

“253.Legislation for giving effect to internationalagreements. – Notwithstanding anything contained in theforegoing provisions of this Chapter, Parliament has power to makeany law for the whole or any part of the territory of India forimplementing any treaty, agreement or convention with any othercountry or countries or any decision made at any internationalconference, association or other body.”

61. For considering the question in hand, it will be apposite to seekguidance from the precedents of this Court. It will be relevant to refer tothe 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 Constitutionon which the legislation could be made either by Parliament or theState Legislature. When there is already the legislation ofParliament made on this subject, it operates in respect of all Statesin India, if not excepted. Since it is open to State Legislaturealso to legislate on the same subject of arbitration, in that, it lieswithin its field of legislation falling in an entry in the ConcurrentList and when particular State Legislature has made law orAct on that subject for making it applicable to its State, all thatbecomes necessary to validate such law is to obtain the assent ofthe President by reserving it for his consideration. When suchassent is obtained, the provisions of the State Law or Act soenacted prevails in the State concerned, notwithstanding itsrepugnancy to an earlier Parliamentary enactment made on thesubject. It was not disputed that insofar as the 1991 Amendmentis concerned, it has been assented to by the President of Indiaafter it was reserved for his consideration. Hence, the OrissaState Legislature’s enactment, the 1991 Amendment Act is thatmade on subject within its legislative field and when assent ofthe President is obtained for it after reserving it for his considerationit becomes applicable to the State of Orissa, notwithstandinganything contained therein repugnant to what is in the PrincipalAct of Parliament, it cannot be held to be unconstitutional as thatmade by the Orissa State Legislature without the necessarylegislative competence.”

62. It could thus be seen that this Court has observed that thesubject of arbitration finds place in Entry 13 of List III, i.e., the ConcurrentList of the Seventh Schedule to the Constitution of India. It has beenheld that the legislation pertaining to the said entry could be made eitherby the Parliament or the State Legislature. It has been held that sincethe subject of arbitration is in the Concurrent List, the State can alsomake law with regard to the same. The only requirement is that tovalidate such law, it is necessary to reserve the same for consideration

Aof the President of India and obtain his assent. When such an assent isobtained, the provisions of the State Law or Act so enacted would prevailin the State concerned, notwithstanding its repugnancy with an earlierParliamentary enactment made on the subject. It is not in dispute that inthe present case also, the State Act was reserved for consideration ofthe President of India and the assent of the President of India has beenBobtained. As such, the State Act so enacted would prevail in the State ofKerala.

63. It will further be pertinent to note that in the case of MPRural 2012, the M.P. Madhyastham Adhikaran Adhiniyam, 1983 (Stateenactment) provided for mandatory statutory arbitration in the State ofCM.P. irrespective of the arbitration agreement in respect of workscontracts in the State of M.P. or its instrumentalities. An argument wassought to be made on behalf of the claimants that the State Act wasrepugnant to the 1996 Act and that in view of Section 85 of the 1996Act, the M.P. Act, 1983 stood impliedly repealed. There was differenceDof 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 ofthe Concurrent List in the Seventh Schedule of the Constitutionruns as follows:

“13. Civil procedure, including all matters included in the Codeof Civil Procedure at the commencement of this Constitution,limitation and arbitration.”

In view of the aforesaid entry, the State Government is competentto enact laws in relation to arbitration.

39. The M.P. Act of 1983 was made when the previous ArbitrationAct of 1940 was in the field. That Act of 1940 was 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 Presidentand admittedly received the same on 17-10-1983 which wasGpublished in the Madhya Pradesh Gazette Extraordinary dated12-10-1983. Therefore, the requirement of Article 254(2) of theConstitution was satisfied. Thus, the M.P. Act of 1983 prevails inthe State of Madhya Pradesh. Thereafter, the AC Act, 1996 wasenacted by Parliament repealing the earlier laws of arbitration of1940. It has also been noted that the AC Act, 1996 saves theH

provisions of the M.P. Act, 1983 under Sections 2(4) and 2(5)thereof. Therefore, there cannot be any repugnancy. (See thejudgment of this Court in T. Barai v. Henry Ah Hoe [(1983) 1SCC 177 : 1983 SCC (Cri) 143 : AIR 1983 SC 150] .)

40. In this connection the observations made by the ConstitutionBench of this Court in M. Karunanidhi v. Union of India [(1979)3 SCC 431 : 1979 SCC (Cri) 691] are very pertinent and thefollowing observations are excerpted: (SCC p. 450, para 37)

“37. … It is, therefore, clear that in view of this clear intentionof the legislature there can be no room for any argument thatthe State Act was in any way repugnant to the Central Acts.We have already pointed out from the decisions of the FederalCourt and this Court that one of the important tests to find outas to whether or not there is repugnancy is to ascertain theintention of the legislature regarding the fact that the dominantlegislature allowed the subordinate legislature to operate in thesame field pari passu the State Act.”

41. It is clear from the aforesaid observations that in the instantcase the latter Act made by Parliament i.e. the AC Act, 1996clearly showed an intention to the effect that the State law ofarbitration i.e. the M.P. Act should operate in the State of MadhyaPradesh in respect of certain specified types of arbitrations whichare under 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 inthe 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 larger Bench.

65. The Bench consisting of three learned Judges in the case ofMP 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 thesource of the enactment of the 1940 Act, 1996 Act so also the StateActs legislated by Orissa and MP Legislatures is Entry 13 of List III ofthe Seventh Schedule to the Constitution of India. Ordinarily, if there isany 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 wouldprevail. However, in view of clause (2) of Article 254 of the Constitution

Aof India, the State law would prevail when it is reserved for considerationand receives assent of the President of India.

67. Recently, this Court, in the case of G. Mohan Rao and Othersv. State of Tamil Nadu and Others[40], has observed thus:

“47. Article 254(2) is produced again for ready reference thus:

“254. Inconsistency between laws made by Parliamentand laws made by the Legislatures of States. —

(2) Where law made by the Legislature of StateCwith respect to one of the matters enumerated in theConcurrent List contains any provision repugnant tothe provisions of an earlier law made by Parliament oran existing law with respect to that matter, then, the lawso made by the Legislature of such State shall, if it hasbeen reserved for the consideration of the President and hasDreceived his assent, prevail in that State:”

(emphasis supplied)

48. The basic ingredients for the application of Article 254(2) canbe noted thus:

E(i) law made by the legislature of the State (the 2019 Act inthis case);

(ii) Such law is made on subject falling in the concurrent list(Entry-42 of the Concurrent List in this case);

F(iii) Such law is repugnant to the provisions of an earlier/existinglaw made by the Parliament (the 2013 Act in this case); and

(iv) The State law is reserved for the assent of the Presidentand has received the same.

49. Upon fulfilment of the above conditions, such State law wouldGprevail in the State despite there being law made by theParliament on the same subject and despite being repugnantthereto. The most peculiar feature of Article 254(2) is therecognition of existence of repugnancy between the law made bythe Parliament and State law and rendering that repugnancy

inconsequential upon procurement of Presidential assent. In thiscase, the State legislature duly passed the 2019 Act (State law)on subject of the concurrent list in the presence of law madeby the Parliament (2013 Act) and obtained the assent of thePresident to the same on 02.12.2019 after duly placing the Statelaw before the President and duly stating the reason for reservingit for his assent. priori, we hold that this is in compliance ofArticle 254(2).

50. This understanding of Article 254(2) is well settled andreference can be usefully made to the following paragraph of Pt.Rishikesh[40]:

“15. Clause (2) of Article 254 is an exception to clause(1). If law made by the State Legislature is reserved forconsideration and receives assent of the Presidentthough the State law is inconsistent with the Central Act,the law made by the Legislature of the State prevailsover the Central law and operates in that State as validlaw. If Parliament amends the law, after the amendment madeby the State Legislature has received the assent of thePresident, the earlier amendment made by the StateLegislature, if found inconsistent with the Central amendedlaw, both Central law and the State Law cannot coexist withoutcolliding with each other. Repugnancy thereby arises and tothe extent of the repugnancy the State law becomes void underArticle 254(1) unless the State Legislature again makes lawreserved for the consideration of the President and receivesthe assent of the President. Full Bench of the High Court heldthat since U.P. Act 57 of 1976 received the assent of thePresident on 30-12-1976, while the Central Act was assentedon 9-9-1976, the U.P. Act made by the State Legislature, laterin point of time it is valid law.”

(emphasis supplied)

51. The petitioners have advanced lengthy arguments as to howthe 2019 Act is repugnant to the 2013 Act. We are constrained toobserve that the whole exercise of pointing out any repugnancyafter validating Act has obtained the assent of the President isotiose. For, the whole purpose of Article 254(2) is to resuscitate

Aand operationalize repugnant Act or repugnant provisions in suchAct. For, the Constitution provides concurrent powers to the statesas well on subjects falling in List-III. After duly complying withthe requirements of Article 254(2), the Court is left with nothingto achieve by identifying repugnancy between the laws becausethe same has already been identified, accepted and validated asBper the sanction of the Constitution under Article 254(2). To indulgein such an exercise would be intuitive. Moreover, the Court oughtnot to nullify law made in compliance with Article 254(2) on thesole ground of repugnancy. For, repugnancy, in such cases, is saidto have been constitutionalized. To put it differently, the veryCpurpose of engaging in the exercise, in terms of clause (2) ofArticle 254, presupposes existence of repugnancy and is intendedto overcome such repugnancy. Therefore, the endeavour of thepetitioners in the present matter to highlight repugnancy, ismisdirected, flimsy and inconsequential.”

D68. As such, once the State Act was reserved for considerationand received the assent of the President of India, it would prevail. Oncethat is the position, any endeavour to find out any repugnancy betweenthe two, would be futile. No doubt, that it is sought to be urged on behalfof the appellants that there is no repugnancy between the State Act andthe Central Act and that applying the principle of harmonization, bothEcan exist. We find that in view of the State Act receiving the Presidentialassent, it will not be necessary to consider the said issue.

