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TMI Blog2018 (3) TMI 1064X X X X Extracts X X X X X X X X Extracts X X X X ..... provision prohibiting the payment of interest - the observation made in Manakchand Motilal’s case that a provision prohibiting payment of interest would be arbitrary and violative of Article 14 of the Constitution of India was a passing observation in the nature of obiter not arising for decision in the said case. Whether the effect of the judgment in Manakchand Motilal’s case can be undone by bringing out amendments in question? - Held that: - the Legislature has the power to enact validating laws including the power to amend laws with retrospective effect. However, this can be done to remove causes of invalidity. When such a law is passed the Legislature basically corrects the errors which have been pointed out in a judicial pronouncement. Resultantly, it amends the law, by removing the mistakes committed in the earlier legislation, the effect of which is to remove the basis and foundation of the judgment. If this is done, the same does not amount to statutory overruling - However, the Legislature cannot set at naught the judgments which have been pronounced by amending the law not for the purpose of making corrections or removing anomalies but to bring in new provisions whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Brokers Act, 1961 in the year 1998 providing that the security deposit furnished by the money lenders and pawn brokers in terms of Sections 7-A and 4-A of the Acts respectively shall not carry interest, is constitutional, legal and valid. Background 3. The State of Karnataka enacted the Karnataka Money Lenders Act, 1961 (for short the M.L. Act) with a view to regulate and control the transactions of money lending in the State. Section 5 of the M.L. Act makes it obligatory for any person carrying on the business of money lending to procure licence before carrying on the business of money lending. 4. The State of Karnataka simultaneously enacted the Karnataka Pawn Brokers Act, 1961 (for short the P.B Act) to regulate and control the business of pawn brokers. Section 3 of the P.B. Act makes it obligatory for every person desirous of carrying on the business as a pawn broker to conduct his business only after he obtains a licence in accordance with the provisions of the Act. 5. The main business of both money lenders and pawn brokers is to advance or lend money to individuals who approach them for loans. The only difference is that a pawn broker is authorized to accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Constitution, It is indisputable that by such deposit not only the petitioners lose the opportunity of earning profit on the said amount but the value of the money also goes down as years pass and thereby the petitioners would be forced to incur losses instead of earning profit out of the money, which they would have invested in their business, but for the compulsion to deposit a portion of it in the Government. Therefore, it appears to us that in the absence of any prohibition in the provisions of the Act regarding payment of interest, in view of Article 14, the Government while making Rules for the purposes of the Act under Section 44 of the Money Lenders Act and Section 22 of the Pawn Brokers Act has not only the power but also a duty to provide for payment of interest. As far as the rate of interest is concerned, in our opinion, as the deposit prescribed under Section 7A of the Money Lenders Act and Section 4A of the Pawn Brokers Act is for a period of one year, as the duration of the licence on, each occasion being one year, the Government should pay interest on the amount of security deposit made by a licensee at the rate at which the interest is paid by any Scheduled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Sections 4-A and 4-B of the P.B. Act are constitutionally valid and legal, the provisions providing for non-payment of interest on security deposits were held to be constitutionally bad and were accordingly set aside. 9. The Division Bench held that as far as interest is concerned, in the earlier judgment in Manakchand Motilal s case, the Karnataka High Court had held that the money lenders and pawn brokers were entitled to interest on the amount of deposit and the said judgment had become final since the SLP against the same was dismissed. The Division Bench further held that the judgment of the Apex Court in Ferro Alloys Corpn. Ltd . vs. A.P. State Electricity Board 1993 Supp (4) SCC 136 was not applicable and was wrongly relied upon by the learned Single Judge. It was also observed that the High Court in Manakchand Motilal s case (supra) had clearly held that in case there was a provision for non-payment of interest then such provision would be un-constitutional. It was further held that the State Government could not nullify the judgment of the High Court in Manakchand Motilal s case by way of subsequent amendment. 10. In the appeal filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... providing that security deposit would not carry any interest is contrary to the judgment in Manakchand Motilal s case (supra) and the State was not competent to introduce such amendments; and (iii) Whether the provisions providing that no interest is payable are arbitrary and hence violative of Article 14 of the Constitution of India. Issue No.1 13. As far as the first issue is concerned, at the outset, we may note that the main issue raised in Manakchand Motilal s case (supra) was with regard to the validity of Section 7-A and 4-A of the M.L. Act and the P.B. Act respectively, in so far as they made a provision for deposit of security as a pre-requisite to the grant of licence. At that time, there was no provision with regard to the payment of interest. The Court held that the State Government was entitled to introduce a condition for payment of deposit. The Court, however, felt that for the provision to be constitutionally valid, the deposit must carry interest. We have quoted the relevant portion of the judgment in Manakchand Motilial s case in the earlier part of this judgment. The Division Bench noticed that the Acts do not have any provision for paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt, held that even it has competence, the Legislature cannot merely pass a law that a decision of this Court shall not bind. This Court held as follows :- 4. .Granted legislative competence, it is not sufficient to declare merely that the decision of the Court shall not bind for that is tantamount to reversing the decision in exercise of judicial power which the Legislature does not possess or exercise. A court s decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances . 18. In the matter of Cauvery Water Disputes Tribunal, Re 1993 Supp.