69. It is next sought to be urged on behalf of the respondents thatthe State Act is essentially within the legislative competence of the Union.It is submitted by the respondents that the State legislation is with respectFto Entries 12, 13, 14 and 37 of List I of the Seventh Schedule to theConstitution of India and as such, exclusively within the competence ofthe Central Legislation. Entry 12 deals with United Nations Organization.Entry 13 deals with participation in international conferences, associationsand other bodies and implementing of decisions made thereat. Entry 14Gdeals with entering into treaties and agreements with foreign countriesand implementing of treaties, agreements and conventions with foreigncountries. Entry 37 deals with foreign loans.70. It will be apposite to refer to the following observations of theConstitution Bench in the case of Kesoram Industries Ltd. and Others

(supra). In the said case, R.C. Lahoti, J., speaking for the majority, hasobserved thus:

“31. Article 245 of the Constitution is the fountain source oflegislative power. It provides — subject to the provisions of thisConstitution, Parliament may make laws for the whole or anypart of the territory of India, and the legislature of State maymake laws for the whole or any part of the State. The legislativefield between Parliament and the legislature of any State is dividedby Article 246 of the Constitution. Parliament has exclusive powerto make laws with respect to any of the matters enumerated inList I in the Seventh Schedule, called the “Union List”. Subject tothe said power of Parliament, the legislature of any State haspower to make laws with respect to any of the matters enumeratedin List III, called the “Concurrent List”. Subject to the abovesaidtwo, the legislature of any State has exclusive power to makelaws with respect to any of the matters enumerated in List II,called the “State List”. Under Article 248 the exclusive power ofParliament to make laws extends to any matter not enumeratedin the Concurrent List or State List. The power of making anylaw imposing tax not mentioned in the Concurrent List or StateList vests in Parliament. This is what is called the residuary powervesting in Parliament. The principles have been succinctlysummarised and restated by Bench of three learned Judges ofthis Court on review of the available decision in HoechstPharmaceuticals Ltd. v. State of Bihar [(1983) 4 SCC 45 : 1983SCC (Tax) 248] . They are:

(1) The various entries in the three lists are not “powers” oflegislation but “fields” of legislation. The Constitution effects acomplete separation of the taxing power of the Union and ofthe States under Article 246. There is no overlappinganywhere in the taxing power and the Constitution givesindependent 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 Parliamentand law made by the State Legislature may arise only incases when both the legislations occupy the same field withrespect to one of the matters enumerated in the ConcurrentList and direct conflict is seen. If there is repugnancy due

to overlapping found between List II on the one hand and ListI and List III on the other, the State law will be ultra vires andshall have to give way to the Union law.

(3) Taxation is considered to be distinct matter forpurposes of legislative competence. There is distinctionmade between general subjects of legislation and taxation. Thegeneral subjects of legislation are dealt with in one group ofentries and power of taxation in separate group. The powerto tax cannot be deduced from general legislative entryas an ancillary power.

(4) The entries in the lists being merely topics or fields oflegislation, they must receive liberal construction inspired bya broad and generous spirit and not in narrow pedantic sense.The words and expressions employed in drafting the entriesmust be given the widest-possible interpretation. This isbecause, to quote V. Ramaswami, J., the allocation of thesubjects to the lists is not by way of scientific or logical definitionbut by way of mere simplex enumeratio of broadcategories. power to legislate as to the principal matterspecifically mentioned in the entry shall also include withinits expanse the legislations touching incidental andancillary matters.(5) Where the legislative competence of the legislature of anyState is questioned on the ground that it encroaches upon thelegislative competence of Parliament to enact law, thequestion one has to ask is whether the legislation relates to anyof the entries in List I or III. If it does, no further question needbe asked and Parliament’s legislative competence must beupheld. Where there are three lists containing large numberof entries, there is bound to be some overlapping among them.In such situation the doctrine of pith and substance has to beapplied to determine as to which entry does given piece oflegislation relate. Once it is so determined, any incidentaltrenching on the field reserved to the other legislature is of noconsequence. The court has to look at the substance of thematter. The doctrine of pith and substance is sometimesexpressed in terms of ascertaining the true character oflegislation. The name given by the legislature to the legislation

is immaterial. Regard must be had to the enactment as 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 aclash between the Union and the State Lists within an areacommon to both. There the doctrine of pith and substance is tobe applied and if the impugned legislation substantially fallswithin the power expressly conferred upon the legislature whichenacted it, an incidental encroaching in the field assigned toanother legislature is to be ignored. While reading the threelists, List I has priority over Lists III and II and List III haspriority over List II. However, still, the predominance of theUnion List would not prevent the State Legislature fromdealing with any matter within List II though it mayincidentally affect any item in List I.

(emphasis supplied)

71. It could thus be seen that the Constitution Bench has held thatwhen the legislative competence of State Legislature is questioned onthe ground that it encroaches upon the legislative competence of theParliament, since some entries are bound to be overlapping, in such asituation, the doctrine of pith and substance has to be applied to determineas to which entry does given piece of legislation relate to. Once it is sodetermined, any incidental trenching on the field reserved to the otherlegislature is of no consequence. The court has to look at the substanceof the matter. The true character of the legislation has to be ascertained.Regard must be had to the enactment as whole, to its main objects andto the scope and effect of its provisions. It has been held that incidentaland superficial encroachments are to be disregarded. It has been heldthat the predominance of the Union List would not prevent the StateLegislature from dealing with any matter within List II, though it mayincidentally affect any item in List I.

72. If we look at the scheme of the State enactment, the subjectmatter of the enactment is arbitration. As has been held by the ConstitutionBench in the case of Kesoram Industries Ltd. and Others (supra), ifthe State is competent to legislate on the subject, any incidentalencroachment 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

AG.C. Kanungo (supra) and MP Rural 2018, has specifically held thatthe 1940 Act, the 1996 Act and the State Acts legislated by the Orissaand M.P. Legislatures are referable to Entry 13 of List III of the SeventhSchedule to the Constitution of India. As such, in view of the Presidentialassent under clause (2) of Article 254 of the Constitution of India, theState Legislature would prevail.

73. Shri Venugopal, learned Senior Counsel has strongly relied onparagraphs 234, 238, 239 and 293 in the case of Kesoram IndustriesLtd. and Others (supra), in support of the proposition that the State Actis not within the legislative competence of the State Legislature, whichread thus:

“234. The Constitution-makers found the need for power-sharingdevices between the Centre and the State having regard to theimperatives of the State’s security and stability and, thus, propelledthe thrust towards centralisation by using non obstante clause underArticle 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 inArticle 245 and Article 246. Article 246 confers power onParliament to enact laws with respect to matters enumerated inList I of the Seventh Schedule to the Constitution. Entries 10 to21 of List I of the Seventh Schedule pertain to international law.In making any law under any of these entries, Parliament isrequired to keep Article 51 in mind.

239. Article 253 of the Constitution provides that while givingeffect to an international treaty, Parliament assumes the role ofthe State Legislature and once the same is done the power of theState is denuded.

293. Parliament in enacting the Tea Act has exercised its superiorpower in the matter in terms of Article 253 of the Constitution ofIndia. Such superior power in certain situations can also beexercised in terms of Entry 33 List III as also overriding powersof Parliament during national emergency including those underArticles 249, 250, 251 and 252 of the Constitution of India. (See ITCLtd. [(2002) 9 SCC 232])”

74. It is to be noted that the aforesaid paragraphs are from theminority view expressed by Sinha, J. As such, the view expressed by thelearned Judge, contrary to the majority judgment in the Constitution Bench,would not support the case of the respondents any further.

�UNCITRAL MODEL LAW - DECISION ORRECOMMENDATION? :

75. That leaves us to consider the contention on behalf of therespondents that the 1996 Act is enacted by the Parliament under Article253 of the Constitution of India and since the said Act has been enactedin accordance with the decision taken at the international conference toimplement the UNCITRAL Model law, the State Legislature is notcompetent to enact the State Law.

76. It is submitted that since the 1996 Act has been enacted inaccordance with the decision taken by the General Assembly of theUnited Nations, the same would be referable to Article 253 of theConstitution of India.

77. In this respect, it is to be noted that the Preamble of the 1996Act would reveal that the recommendation of the General Assembly ofthe United Nations is for adopting UNCITRAL Model Law insofar asinternational commercial arbitrations are concerned. It will further berelevant to refer to paragraphs (2) and (3) of the Statement of Objectsand Reasons of the 1996 Act:

“Statement of Objects and Reasons

1. ……………

2. The United Nations Commission on International Trade Law(UNCITRAL) adopted in 1985 the Model Law on InternationalCommercial Arbitration. The General Assembly of the UnitedNations has recommended that all countries give due considerationto the said Model Law, in view of the desirability of uniformity ofthe law of arbitral procedures and the specific needs of internationalcommercial arbitration practice. The UNCITRAL also adopteddin 1980 set of Conciliation Rules. The General Assembly ofthe United Nations has recommended the use of these Rules incases where the disputes arise in the context of internationalcommercial relations and the parties seek amicable settlement oftheir disputes by recourse to conciliation. An important feature of

Athe said UNCITRAL Model Law and Rules is that they haveharmonized concepts on arbitration and conciliation of differentlegal systems of the world and thus contain provisions which aredesigned for universal application.

3. Though the said UNCITRAL Model Law and Rules areBintended to deal with international commercial arbitration andconciliation, they could, with appropriate modifications, serve as amodel for legislation on domestic arbitration and conciliation. Thepresent Bill seeks to consolidate and amend the law relating todomestic arbitration, international commercial arbitration,enforcement of foreign arbitral awards and to define the lawCrelating to conciliation, taking into account the said UNCITRALModel Law and Rules.

78. perusal thereof would clearly reveal that the GeneralDAssembly of the United Nations has recommended that all countriesgive due consideration to the UNCITRAL Model Law, in view of thedesirability of uniformity of the law of arbitral procedures and the specificneeds of international commercial arbitration practices are concerned.

79. It could thus be seen that there is no binding decision at theEGeneral Assembly of the United Nations to implement the UNCITRALModel Law. In any case, that recommendation is with regard to onlyinternational commercial arbitration practices. No doubt that theParliament, with certain modifications, has given due consideration tothe UNCITRAL Model Law for legislation on the domestic arbitration.However, that cannot by itself be said to be binding on the Parliament toFenact the law in accordance with UNCITRAL Model Law.

80. It will also be relevant to refer to the Resolution dated 11[th]December 1985 passed by the United Nations General Assembly, whichreads thus:

“40/72.Model Law on International CommercialGArbitration of the United NationsCommission on International Trade Law

The General Assembly,

Recognizing the value of arbitration as method of settlingHdisputes arising in international commercial relations,

Convinced that the establishment of model law on arbitrationthat is acceptable to States with different legal, social andeconomic systems contributes to the development ofharmonious international economic relations,

Noting that the Model law on International CommercialArbitration was adopted by the United Nations Commissionon International Trade Law at its eighteenth session, after duedeliberation and extensive consultation with arbitral institutionsand individual experts on international commercial arbitration,

Convinced that the Model Law, together with the Conventionon the Recognition and Enforcement of Foreign ArbitralAwards and the Arbitration Rules of the United NationsCommission on International Trade Law recommended by theGeneral Assembly in its resolution 31/98 of 15 December 1976,significantly contributes to the establishment of unified legalframework for the fair and efficient settlement of disputesarising in international commercial relations,

1. Requests the Secretary-General to transmit the text of theModern Law on International Commercial Arbitration of theUnited Nations Commission on International Trade Law,together with the travaux preparatoires from the eighteenthsession of the Commission, to Governments and to arbitralinstitutions and other interested bodies, such as chambers ofcommerce;

2. Recommends that all States give due consideration tothe Model Law on International Commercial Arbitration,in view of the desirability of uniformity of the law ofarbitral procedures and the specific needs of internationalcommercial arbitration practice.”

[emphasis supplied]

81. perusal of the aforesaid Resolution would clearly revealthat what has been done by the United Nations General Assembly videthe aforesaid Resolution is to recommend to all the States to give dueconsideration to the Model Law on international commercial arbitration.However, perusal of the Resolution itself would reveal that it does notcreate any binding obligation on the States to enact the UNCITRALModel Law as it is.

A82. Shri Venugopal, in support of his contention, has strongly reliedon the following observations of this Court in the case of S. Jagannath(supra):

“48. At this stage we may deal with question which hasincidentally come up for our consideration. Under para 2 of theCRZ Notification, the activities listed thereunder are declared asprohibited activities. Various State Governments have enactedcoastal aquaculture legislations regulating the industries set up inthe coastal areas. It was argued before us that certain provisionsof the State legislations including that of the State of Tamil Naduare not in consonance with the CRZ Notification issued by theGovernment of India under Section 3(3) of the Act. Assumingthat be so, we are of the view that the Act being Central legislationhas the overriding effect. The Act (the Environment ProtectionAct, 1986) has been enacted under Entry 13 of List I ScheduleVII of the Constitution of India. The said entry is as under:

“Participation in international conferences, assessment andother bodies and implementing of decisions made thereat.”

The preamble to the Act clearly states that it was enacted toimplement the decisions taken at the United Nations’ Conferenceon the Human Environment held at Stockholm in June 1972.EParliament has enacted the Act under Entry 13 of List I ScheduleVII read with Article 253 of the Constitution of India. The CRZNotification having been issued under the Act shall have overridingeffect and shall prevail over the law made by the legislatures ofthe States.”

F83. Shri Venugopal further relied on the following observations ofthis Court in the case of Mantri Techzone Private Limited (supra):

“40. The Tribunal has been established under constitutionalmandate provided in Schedule VII List I Entry 13 of theConstitution of India, to implement the decision taken at theUnited Nations Conference on Environment and Development.The Tribunal is specialised judicial body for effective andexpeditious disposal of cases relating to environmental protectionand conservation of forests and other natural resourcesincluding enforcement of any legal right relating to environment.The right to healthy environment has been construed as part

of the right to life under Article 21 by way of judicialpronouncements. Therefore, the Tribunal has special jurisdictionfor enforcement of environmental rights.”

84. At this juncture, it will be relevant to note that the Preamble tothe Environment (Protection) Act, 1986 (hereinafter referred to as the“1986 Act”) would itself reveal that it refers to the decision taken atUnited Nations Conference on the Human Environment held at Stockholmin June 1972, in which India participated and wherein, decision wastaken to take appropriate steps for the protection and improvement ofhuman environment. It further states that it was considered necessaryto implement the decisions aforesaid insofar as they relate to theprotection and improvement of environment and the prevention of hazardsto human beings and other living creatures. So also, the National GreenTribunal Act, 2010 (hereinafter referred to as the “NGT Act”) refers toIndia being party to the decision taken at the United Nations Conferenceon the Human Environment held at Stockholm in June 1972, in whichIndia had participated and the decisions were taken to call upon theStates to take appropriate steps for the protection and improvement ofhuman environment. It further refers to the decision taken at the UnitedNations Conference on Environment and Development held at Rio deJaneiro in June 1992, in which India had participated. The States werecalled upon to provide effective access to judicial and administrativeproceedings including redress and remedy, and to develop national lawsregarding liability and compensation for the victims of pollution and otherenvironment damage. It further observes that it is considered expedientto implement the decision taken at the aforesaid conferences.

85. It is thus clear that whereas, the 1986 Act and the NGT Acthave been enacted specifically to implement the decisions taken at theinternational conferences, the 1996 Act is enacted on the basis of theResolution passed by the General Assembly of the United Nations in1985, whereby the General Assembly only recommended the adoptionof UNCITRAL Model Law insofar as international commercialarbitration practices are concerned. As such, the 1986 Act and the NGTAct are directly referable to Entry 13 of List I of the Seventh Scheduleand Article 253 of the Constitution of India. Therefore, reliance on theabove referred judgments, in our view, would not be of any assistance tothe case of the respondents, inasmuch as the Resolution of the GeneralAssembly of the United Nations is only recommendatory in nature andthere is no binding decision taken thereat.

A�STATE LEGISLATURE’S ENCROACHMENT ONJUDICIAL POWERS:

86. We next consider the finding of the High Court that since theState Act, in effect, annuls the awards passed by the Arbitrators and/orthe judgments or decrees passed by the courts, it will amount toBencroachment on judicial powers of the courts and as such, is hit by thedoctrine of separation of powers.

87. perusal of the list containing details of the Kerala arbitrationcases involved in the present matters would reveal that in most of thecases, the awards were passed prior to the year 1992 and the awardsCwere made rule of the court prior to the year 1993. In some of thematters, on the date of the enactment of the State Act, the appealspreferred by the State under Section 39 of the 1940 Act were pendingbefore the competent courts.

88. The appellants have heavily relied on the judgment of thisDCourt in the case of G.C. Kanungo (supra), wherein this Court hasobserved thus:

“15. What is of importance and requires our examination is,whether such court when makes an award of the SpecialArbitration Tribunal filed before it, “Rule of Court” by itsjudgment and decree, as provided under Section 17 of thePrincipal Act, does such award of the Special ArbitrationTribunal merge in the judgment and decree, as argued on behalfof the petitioners. We find it difficult to accede to the argument.What cannot be overlooked is, that the award of SpecialArbitration Tribunal, as that of an award of an arbitrator, is, aswe have already pointed out, decision made by it on theclaim or cause referred for its decision by way of arbitraldispute. When the court makes such award of SpecialArbitration Tribunal “Rule of Court” by means of its judgmentand decree, it is not deciding the claim or cause as it wouldhave done, if it had come before it as suit for its judgmentand decree in the course of exercise of its ordinary civiljurisdiction. Indeed, when such award is made to come by aparty to the dispute before court for being made “Rule ofCourt” by its judgment and decree, it is to obtain the superaddedseal of the court for such award, as provided for under thePrincipal Act, to make it enforceable against the other party

through the machinery of court. Therefore, the judgment anddecree rendered by the civil court in respect of an award ismerely to superadd its seal thereon for making such awardenforceable through the mechanism available with it forenforcement of its own judgments and decrees. The mere factthat such judgments or decrees of courts by which the awardsof Special Arbitration Tribunals are made “Rules of Court” orare affirmed by judgments and decrees of superior courts inappeals, revisions or the like, cannot make the awards thedecisions of courts. Hence, when the awards of SpecialArbitration Tribunals are made by the judgments and decreesof court, “Rules of Court” for enforcing them through itsexecution process, they (the awards) do not merge in thejudgments and decrees of courts, as would make them thedecisions of court. The legal position as to non-merger of awardsin judgments and decrees of courts, which we have stated,receives support from certain observations in the decision ofthis Court in Satish Kumar v. Surinder Kumar [(1969) 2 SCR244 : AIR 1970 SC 833] . There, this Court was confrontedwith the question, whether an award made by an arbitratorwhich had become unenforceable for want of registration underthe Registration Act, ceased to be decision of the arbitrator,which binds the parties or their privies. In that context, thisCourt observed that an award is entitled to that respect whichis due to the judgment and decree of last resort. And if theaward which had been pronounced between the parties hasbecome final, second reference of the subject of the awardbecomes incompetent. It further observed that if the award isfinal and binding on the parties, it can hardly be said that it is awaste paper unless it is made “Rule of Court”. Hegde, J.who agreed with the above observations of Sikri, J. (as hisLordship then was) while speaking for Bachawat, J. alsoobserved that the arbitration has the first stage whichcommences with arbitration agreement and ends with themaking of the award, and then second stage which relates tothe enforcement of the award. He also observed that it wasone thing to say that right is not created by the award but it isan entirely different thing to say that the right created cannotbe enforced without further steps.

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16. Therefore, our answer to the point is that the awards ofSpecial Arbitration Tribunals did not merge in judgments anddecrees of the courts even though the courts by their judgmentsand decrees made such awards “Rules of Court” for theirenforceability through the courts availing their machinery usedfor execution of their decisions, that is, their own judgmentsand decrees.

17. It is true, as argued on behalf of the petitioners, that alegislature has no legislative power to render ineffective theearlier judicial decisions by making law which simply declaresthe earlier judicial decisions as invalid or not binding, for suchpower if exercised would not be legislative power exercisedby it but judicial power exercised by it encroaching upon thejudicial power of the State exclusively vested in courts. Thesaid argument advanced, since represents the correct and well-settled position in law, we have thought it unnecessary to referto the decisions of this Court cited by learned counsel for thepetitioners, in that behalf and hence have not referred to them.