(1) SCC 96(II) a Constitution Bench of this Court after referring to a large number of authorities held as follows :- 76. The principle which emerges from these authorities is that the legislature can change the basis on which a decision is given by the Court and thus change the law in general, which will affect a class of persons and events at large. It cannot, however, set aside an individual decision inter parties and affect their rights and liabilities alone. Such an act on the part of the legislature amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al to the rule of law and one of the basic tenets of the Indian Constitution; (iii) the doctrine of separation of powers between the three organs of the State Legislature, Executive and the Judiciary is a consequence of principles of equality enshrined in Article 14 of the Constitution of India. Consequently, a law can be set aside on the ground that it breaches the doctrine of separation of powers since that would amount to negation of equality under Article 14 of the Constitution of India; (iv) the High Courts and the Supreme Court are empowered by the Constitution of India to determine whether a law made by the Parliament or State Legislature is void; (v) the doctrine of separation of powers applies to the final judgments of the courts. The Legislature cannot declare any decision of a court of law to be void or of no effect. It can, however, pass an amending Act to remedy the defects pointed out by a court of law or on coming to know of it aliunde; (vi) if the Legislature has the power and competence to make a validating law it can make the law retrospective; (vii) even where the law is enacted by the Legislature appears within its competence but if in substance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment. 24. Applying these principles to the present case it is apparent that when the decision was rendered in Manakchand Motilal s case (supra) there was no provision providing for payment of interest or prohibiting payment of interest. The Court had observed that even if such a provision prohibiting payment of interest had been there in the statute such provision would be illegal. Therefore, there was no error pointed out by the Court which could have been corrected by the State Legislature. As pointed out above, the State, in fact, first tried to implement the judgment by framing rules providing for payment of interest. Later, it incorporated the contentious provisions prohibiting payment of interest. These amendments did not in any way alter the basis of the judgment. 25. Therefore, the State, in so far as it has made the amended provisions retrospective, has attempted to nullify the writ of mandamus issued by the Court in favour of the respondents. This mandamus could not have been set at naught by making the provisions retrospective. This would be a direct breach of the doctrine of separation of powers as laid down in State of Tamil Nadu (supra). We are clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue that arises for determination is whether a provision providing for non-payment of interest is so inequitable that it can be termed to be arbitrary and held to be violative of Article 14 of the Constitution of India. 29. The respondents have referred to the recommendations made by the Law Commission of India in its 63rd Report. In Para 7.9 of the Report it was noted that in case of security deposits, if a demand for interest is not made, interest is not recoverable. This observation is based on the decision of the Nagpur High Court in Sheikh Mehtab S/o Sheikh Farid Mussalman vs. Dharamrao Bhujangrao AIR (31) 1944 Nagpur 330 . The Law Commission felt that in view of the fact that deposits are often taken for performance of contractual or statutory obligations it would be fair that interest from the date of deposit should be allowed on such deposits. Despite the recommendation of the Law Commission no statutory provision was introduced making it obligatory on the part of any authority to pay interest on deposits. 30. Though various judgments have been cited, we are of the view that only two are required to be considered. The first is the judgment relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity deposit serves not only to secure the interest of the Board for any such violation but should serve as a deterrent on the consumer in discharging his obligations towards the Board. The Court clearly held that there was no equitable right to claim interest. 34. This Court also considered the question as to whether the stipulation that no interest is payable on the securities furnished would be un-constitutional and arbitrary, and held as follows:- 143. In the light of the above discussion, we hold that the clause not providing for interest is neither arbitrary nor palpably unreasonable, nor even unconscionable. In holding so we have regard to the following: 1. The consumer made the security deposit in consideration of the performance of his obligation for obtaining the service which is essential to him. 2. The electricity supply is made to the consumers on credit as has been noted above. 3. The billing time taken by the Board is to the advantage of the consumer. 4. Public revenues are blocked in generation, transmission and distribution of electricity for the purpose of supply. The Board pays interest on the loans borrowed by the Board. This is in order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... narrow, deleterious pattern of money- lending cannot be classed as trade . 38. Thereafter this Court observed as follows :_ 42. Maybe, some stray money-lenders may be good souls and to stigmatise the lovely and unlovely is simplistic betise. But the legislature cannot easily make meticulous exceptions and has to proceed on broad categorisations, not singular individualisations. So viewed, pragmatics overrule punctilious and unconscionable money-lenders fall into a defined group .. xxx xxx xxx 44. Every cause claims its martyr and if the law, necessitated by practical considerations, makes generalisations which hurt a few, it cannot be helped by the Court 39. We must also remember that the businesses of money lending and pawn broking are usurious businesses and the Government may rightly impose onerous conditions to restrict or even discourage people from entering into such businesses. We are not comparing these businesses with the liquor business but the observations of the Kerala High Court in Monarch Investments St. Thomas Road, Trichur and Ors. vs. State of Kerala Ors . AIR (1989) KER.177 are relevant:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s do not pay interest on current account. Supposing, a person s money lies in the current account for 3-4 years he cannot claim interest only on the ground that the bank would have utilized this money for commercial purposes. There are various instances where schools, other educational institutions, clubs, societies ask for refundable deposits on which no interest is payable. These are accepted to be normal routine practices because these bodies are not engaged in commercial activities. Even a pawn broker pays no interest on the value of the security pledged with him. 44. Contracts providing for non-payment of interest on earnest money and security deposits have been considered in the context of the Arbitration Acts. The Courts have held that in view of the agreement entered into between the parties, the arbitrator cannot award interest prior to the date of passing of the award. In fact, this Court has clearly held that the arbitrator cannot award pendente lite interest Sri Chittaranjan Maity v. Union of India, (2017) 9 SCC 611 . Though these authorities do not directly deal with the issue with which we are concerned, it is obvious that in all these cases, the Court has not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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