18. For the 1991 Amendment Act to becomeunconstitutional on the ground that it has renderedjudgments and decrees of courts by which the SpecialArbitration Tribunals’ awards are made “Rules of Court”,invalid or ineffective, such judgments and decrees mustbe decisions of courts rendered by them in exercise oftheir judicial power of decision-making in respect of thesubjects of dispute before them and not where theyrender judgments and decrees to make the awards ofthe Special Arbitration Tribunals “Rules of Court” sothat they could be made enforceable through themachinery of courts. Thus, the awards of the SpecialArbitration Tribunals when get the superadded seals ofcourts for such awards, by the courts making them“Rules of Court” by their judgments and decrees, suchawards do not get merged in judgments and decrees ofcourts so as to make them the decisions of courts,rendered in exercise of State’s judicial power of decision-making, as it happens in the causes directly broughtbefore them by way of suits for their decisions. As wehave already pointed out, question of claim or cause of partywhich gets merged in the award of Special ArbitrationTribunal, in turn, getting merged in judgment and decree madeby civil court, for the purpose of making the award “Rule ofCourt”, so as to make it enforceable, cannot arise. What needsto be noted is, that courts even if render their judgments anddecrees for making the awards “Rules of Court”, thosejudgments and decrees cannot substitute their own decisionsfor the decisions of Special Arbitration Tribunals contained intheir awards. This situation makes it clear that power exercisedby the civil courts in making the awards of Special ArbitrationTribunals “Rules of Court” by their judgments and decrees isnot their judicial power exercised in rendering judgments anddecrees, as civil courts exercise their powers vested in themfor resolving disputes between parties. To be precise,judgments and decrees made by civil courts in makingthe awards of the Special Arbitration Tribunals the“Rules of Court” for the sole purpose of theirenforceability through the machinery of court, cannotmake such judgments and decrees of civil court, thedecisions rendered by civil courts in exercise of judicialpower of the State exclusively invested in them underour Constitution. Thus, when the judgments and decreesmade by civil courts in making the awards of Special ArbitrationTribunals “Rules of Court” are not those judgments and decreesof courts made in exercise of judicial power of State vested inthem under our Constitution, the 1991 Amendment Act whennullifies the judgments and decrees of courts by which awardsof Special Arbitration Tribunals are made “Rules of Court”,cannot be regarded as that enacted by the Orissa StateLegislature encroaching upon the judicial powers of Stateexercisable under our Constitution by courts as sentinels ofRule of Law, basic feature of our Constitution. Hence, the1991 Amendment Act insofar as it nullifies judgments anddecrees of courts by which awards of Special ArbitrationTribunals are made “Rules of Court”, even where they areaffirmed by higher courts, cannot be regarded as that made bythe Orissa State Legislature transgressing upon the judicialpower of State vested in courts as would make itunconstitutional.”

[emphasis supplied]

89. It could be seen that this Court has observed that the judgmentsand decrees made by the civil courts in making the awards of the SpecialArbitration Tribunals the “Rules of Court” are for the sole purpose oftheir enforceability through the machinery of courts and therefore, cannotbe such judgments and decrees of civil courts made in exercise of thejudicial power of the State exclusively vested in them under theConstitution of India. This Court, therefore, held that the 1991Amendment Act, which nullifies the judgments and decrees of the courtby which awards of Special Arbitration Tribunals are made “Rules ofCourt”, cannot be said to be an encroachment upon the judicial powersof the State exercisable by the courts under the Constitution of India.

90. However, it is to be noted that in the very same judgment, thisCourt observed thus:

“28. Thus, the impugned 1991 Amendment Act seeks to nullifythe awards made by the Special Arbitration Tribunalsconstituted under the 1984 Amendment Act, in exercise of thepower conferred upon them by that Act itself. When the awardsmade under the 1984 Amendment Act by the Special ArbitrationTribunals in exercise of the State’s judicial power conferredupon them which cannot be regarded as those merged in Rulesof Court or judgments and decrees of courts, are sought to benullified by the 1991 Amendment Act, it admits of no doubtthat legislative power of the State Legislature is used byenacting the impugned 1991 Amendment Act to nullify orabrogate the awards of the Special Arbitration Tribunals byarrogating to itself, judicial power. [See Cauvery WaterDisputes Tribunal, Re [1993 Supp (1) SCC 96 (2) : AIR 1992SC 522 : 1991 Supp (2) SCR 497] ]. From this, it follows thatthe State Legislature by enacting the 1991 Amendment Acthas encroached upon the judicial power entrusted to judicialauthority resulting in infringement of basic feature of theConstitution — the Rule of Law. Thus, when the 1991Amendment Act nullifies the awards of the SpecialArbitration Tribunals, made in exercise of the judicialpower conferred upon them under the 1984 AmendmentAct, by encroaching upon the judicial power of the State,we have no option but to declare it as unconstitutionalhaving regard to the well-settled and undisputed legal

position that legislature has no legislative power torender ineffective the earlier judicial decisions by makinga law which simply declares the earlier judicial decisionsas invalid and not binding, for such powers, if exercised,would not be legislative power exercised by it, butjudicial power exercised by it encroaching upon thejudicial power of the State vested in judicial tribunal asthe Special Arbitration Tribunal under the 1984Amendment Act. Moreover, where the arbitral awardssought to be nullified under the 1991 Amendment Actare those made by Special Arbitration Tribunalsconstituted by the State itself under the 1984 AmendmentAct to decide arbitral disputes to which State was party,it cannot be permitted to undo such arbitral awards whichhave gone against it, by having recourse to its legislativepower for grant of such permission as could result inallowing the State, if nothing else, abuse of its power oflegislation.”

[emphasis supplied]

91. The court further held that under the 1984 Amendment Act,the Special Arbitration Tribunals were constituted by the State itself todecide arbitral disputes. It held that the State was party before suchTribunals and therefore, it cannot be permitted to undo such arbitralawards which had gone against it. It further held that if such an exerciseis permitted to be done, by having recourse to its legislative power, itwould result in nothing elsebut allowing the State, abuse of its power oflegislation.

92. The Court goes on to hold that the awards made under the1984 Amendment Act by the Special Arbitration Tribunals are sought tobe nullified by the 1991 Amendment Act. As such, the legislative powerof the State Legislature is used by enacting the impugned 1991Amendment Act to nullify or abrogate the awards of the SpecialArbitration Tribunals by abrogating to itself judicial power. In this respect,the Court relied on the judgment of this Court in the case of CauveryWater Disputes Tribunal[41]. This Court further goes on to hold that theState Legislature by enacting the 1991 Amendment Act has encroachedupon the judicial power vested in judicial authorities and as such, infringed41 1993 Supp (1) SCC 96 (2)

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Athe basic feature of the Constitution of India the “Rule of Law”. Assuch, this Court held the 1991 Amendment Act to be unconstitutional onthe ground that the arbitral awards passed by the Special ArbitrationTribunals under the 1984 Amendment Act are sought to be nullified bythe 1991 Amendment Act.

B93. perusal of the aforesaid observations made in the case ofG.C. Kanungo (supra) would reveal that on one hand, this Court goeson to hold that the judgments and decrees by which the civil courts makethe awards “Rules of Court” are not passed in exercise of its judicialpowers. As such, the awards do notmergein the judgments and decreesof the court. But on the other hand, the Court goes on to hold that theCawards passed by the Special Arbitration Tribunals are the awards passedby the Tribunals exercising the judicial power and as such, when theState nullifies such awards, it abrogates to itself judicial power and theStatute which annuls it, is unconstitutional being encroachment on thejudicial power of the State.D94. Since

94. Since G.C. Kanungo (supra) has ultimately held the 1991Amendment Act to be unconstitutional on the ground that it annuls theawards passed by the Special Arbitration Tribunals, it may not benecessary to consider the question as to whether G.C. Kanungo (supra)was right in holding that the judgments and decrees vide which the awardsEare made “Rules of Court”, are not passed in exercise of judicial power.However, the perusal of paragraph 17 in the case of G.C. Kanungo(supra) would reveal that this Court recorded the submissions made onbehalf of the petitioners therein that, Legislature has no legislativepower to render ineffective the earlier judicial decisions by making alaw which simply declares the earlier judicial decisions as invalid or notFbinding. It also recorded that if such power is exercised, it will not belegislative power exercised by it but judicial power, encroaching uponthe judicial power of the State exclusively vested in courts. It furtherappears that various decisions of this Court were cited by the counselfor the petitioners therein, however, this Court did not find it necessaryGto refer to the said decisions, since this Court found that the saidsubmissions represent correct and well-settled position in law. It willbe worthwhile to note that in the said case, this Court was consideringthe provisions of the 1940 Act as against the provisions of the OrissaState Act. In the present case also, all the awards so also the judgmentsand decrees passed by the civil courts making such awards “Rules ofH

Court” have been passed under the 1940 Act. We, therefore, find that itwill be appropriate to examine the correctness of the said finding.

95. It will be necessary to consider the scheme of the 1940 Act aswill be found in Sections 15, 16, 17 and 30 thereof, which read thus:

“15. Power of Court to modify award.—The Court may byorder modify or correct an award—

(a) where it appears that part of the award is upon matternot referred to arbitration and such part can be separated fromthe other part and does not affect the decision on the matterreferred; or

(b) where the award is imperfect in form, or contains anyobvious error which can be amended without affecting suchdecision; or

(c) where the award contains clerical mistake or an errorarising from an accidental slip or omission.

16. Power to remit award.—(1) The Court may from time totime remit the award or any matter referred to arbitration to thearbitrators or umpire for reconsideration upon such terms as itthinks fit—

(a) where the award has left undetermined any of the mattersreferred to arbitration, or where it determines any matter notreferred to arbitration and such matter cannot be separatedwithout affecting the determination of the matters referred; or

(b) where the award is so indefinite as to be incapable ofexecution; or

(c) where an objection to the legality of the award is apparentupon the face of it.

(2) Where an award is remitted under sub-section (1) the Courtshall fix the time within which the arbitrator or umpire shall submithis decision to the Court:

Provided that any time so fixed may be extended by subsequentorder of the Court.

(3) An award remitted under sub-section (1) shall become voidon the failure of the arbitrator or umpire to reconsider it and submithis decision within the time fixed.

17. Judgment in terms of award.—Where the Court sees nocause to remit the award or any of the matters referred to arbitrationfor reconsideration or to set aside the award, the Court shall, afterthe time for making an application to set aside the award hasexpired, or such application having been made, after refusing it,proceed to pronounce judgment according to the award, and uponthe judgment so pronounced decree shall follow, and no appealshall lie from such decree except on the ground that it is in excessof, or not otherwise in accordance with the award.

……………..

30. Grounds for setting aside award.—An award shall notbe set aside except on one or more of the following grounds,namely—

(a) that an arbitrator or umpire has misconducted himself orthe proceedings;

(b) that an award has been made after the issue of an order bythe Court superseding the arbitration or after arbitrationproceedings have become invalid under Section 35;

(c) that an award has been improperly procured or is otherwiseinvalid.”

96. perusal of Section 15 of the 1940 Act would reveal that thecourt, by an order, may modify or correct an award, where it appearsthat part of the award is upon matter not referred to arbitration andsuch part can be separated from the other part and does not affect thedecision on the matter referred. The Court may also modify or correctFthe award, where the award is imperfect in form, or contains any obviouserror which can be amended without affecting such decision. The powerunder Section 15 of the 1940 Act could also be exercised, where theaward contains clerical mistake or an error arising from an accidentalslip or omission.

G97. Section 16 of the 1940 Act empowers the court to remit theaward or any matter referred to arbitration to the arbitrators or umpirefor reconsideration, where it finds that the award has left undeterminedany of the matters referred to arbitration, or where it determines anymatter not referred to arbitration and such matter cannot be separatedwithout affecting the determination of the matters referred. Such powerH

can also be exercised, where the award is so indefinite as to be incapableof execution. So also, where an objection to the legality of the award isapparent upon the face of it, the court would be empowered to remit theaward.

98. Section 30 of the 1940 Act provides the grounds on which anaward could be set aside. It provides that the award could be set asidewhen 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 afterthe issue of an order by the Court superseding the arbitration or afterarbitration proceedings have become invalid under Section 35. The awardcould also be set aside when the court finds that the award has beenimproperly procured or is otherwise invalid.99. Section 17 of the 1940 Act empowers the court to pronouncea judgment according to the award, and upon the judgment so pronounceda decree is to follow. It further provides that no appeal shall lie on suchdecree except on the ground that it is in excess of, or not otherwise inaccordance with, the award. However, prior to pronouncing the judgment,the court is required to be satisfied that no cause to remit the award orany of the matters referred to arbitration for reconsideration or to setaside the award, is made out. The Court is also required to wait till thetime for making an application to set aside the award has expired, orsuch application having been made, has been refused.

100. The perusal of the scheme of the 1940 Act would itself revealthat the passing of the judgment and decree under Section 17 of the1940 Act is not mere formality. The judgment can be pronounced onlywhen the court is satisfied that no cause is made out for remitting theaward or setting aside the award. The court is also entitled to remit ormodify the awards. As such, it cannot be said that the court, while passinga judgment, which is followed by decree, does not exercise judicialpower. The court is not supposed to act mechanically and be Post-Office.

101. Constitution Bench of this Court in the case of HarinagarSugar Mills Ltd. v. Shyam Sundar Jhunjhunwala and Others[42], hadan 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 ofthe Central Government under Section 111 of the Companies Act, 1956

Awas 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 lis or dispute between the contesting partiesrelating to their civil rights, and the Central Government isinvested with the power to determine that dispute according tolaw i.e. it has to consider and decide the proposal and theobjections in the light of the evidence, and not on grounds ofpolicy or expediency. The extent of the power which maybe exercised by the Central Government is not delimitedby express enactment, but the power is not on thataccount unrestricted. The power in appeal to orderregistration of transfers has to be exercised subject tothe limitations similar to those imposed upon theexercise of the power of the court in petition for thatrelief under Section 155: the restrictions which inherethe exercise of the power of the court also apply to theexercise of the appellate power by the CentralGovernment i.e. the Central Government has to decidewhether in exercising their power, the directors areacting oppressively, capriciously or corruptly, or in someway mala fide. The decision has manifestly to stand thoseobjective tests, and has not merely to be founded on thesubjective satisfaction of the authority deciding thequestion. The authority cannot proceed to decide the questionposed for its determination on grounds of expediency: the statuteempowers the Central Government to decide the disputesarising out of the claims made by the transferor or transfereewhich claim is opposed by the company, and by rendering adecision upon the respective contentions, the rights of thecontesting parties are directly affected. Prima facie, theexercise of such authority would be judicial. It isimmaterial that the statute which confers the power uponthe Central Government does not expressly set out theextent of the power: but the very nature of the jurisdictionrequires that it is to be exercised subject to thelimitations which apply to the court under Section 155.The proviso to sub-section (8) of Section 111 clearly indicatesthat in circumstances specified therein reasonable

compensation may be awarded in lieu of the shares. Thiscompensation which is to be reasonable has to be ascertainedby the Central Government; and reasonable compensationcannot be ascertained except by the application of someobjective standards of what is just having regard to all thecircumstances of the case.

In The Province of Bombay v. Kusaldas S.Advani [(1950) SCR 621] this Court considered the distinctionbetween decisions quasi-judicial and administrative orministerial for the purpose of ascertaining whether they aresubject to the jurisdiction to issue writ of certiorari, Fazl Ali,J. at p. 642 observed:

“The word ‘decision’ in common parlance is more or less aneutral expression and it can be used with reference topurely executive acts as well as judicial orders. The merefact that an executive authority has to decide somethingdoes not make the decision judicial. It is the manner in whichthe 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 suggestedin King v. London County Council [(1931) 2 KB 215, 233]by Scrutton, L.J.:

“It is not necessary that it should be court in the sense inwhich this Court is court; it is enough if it is exercising,after hearing evidence, judicial functions in the sense that ithas to decide on evidence between proposal and anopposition; and it is not necessary to be strictly court; if itis tribunal which has to decide rights after hearing evidenceand opposition, it is amenable to the writ of certiorari.”

In Bharat Bank Ltd., Delhi v. Employees [(1950) SCR459] the question whether an adjudication by an IndustrialTribunal functioning under the Industrial Tribunals Act wassubject to the jurisdiction of this Court under Article 136 of theConstitution fell to be determined: Mahajan, J. in that caseobserved:

“There can be no doubt that varieties of AdministrativeTribunals and Domestic Tribunals are known to exist in this

country as well as in other countries of the world but thereal question to decide in each case is as to the extent ofjudicial power of the State exercised by them. Tribunalswhich do not derive authority from the sovereign powercannot fall within the ambit of Article 136. The conditionprecedent for bringing tribunal within the ambit of Article136 is that it should be constituted by the State. Again atribunal would be outside the ambit of Article 136 if is notinvested with any part of the judicial functions of the Statebut discharges purely administrative or executive duties.Tribunals however which are found invested with certainfunctions of court of justice and have some of its trappingsalso would fall within the ambit of Article 136 and would besubject to the appellate control of this Court whenever it isfound and necessary to exercise that control in the interestsof justice.”

It was also observed by Fazi Ali, J. at p. 463, that abody which is required to act judicially and whichexercises judicial power of the State does not cease tobe one exercising judicial or quasi-judicial functionsmerely because it is not expressly required to be guidedby any recognised substantive law in deciding thedisputes which come before it.

The authority of the Central Government entertainingan appeal under Section 111(3) being an alternative remedy toan aggrieved party to petition under Section 155 the investitureof authority is in the exercise of the judicial power of the State.Clause (7) of Section 111 declares the proceedings in appealto be confidential, but that does not dispense with judicialapproach to the evidence. Under Section 54 of the IndianIncome Tax Act (which is analogous) all particulars containedin any statement made, return furnished or account ordocuments produced under the provisions of the Act or in anyevidence given, or affidavit or deposition made, in the courseof any proceedings under the Act are to be treated asconfidential; but that does not make the decision of the taxingauthorities merely executive. As the dispute between theparties relates to the civil rights and the Act provides

for right of appeal and makes detailed provisions abouthearing and disposal according to law, it is impossible toavoid the inference that duty is imposed upon theCentral Government in deciding the appeal to actjudicially.”

[emphasis supplied]

102. It has been held by this Court that the restrictions whichinhere the exercise of the power of the court also apply to the exerciseof the appellate power by the Central Government. It has been held thatthe Central Government has to decide whether in exercising their power,the directors are acting oppressively, capriciously or corruptly, or in someway mala fide. The decision has manifestly to stand those objectivetests, and has not merely to be founded on the subjective satisfaction ofthe authority deciding the question. It has been held that the very natureof the jurisdiction requires that it is to be exercised subject to the limitationswhich 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 betweenthe parties relates to the civil rights and the Act provides for right ofappeal and makes detailed provisions about hearing and disposal accordingto law, it is impossible to avoid the inference that duty is imposed uponthe Central Government in deciding the appeal to act judicially.

103. M. Hidayatullah, J., in separate but concurring judgment,observed thus:

“Courts and tribunals act “judicially” in both senses, and in theterm “court” are included the ordinary and permanent tribunalsand in the term “tribunal” are included all others, which are not soincluded. Now, the matter would have been simple, if theCompanies Act, 1956 had designated person or personswhether by name or by office for the purpose of hearing anappeal under Section 111. It would then have been clearthat though such person or persons were not “courts” inthe sense explained, they were clearly “tribunals”. The Actsays that an appeal shall lie to the Central Government.We are, therefore, faced with the question whether theCentral Government can be said to be tribunal. Reliance isplaced upon recent decision of this Court in ShivjiNathubai v. Union of India [(1960) 2 SCR 775] where it was

Aheld that the Central Government in exercising power of reviewunder the Mineral Concession Rules, 1949, was subject to theappellate jurisdiction conferred by Article 136. In that case whichcame to this Court on appeal from the High Court’s order underArticle 226, it was held on the authority of Province ofBombay v. Kushaldas S. Advani [(1950) SCR 621]Band Rex v. Electricity Commissioners [(1924) 1 KB 171] that theaction of the Central Government was quasi-judicial and notadministrative. It was then observed:

“It is in the circumstances apparent that as soon as Rule 52gives right to an aggrieved party to apply for review lis isCcreated between him and the party in whose favour the granthas been made. Unless therefore there is anything in the statuteto the contrary it will be the duty of the authority to act judiciallyand its decision would be quasi-judicial act.”

This observation only establishes that the decision is quasi-judicialDone, but it does not say that the Central Government can beregarded as tribunal. In my opinion, these are very differentmatters, and now that the question has been raised, it should bedecided.

The function that the Central Government performsEunder the Act and the Rules is to hear an appeal againstthe action of the Directors. For that purpose, memorandumof appeal setting out the grounds has to be filed, and thecompany, on notice, is required to make representations,if any, and so also the other side, and both sides are allowedFto tender evidence to support their representations. TheCentral Government by its order then directs that theshares be registered or need not be registered. The CentralGovernment is also empowered to include in its orders,directions as to payment of costs or otherwise. The functionof the Central Government is curial and not executive.GThere is provision for hearing and decision on evidence,and that is indubitably curial function.

Now, in its functions the Government often reachesdecisions, but all decisions of the Government cannot be regardedas those of tribunal. Resolutions of the Government may affect

rights of parties, and yet, they may not be in the exercise of thejudicial power. Resolutions of the Government may be amenableto writs under Articles 32 and 226 in appropriate cases, but maynot be subject to direct appeal under Article 136 as the decisionsof tribunal. The position, however, changes whenGovernment embarks upon curial functions, and proceedsto exercise judicial power and decide disputes. In thosecircumstances, it is legitimate to regard the officer whodeals with the matter and even Government itself as atribunal. The officer who decides, may even be anonymous; butthe decision is one of tribunal, whether expressed in his name orin the name of the Central Government. The word “tribunal” isa word of wide import, and the words “court” and “tribunal”embrace within them the exercise of judicial power in allits forms. The decision of the Government thus falls within thepowers of this Court under Article 136.”

[emphasis supplied]

104. M. Hidayatullah, J. proceeded to consider as to whether theCentral Government, while exercising its powers under Section 111 ofthe Companies Act, 1956, can be said to be “Tribunal”. On perusal ofthe scheme of Section 111 of the Companies Act, 1956, His Lordshiphas observed that the function of the Central Government under the saidsection is curial and not executive. There is provision for hearing anda decision on evidence, and that is indubitably curial function. HisLordship further held that in its various functions, Government oftenreaches decision, but all decisions of the Government cannot beregarded as those of tribunal. However, when Government embarksupon curial functions, and proceeds to exercise judicial power and decidedisputes, it is legitimate to regard the officer who deals with the matterand even Government itself as tribunal. His Lordship further goes onto hold that the officer who decides, may even be anonymous; but thedecision is one of tribunal, whether expressed in his name or in thename of the Central Government.

105. Constitution Bench of this Court in the case of ShankarlalAggarwala and Others v. Shankarlal Poddar and Others[43],wasconsidering question as to whether the order passed by the Company

43 [1964] 1 SCR 717

AJudge confirming the sale was an administrative order or judicial order.Answering the said question, this Court, speaking through N. RajagopalaAyyangar, J., observed thus:

“On the basis of these provisions, we shall proceed toconsider whether the confirmation of the sale was merely an orderBin the course of administration and not judicial order. The saleby the liquidator was, of course, effected in the course of therealisation of the assets of the company and for the purpose ofthe amount realised being applied towards the discharge of theliabilities and the surplus to be distributed in the manner providedby the Act. It would also be correct to say that when liquidatorCeffects sale he is not discharging any judicial function. Still itdoes not follow that every order of the Court merely for the reasonthat it is passed in the course of the realisation of the assets of thecompany must always be treated as merely an administrative one.The question ultimately depends upon the nature of theDorder that is passed. An order according sanction to saleundoubtedly involves discretion and cannot be termedmerely ministerial order, for before confirming the salethe Court has to be satisfied, particularly where theconfirmation is opposed, that the sale has been held inaccordance with the conditions subject to which alone theEliquidator has been permitted to effect it, and that evenotherwise the sale has been fair and has not resulted in anyloss to the parties who would ultimately have to share therealisation.

The next question is whether such an order could beFclassified as an administrative order. One thing is clear, that themere fact that the order is passed in the course of the administrationof the assets of the company and for realising those assets is notby itself sufficient to make it an administrative, as distinguishedfrom judicial order. For instance, the determination of amountsGdue to the company from its debtors which is also part of theprocess of the realisation of the assets of the company is matterwhich arises in the course of the administration. It does not onthat account follow that the determination of the particular amountdue from debtor who is brought before the Court is anadministrative order.

It is perhaps not possible to formulate definition whichwould satisfactorily distinguish, in this context, between anadministrative and judicial order. That the power is entrusted toor wielded by person who functions as Court is not decisive ofthe question whether the act or decision is administrative or judicial.But we conceive that an administrative order would be onewhich is directed to the regulation or supervision of mattersas distinguished from an order which decides the rights ofparties or confers or refuses to confer rights to propertywhich are the subject of adjudication before the Court. Oneof the tests would be whether matter which involves theexercise of discretion is left for the decision of the authority,particularly if that authority were Court, and if thediscretion has to be exercised on objective, as distinguishedfrom purely subjective, consideration, it would be judicialdecision. It has sometimes been said that the essence of judicialproceeding or of judicial order is that there should be two partiesand lis between them which is the subject of adjudication, as aresult of that order or decision on an issue between proposaland an opposition. No doubt, it would not be possible to describean order passed deciding lis before the authority, that it is not ajudicial order but it does not follow that the absence ofa lis necessarily negatives the order being judicial. Even viewedfrom this narrow standpoint it is possible to hold that there wasa lis before the Company Judge which he decided by passing theorder. On the one hand were the Claims of the highest bidderwho put forward the contention that he had satisfied therequirements laid down for the acceptance of his bid and wasconsequently entitled to have the sale in his favour confirmed,particularly so as he was supported in this behalf by the officialliquidators. On the other hand there was the 1st respondent andnot to speak of him, the large body of unsecured creditors whoseinterests, even if they were not represented by the 1st respondent,the Court was bound to protect. If the sale of which confirmationwas sought was characterised by any deviation from the conditionssubject to which the sale was directed to be held or even otherwisewas for gross undervalue in the sense that very much morecould reasonably be expected to be obtained if the sale wereproperly held in view of the figure of Rs 3,37,000 which had been

Abid by Nandlal Agarwalla, it would be the duty of the Court torefuse the confirmation in the interests of the general body ofcreditors and this was the submission made by the 1st respondent.There were thus two points of view presented to the Court bytwo contending parties or interests and the Court was called uponto decide between them. And the decision vitally affected theBrights of the parties to property. In this view we are clearly of theopinion that the order of the Court was, in the circumstances, ajudicial order and not an administrative one and was therefore notinherently incapable of being brought up in appeal.

[emphasis supplied]

106. The Constitution Bench in the case of ShankarlalAggarwala and Others (supra) held that the question as to whetherthe order passed by court is administrative or judicial, would dependupon the nature of the order that is passed. The order undoubtedly involvesDa discretion and cannot be termed merely ministerial order. His Lordshipdistinguished an administrative order to be one which is directed to theregulation or supervision of matters as against an order which decidesthe rights of parties or confers or refuses to confer rights to propertywhich are the subject of adjudication before the court. It has furtherbeen held that one of the tests for deciding whether the power exercisedEis administrative or judicial, would be whether matter, which involvesthe exercise of discretion, is left for the decision of the authority,particularly if that authority were court, and if the discretion has to beexercised on objective, as distinguished from purely subjective,consideration, it would be judicial decision.F

107. We have, hereinabove, elaborately considered the schemeunder Sections 15, 16 and 17 of the 1940 Act. The perusal of the saidscheme would clearly reveal that before making an award “Rule ofCourt” by passing judgment and decree, the court is required to takeinto consideration various factors, apply its mind and also exercise itsGdiscretion judicially. We find that the aforesaid provisions have not beenconsidered in the case of G.C. Kanungo (supra). The perusal of theaforesaid provisions, as has been considered by us hereinabove, wouldclearly show that the power exercised by the court under Section 17 ofthe 1940 Act is judicial power. We are therefore of the view that thefindings in this respect as recorded by this Court in paragraphs 15 to 18H

in the case of G.C. Kanungo (supra) would be per incuriam theprovisions of the 1940 Act.

108. We further find that the two Constitution Benches in thecases of Harinagar Sugar Mills Ltd. (supra) and ShankarlalAggarwala and Others (supra) have elaborately considered as to whatcould be construed as judicial power of court. In the case of HarinagarSugar Mills Ltd. (supra), though the power to be exercised was by theCentral Government, the Constitution Bench, upon examining the scopeof Section 111 of the Companies Act, 1956, held the said power to be ajudicial one. In the case of Shankarlal Aggarwala and Others (supra),the Constitution Bench distinguished between the administrative andjudicial powers of the court. This Court in paragraph 17 in the case ofG.C. Kanungo (supra) rightly observed that the State Legislature hasno legislative power to render ineffective the earlier judicial decisions bymaking law. It cannot simply declare the earlier decisions invalid or notbinding. However, observing this, in paragraph 18, this Court held thatthe power exercised by the court in making the awards of the SpecialArbitration Tribunals the “Rules of Court”, is not judicial power. Weare of the considered view that the aforesaid finding is not only perincuriam the provisions of the 1940 Act but also the two judgments ofthe Constitution Bench in the cases of Harinagar Sugar Mills Ltd.(supra) and Shankarlal Aggarwala and Others (supra).

109. seven-Judge Bench of this Court in the case of BengalImmunity Company Limited v. State of Bihar and Others[44], wasconsidering the question as to whether the majority decision in the caseof State of Bombay and Another v. United Motors (India) Limitedand Others[45 ]laid down correct law. The authority of the court to gobeyond the majority decision was questioned. While considering the saidobjection, before going into the merits of the matter, S.R. Das, ActingC.J., observed thus:

“……..Learned counsel for some of the intervenersquestion our authority to go behind the majority decision. It is,therefore, necessary at this stage to determine this preliminaryquestion before entering upon detailed discussion on the questionof construction of Article 286.

44 [1955] 2 SCR 603

45 [1953] SCR 1069

AIn England, the Court of Appeal has imposed upon its powerof review of earlier precedents limitation, subject to certainexceptions. The limitation thus accepted is that it is bound to followits own decisions and those of courts of Coordinate jurisdiction,and the “full” court is in the same position in this respect as adivision Court consisting of three members. The only exceptionsBto this Rule are: (1) the court is entitled and bound to decide whichof the two conflicting decisions of its own it will follow; (2) theCourt is bound to refuse to follow decision of its own which,though not expressly overruled, cannot, in its opinion stand with adecision of the House of Lords; and (3) the court is not bound toCfollow decision of its own, if it is satisfied that the decision wasgiven per incuriam e.g. where statute or rule having statutoryeffect which would have affected the decision was not brought tothe attention of the earlier court. [See Young v. Bristol AeroplaneCo. Ltd. [LR 1944 KB 718 CA] which, on appeal to the House ofLords, was approved by Viscount Simon in LR 1946 AC 163 at p.D169]. decision of the House of Lords upon question of law isconclusive and binds the House in subsequent case. An erroneousdecision of the House of Lords can be set right only by an Act ofParliament. [See Street Tramways v. London CountyCouncil [1898 AC 375] This limitation was repeated by LordEWright in Radcliffe v. Ribble Motor Services Ltd. [1939 AC 215at p. 245]”

110. In the case of State of U.P. and Another v. Synthetics andChemicals Ltd. and Another[46], this Court observed thus:

“40. ‘Incuria’ literally means ‘carelessness’. In practice perFincuriam appears to mean per ignoratium. English courts havedeveloped this principle in relaxation of the rule of stare decisis.The ‘quotable in law’ is avoided and ignored if it is rendered, ‘inignoratium of statute or other binding authority’.(Young v. Bristol Aeroplane Co. Ltd. [(1944) 1 KB 718 : (1944)G2 All ER 293] ). Same has been accepted, approved and adoptedby this Court while interpreting Article 141 of the Constitutionwhich embodies the doctrine of precedents as matter of law.In Jaisri Sahu v. Rajdewan Dubey [(1962) 2 SCR 558 : AIR1962 SC 83] this Court while pointing out the procedure to be

H46 (1991) 4 SCC 139

followed when conflicting decisions are placed before benchextracted passage from Halsbury’s Laws of England incorporatingone of the exceptions when the decision of an appellate court isnot binding.

41. Does this principle extend and apply to conclusion of law,which was neither raised nor preceded by any consideration. Inother words can such conclusions be considered as declaration oflaw? Here again the English courts and jurists have carved out anexception to the rule of precedents. It has been explained as ruleof sub-silentio. “A decision passes sub-silentio, in the technicalsense that has come to be attached to that phrase, when theparticular point of law involved in the decision is not perceived bythe court or present to its mind.” (Salmond on Jurisprudence 12thEdn., 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 ofthe rule and without any citation of the authority’. It was approvedby this Court in Municipal Corporation of Delhi v. GurnamKaur. [(1989) 1 SCC 101] The bench held that, ‘precedents sub-silentio and without argument are of no moment’. The courts thushave taken recourse to this principle for relieving from injusticeperpetrated by unjust precedents. decision which is not expressand is not founded on reasons nor it proceeds on consideration ofissue cannot be deemed to be law declared to have bindingeffect as is contemplated by Article 141. Uniformity andconsistency are core of judicial discipline. But that which escapesin the judgment without any occasion is not ratio decidendi. In B.Shama Rao v. Union Territory of Pondicherry [AIR 1967 SC1480 : (1967) 2 SCR 650 : 20 STC 215] it was observed, ‘it is triteto say that decision is binding not because of its conclusions butin regard to its ratio and the principles, laid down therein’. Anydeclaration or conclusion arrived without application of mind orpreceded without any reason cannot be deemed to be declarationof law or authority of general nature binding as precedent.Restraint in dissenting or overruling is for sake of stability anduniformity but rigidity beyond reasonable limits is inimical to thegrowth of law.”

A111. This Court further in the case of Sundeep Kumar Bafna v.State of Maharashtra and Another[47], observed thus:

“19. It cannot be overemphasised that the discipline demandedby precedent or the disqualification or diminution of decisionon the application of the per incuriam rule is of great importance,Bsince without it, certainty of law, consistency of rulings and comityof courts would become costly casualty. decision or judgmentcan be per incuriam any provision in statute, rule or regulation,which was not brought to the notice of the court. decision orjudgment can also be per incuriam if it is not possible to reconcileCits ratio with that of previously pronounced judgment of co-equal or larger Bench; or if the decision of High Court is not inconsonance with the views of this Court. It must immediately beclarified that the per incuriam rule is strictly and correctlyapplicable to the ratio decidendi and not to obiter dicta. It isoften encountered in High Courts that two or more mutuallyDirreconcilable decisions of the Supreme Court are cited at theBar. We think that the inviolable recourse is to apply the earliestview as the succeeding ones would fall in the category of perincuriam.”112. The perusal of the judgment in the case of G.C. KanungoE(supra) would reveal that though the court has recorded the submissionsof the counsel for the petitioners therein, that the Legislature has nopower to render ineffective the earlier judicial decisions by making alaw and though judgments were cited in support of the said proposition,the court did not consider it necessary to refer to the said decisions.FHowever, without considering the provisions of the 1940 Act or the twojudgments of the Constitution Bench in the cases of Harinagar SugarMills Ltd. (supra) and Shankarlal Aggarwala and Others (supra), itwent on to hold that the powers exercised by court while making anaward “Rule of Court”, are not judicial powers. We find that the findingto that effect in the case of G.C. Kanungo (supra), apart from beingGper incuriam the provisions of the 1940 Act and the law laid down bythe Constitution Bench in the cases of Harinagar Sugar Mills Ltd.(supra) and Shankarlal Aggarwala and Others (supra), would also behit by the rule of sub silentio.

113. The perusal of the subsequent judgments of this Court wouldalso fortify the position that the powers exercised by the court under theprovisions of the 1940 Act are judicial powers and that the power tomake an award “Rule of Court” is not mechanical power.

114. In the case of Steel Authority of India Ltd. v. J.C.Budharaja, Government and Mining Contractor[48], this Courtobserved thus:

“17. ……Whether the arbitrator has acted beyond the terms ofthe contract or has travelled beyond his jurisdiction would dependupon facts, which however would be jurisdictional facts, andare required to be gone into by the court……”

[emphasis supplied]

115. While considering the discretion to be exercised by the courtunder Section 16 of the 1940 Act, this Court, in the case of RamachandraReddy & Co. v. State of A.P. and Others[49],observed thus:

“5. Under the Arbitration Act, Section 16 is the provision underwhich the court may remit the award for reconsideration of anarbitrator and necessity for remitting the award arises when thereare omissions and defects in the award, which cannot be modifiedor corrected. Remission of an award is in the discretion ofthe court and the powers of the court are circumscribed bythe provisions of Section 16 itself. Ordinarily, therefore, acourt may be justified in remitting the matter if the arbitratorleaves any of the matters undetermined or part of thematter which had not been referred to and answered andthat part cannot be separated from the remaining part, withoutaffecting the decision on the matter, which was referred toarbitration or the award is so indefinite as to be incapable ofexecution or that the award is erroneous on the face of it.Discretion having been conferred on the court to remit anaward, the said discretion has to be judicially exercised andan appellate court would not be justified in interfering withthe exercise of discretion unless the discretion has beenmisused. What is an error apparent on the face of an awardwhich requires to be corrected, has always been subject-matter

48 (1999) 8 SCC 122

49 (2001) 4 SCC 241

Aof discussion. An error of law on the face of the award wouldmean that one can find in the award or document actuallyincorporated thereto stating the reasons for judgment some legalpropositions which are the basis of the award and which can besaid to be erroneous. Documents not incorporated directly orindirectly into the award cannot be looked into for the purpose ofBfinding out any alleged error. The courts are not to investigatebeyond the award of the arbitrators and the documents actuallyincorporated therein and, therefore, when there would be no patenterror on the face of the award, it would not be open for the courtto go into the proceedings of the award. If the application forCremittance filed by the claimants invoking jurisdiction of the courtunder Section 16 is examined from the aforesaid standpoint and ifthe order of the learned civil court, remitting Claim Item 1 is testedin the light of the discussions made above, the conclusion isirresistible that no case for remittance had been made out and thelearned trial Judge exercised his discretion on the grounds whichDdo not come within the four corners of the provisions of Section16 of the Arbitration Act. In fact no reasons had been ascribedfor interference with the award, rejecting Claim Item 1 and forremittance of the same. The High Court being the court of appeal,was therefore, fully justified in exercise of its appellate power inEcorrecting the error made by the Civil Judge in remitting ClaimItem 1.”

[emphasis supplied]

116. seven-Judge Bench of this Court, in the case of SBP &Co. v. Patel Engineering Ltd. and Another[50], was considering theFquestion as to whether the powers of the Chief Justice of High Court orChief Justice of India under Sections 11(6) and 8 of the 1996 Act areadministrative or judicial.117. After referring to the earlier decisions, P.K. Balasubramanyan,J., delivering majority judgment, observed thus:G

“36. Going by the above test it is seen that at least in the matterof deciding his own jurisdiction and in the matter of deciding onthe existence of an arbitration agreement, the Chief Justice whenconfronted with two points of view presented by the rival parties,

H50 (2005) 8 SCC 618

is called upon to decide between them and the decision vitallyaffects the rights of the parties in that, either the claim for appointingan Arbitral Tribunal leading to an award is denied to party or theclaim to have an arbitration proceeding set in motion for entertaininga claim is facilitated by the Chief Justice. In this context, it is notpossible to say that the Chief Justice is merely exercising anadministrative function when called upon to appoint an arbitratorand that he need not even issue notice to the opposite side beforeappointing an arbitrator.37. It is fundamental to our procedural jurisprudence, that theright of no person shall be affected without he being heard. Thisnecessarily imposes an obligation on the Chief Justice to issuenotice to the opposite party when he is moved under Section 11 ofthe Act. The notice to the opposite party cannot be considered tobe merely an intimation to that party of the filing of the arbitrationapplication and the passing of an administrative order appointingan arbitrator or an Arbitral Tribunal. It is really the giving of anopportunity of being heard. There have been cases where claimsfor appointment of an arbitrator based on an arbitration agreementare made ten or twenty years after the period of the contract hascome to an end. There have been cases where the appointmentof an arbitrator has been sought, after the parties had settled theaccounts and the party concerned had certified that he had nofurther claims against the other contracting party. In other words,there have been occasions when dead claims are sought to beresurrected. There have been cases where assertions are madeof the existence of arbitration agreements when, in fact, suchexistence is strongly disputed by the other side who appears onissuance of notice. Controversies are also raised as to whetherthe claim that is sought to be put forward comes within the purviewof the arbitration clause concerned at all. The Chief Justice hasnecessarily to apply his mind to these aspects before coming to aconclusion one way or the other and before proceeding to appointan arbitrator or declining to appoint an arbitrator. Obviously, this isan adjudicatory process. An opportunity of hearing to both partiesis must. Even in administrative functions if rights are affected,rules of natural justice step in. The principles settledby Ridge v. Baldwin [(1963) 2 All ER 66 : 1964 AC 40 : (1963) 2WLR 935 (HL)] are well known. Therefore, to the

464SUPREME COURT REPORTS

Aextent, Konkan Rly. [(2002) 2 SCC 388] states that no noticeneed be issued to the opposite party to give him an opportunity ofbeing heard before appointing an arbitrator, with respect, the samehas to be held to be not sustainable.”

118. It could thus be seen that this Court in unequivocal terms hasBheld that the powers exercised by the Chief Justice of the High Court orChief Justice of India under Section 11(6) of the 1996 Act are notadministrative but are judicial powers. It would thus not sound to reason,that when power under Section 11(6) of the 1996 Act for appointmentof an arbitrator has been held to be judicial power, the power to makean award “Rule of Court”, which can be made only upon the satisfactionCof the court on the existence of the eventualities set out in Section 17 ofthe 1940 Act, is not an exercise of judicial power.

119. Constitution Bench of this Court in the case of State ofTamil Nadu v. State of Kerala and Another[51], after an elaborate surveyof all the earlier judgments, has summed up the Law on “separation ofDpowers doctrine” under the Constitution of India, as under:

“Summary of separation of powers doctrine under the IndianConstitution

126. On deep reflection of the above discussion, in our opinion,Ethe constitutional principles in the context of Indian Constitutionrelating to separation of powers between the legislature, executiveand 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 inFthe Constitution of India. The doctrine of separation of powersinforms the Indian constitutional structure and it is an essentialconstituent of rule of law. In other words, the doctrine of separationof power though not expressly engrafted in the Constitution, itssweep, operation and visibility are apparent from the scheme ofIndian Constitution. Constitution has made demarcation, withoutGdrawing formal lines between the three organs—legislature,executive and judiciary. In that sense, even in the absence ofexpress provision for separation of powers, the separation ofpowers between the legislature, executive and judiciary is not

different from the Constitutions of the countries which containexpress provision for separation of powers.

126.2. Independence of courts from the executive and legislatureis fundamental to the rule of law and one of the basic tenets ofIndian Constitution. Separation of judicial power is significantconstitutional principle under the Constitution of India.

126.3. Separation of powers between three organs—thelegislature, executive and judiciary—is also nothing but aconsequence of principles of equality enshrined in Article 14 ofthe Constitution of India. Accordingly, breach of separation ofjudicial power may amount to negation of equality under Article14. Stated thus, legislation can be invalidated on the basis ofbreach of the separation of powers since such breach is negationof equality under Article 14 of the Constitution.

126.4. The superior judiciary (High Courts and Supreme Court)is empowered by the Constitution to declare law made by thelegislature (Parliament and State Legislatures) void if it is foundto have transgressed the constitutional limitations or if it infringedthe rights enshrined in Part III of the Constitution.

126.5. The doctrine of separation of powers applies to the finaljudgments of the courts. The legislature cannot declare anydecision of court of law to be void or of no effect. It can, however,pass an amending Act to remedy the defects pointed out by acourt of law or on coming to know of it aliunde. In other words, acourt’s decision must always bind unless the conditions on whichit is based are so fundamentally altered that the decision could nothave been given in the altered circumstances.

126.6. If the legislature has the power over the subject-matterand competence to make validating law, it can at any time makesuch validating law and make it retrospective. The validity of avalidating law, therefore, depends upon whether the legislaturepossesses the competence which it claims over the subject-matterand whether in making the validation law it removes the defectwhich the courts had found in the existing law.

126.7. The law enacted by the legislature may apparently seemto be within its competence but yet in substance if it is shown asan attempt to interfere with the judicial process, such law may be

Ainvalidated being in breach of doctrine of separation of powers.In such situation, the legal effect of the law on judgment or ajudicial proceeding must be examined closely, having regard tolegislative prescription or direction. The questions to be askedare:

B(i) Does the legislative prescription or legislative directioninterfere with the judicial functions?

(ii) Is the legislation targeted at the decided case or whetherimpugned law requires its application to case already finallydecided?

(iii) What are the terms of law; the issues with which it dealsand the nature of the judgment that has attained finality?

If the answer to Questions (i) and (ii) is in the affirmative and theconsideration of aspects noted in Question (iii) sufficientlyestablishes that the impugned law interferes with the judicialDfunctions, the Court may declare the law unconstitutional.”

120. It could thus be seen that the Constitution Bench in theaforesaid case held that, though law enacted by the Legislature mayapparently seem to be within its competence but yet in substance if it isshown as an attempt to interfere with the judicial process, such law mayEbe invalidated being in breach of doctrine of separation of powers. TheConstitution Bench stipulated three questions to be asked in such asituation, which are reproduced hereinabove.

121. We have already held that since the State Act is referable toEntry 13 of List III of the Seventh Schedule to the Constitution of India,Fit is within the competence of the State Legislature. The question thatwill have to be considered is whether it is an attempt to interfere withthe judicial process. For that, we will have to consider the three questionsframed by the Constitution Bench in the case of State of Tamil Nadu v.State of Kerala and Another (supra). perusal of the various provisionsof the State Act would clearly show that the State Act has been enactedGsince the State Government was aggrieved by various awards passedagainst it. It was therefore found expedient, in the public interest, tocancel the arbitration clause in the agreement, to revoke the authority ofthe arbitrators appointed thereunder and to enable the filing of appealsagainst the awards or decrees. As already discussed hereinabove, mostHof 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 theState Act undoubtedly interfere with the judicial functions. It is also clearthat the legislation is targeted at the awards passed which have become“Rule of Court”. As already discussed hereinabove, the powers exercisedby the courts under Section 17 of the 1940 Act are judicial powers of theState. As such, we are of the considered view that question Nos. 1 and2 as framed by the Constitution Bench in the case of State of TamilNadu v. State of Kerala and Another (supra) are required to beanswered in the affirmative. Upon consideration of the terms of theState Act, the issues with which it deals, it is clear that the State Actinterferes 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 “Rulesof Court”, is transgression on the judicial functions of the State andtherefore, violative of doctrine of “separation of powers”. As such, theState Act is liable to be declared unconstitutional on this count.

123. We may also gainfully refer to the observations of this Courtin the case of P. Tulsi Das and Others v. Govt. of A.P. and Others[52].In the said case, this Court, while considering the legislative power ofthe State to enact law, which amounted to taking away the rights,which are already accrued to the parties long back, has observed thus:

“14. On careful consideration of the principles laid down in theabove decisions in the light of the fact situation in these appealswe are of the view that they squarely apply on all fours to thecases on hand in favour of the appellants. The submissions onbehalf of the respondent State that the rights derived and claimedby the appellants must be under any statutory enactment or rulesmade under Article 309 of the Constitution of India and that inother respects there could not be any acquisition of rights validly,so as to disentitle the State to enact the law of the nature underchallenge to set right serious anomalies which had crept in anddeserved to be undone, does not merit our acceptance. It is bynow well settled that in the absence of rules under Article 309 ofthe Constitution in respect of particular area, aspect or subject,it is permissible for the State to make provisions in exercise of itsexecutive powers under Article 162 which is coextensive with its52 (2003) 1 SCC 364

legislative powers laying conditions of service and rights accruedto or acquired by citizen would be as much rights acquired underlaw and protected to that extent. The orders passed by theGovernment, from time to time beginning from February 1967 till1985 and at any rate up to the passing of the Act, to meet theadministrative exigencies and cater to the needs of public interestreally and effectively provided sufficient legal basis for theacquisition of rights during the period when they were in full forceand effect. The orders of the High Court as well as the Tribunalalso recognised and upheld such rights and those orders attainedfinality without being further challenged by the Government, inthe manner known to law. Such rights, benefits and perquisitesacquired by the teachers concerned cannot be said to be rightsacquired otherwise than in accordance with law or brushed asideand trampled at the sweet will and pleasure of the Government,with impunity. Consequently, we are unable to agree that thelegislature could have validly denied those rights acquired by theappellants retrospectively not only depriving them of such rightsbut also enact provision to repay and restore the amounts paidto them to the State. The provisions of the Act, though can bevalid in its operation “in futuro” cannot be held valid insofar as itpurports to restore status quo ante for the past period taking awaythe benefits already available, accrued and acquired by them. Forall the reasons stated above the reasons assigned by the majorityopinion of the Tribunal could not be approved in our hands. Theprovisions of Sections 2 and 3(a) insofar as they purport totake away the rights from 10-2-1967 and obligate those whohad them to repay or restore them back to the State arehereby struck down as arbitrary, unreasonable andexpropriatory and as such are violative of Articles 14 and16 of the Constitution of India. No exception could be taken,in our view, to the prospective exercise of powers thereunderwithout infringing the rights already acquired by the appellantsand the category of the persons similarly situated whetherapproached the courts or not seeking relief individually. Theprovisions contained in Section 2 have to be read down so as tomake it only prospective, to save the same from theunconstitutionality arising out of its retrospective application.”

[emphasis supplied]

124. It could be seen that this Court has held that the provisions ofSections 2 and 3(a) of the Andhra Pradesh Education Service UntrainedTeachers (Regulation of Services and Fixation of Pay) Act, 1991 insofaras they purport to take away the rights accrued in favour of the citizensand requiring them to repay or restore them back to the State, are arbitrary,unreasonable and expropriatory. It has, therefore, been held that thesaid provisions are violative of Articles 14 and 16 of the Constitution ofIndia.

125. As already discussed hereinabove, what has been done bythe State Act, is annulling the awards and the judgments and decreespassed by the court vide which the awards were made “Rule of Court”.As such, the rights which accrued to the parties much prior to theenactment of the State Act have been sought to be taken away by it.

126. Though, elaborate arguments have been advanced before uson various other issues, since we have held that the State Act is liable tobe held unconstitutional on the ground of encroachment upon the judicialpowers of the State, we do not find it necessary to deal with thesubmissions 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 toEntry 13 of List III of the Seventh Schedule to theConstitution of India and not to the Entries 12, 13, 14 and37 of List I of the Seventh Schedule nor to Article 253 ofthe Constitution of India. The State Act, therefore, is withinthe legislative competence of the State Legislature. In anycase, in view of the Presidential assent under Article 254(2)of the Constitution of India, the State Act would prevailwithin the State of Kerala. The finding of the High Court ofKerala, to the contrary, is erroneous in law;

(ii)That the finding in the case of G.C. Kanungo (supra) tothe effect that the powers exercised by the courts in passingjudgments and decrees for making the arbitration awards“Rule of Court” is not an exercise of judicial power, is perincuriam the provisions of the 1940 Act and the judgmentsof the Constitution Bench in the cases of Harinagar Sugar

470SUPREME COURT REPORTS

AMills Ltd. (supra) and Shankarlal Aggarwala and Others

(supra); and

(iii)That the High Court of Kerala is right in law in holding thatthe State Act encroaches upon the judicial power of theState and is therefore liable to be struck down as beingunconstitutional.

128. The present appeals are accordingly disposed of. Pendingapplication(s), if any, shall stand disposed of in the above terms. Noorder as to costs.

129. Before we part with the judgment, we place on record ourCdeep appreciation for the valuable assistance rendered by the learnedcounsel appearing on behalf of the parties.

Bibhuti Bhushan Bose

Appeals disposed of.