‘SCC Oniine | Page 1 Printed For © SCC Oniine| ONLINE® ° True Print” STATE OF KARNATAKA ¥. KARNATAKA PAWN 363 : BROKERS ASSN, # (2018) 6 Supreme Court Cases 363 yp (BEFORE MADAN B. LOKUR AND DEEPAK GUPTA, JJ.) . STATE OF KARNATAKA AND OTHERS ++ Appellant Versus KARNATAKA PAWN BROKERS ASSOCIATION AND OTHERS «7 Respondents. Civil Appeals No. 5793 of 2008' with pee Nos. 2874-78 of 2018%, decided on March 15, 2018, A. Statute Law — Validating or Overriding Enactiertt/Statute/ Legislation — Validating Act — Power to enact — Scope — Supersession by legislature, of a judicial verdict — Permissiblé limits: of — Principles summarised mS — Though legislature has power to enact validitlig laws including power toamend laws wilh retrospective effect and thereby reffiove causes of invalidity i.e. correct errors/mistakes committed in earlier fegislation as pointer! out by court in a judgment, the effect of which is'to rethove the basis.and foundation judgment, but it cannot overturn or Set yside that judgment, that too pectively by introducing a new provision fa:the Act concerned srWhat the legislature can do is that it can amend the provisions of thestatuté.to remove the basis of the judgment — A judicial pronouncement is always binding unless the very fundamentals on which it is based are altered and the dedision could not have been given in the altered, cit — On insertion of Ss. 7-A¥and 7-B in KMEsAet Gc. Karnataka Moneylenders Act, 1961 ) and, corresponding’Ss. 4-A’and 4-B in KPB Act Gc, Karnataka Pawnbrokers Act:1961), whereby persons desirous of obtaining licence under those Acts had fo deposit certain,Séeprityamount, the validity of those provisions was challenged before High Gourt goncerned in Manakchand f Moiilal, 1991 SCC OnLine Kar 139 —,High Court in that case, though upholding the validity Of tose sections: ont coitsidering that there was no provision for payfiemt oftinterest on security:amount, holding the pers concerned ie, moneylenders and paynbrokers under KML Act and KPB Act respectively tobe eiutitled to interest on security deposits furnished by them and, consequentIY, directing the Staté Government to make proper rules in this gq Tegard — But, despite that order, Stite,making amendments in 8. 7-A(3) of KML Act und $.4-A(3) of KPB Actqwith retrospective effect) by prescribing that security deposits furnished. by moneylenders and pawnbrokers under said AGtS respectively would not carry any interest — Legality thereof {if Arising from the Judgment and Order in Kamataka Pawn Brokers’ Assn. v. State of Kamataka, fr, 2006 SCC OnLine Kar 105 : TER 2006 Kar 1306 [Karnataka TTigh Court, Bangalore Bench, WA “yo. ADS of 2001, c/w WAs Nos. 3372 of 2001 and 4918 of 2001 (GM, ML/PB). dt. 10-2-2006] £ ‘Aifsing out of SLPs (C) Nos. 8652-56 of 2012° ONLINE True Print” ‘SOC Onin Page 14 Printed For ‘SCC Onin TruePrint” 376 SUPREME COURT CASES. 2018) 6 provisions. This is a case where on interpretation of existing law, the High Court had given certain benefits to the petitioners. That order of mandamus was sought to be nullified by the enactment of the impugned provisions in ‘a new statute. This in our view would be clearly impermissible legis 22.1. that the doctrine of separation of powers is an entrenghied principle in the Constitution of India even though there is no specific proyision in the Constitution; 22,2. independence of courts from Executive’ alid Legislature is Fundamental to the rule of law and one of the basié, tenets of the Indian Constitution; 22,3. the doctrine of separation of powers betweeii the three organs of the State — Legislature, Executive and the Judiciary isa tonsequence of principles of equality enshrined in Article 14 of the,Constitutiénof India, Consequently, a law can be set aside on the ground that it brbaches the doctrine of separation of powers since that would amount to-negation 6fequality undef Artiele 14 of the Constitution of India: gi, 22.4, the High Courts and the Supreiné Court are empowered by the Constitution of India to determine whether a law made By Pailiamient or “State Legislature is void: is % 22.5. the doctrine of separatigi of powers applies i tie final judgments of the courts. The Legislature cannioteclare afy décisioit of a court of law to be void or of no effect, It edin, however, pass an gménding Act to remedy the defects pointed out hy a court of law or on coming’to Know of it aliunde; 22.6. if the Legisliturs has'the power and compsience to make a validating Jaw it can make the Jaw'tetrospective; 5% 22.7, even whére the law is enacted by ihd:Legistature appears within its competence but if in substance it is shown’ ag an attempt to interfere with the judicial progessssueh. law can be invalidated being in breach of the doctrine of separation of powers. s 23. Fhe same principle has heen reiterated in Cheviti Venkanna Yadav v. State of Télangaha' in the following terms: (SCC p. 299, para 30) © #30. ... The legislature has the power to enact laws including the power to retrospectively amend laws and thereby remove causes of ineffectiveness ), OF invalidity. When a law is enacted with retrospective effect, it is not F208) 12 SCC 696 (2017) 18CC 283,SCC ONLINE® True Print” ‘SCC Onine V Page 15 ned ‘SCC Onin TruePrint™ STATE OF KARNATAKA ¥. KARNATAKA PAWN 377 BROKERS (Deepak Gupta, J.) considered as an encroachment upon judicial power when the legislature a does not directly overrule or reverse a judicial dictum. The legislature cannot, by way of an enactment, declare a decision of the court as erroneous or a nullity, but can amend the statute or the provision so as to:make it applicable to the past. 24. On analysis of the aforesaid judgments it can be said that the Lefislafure has the power to enact validating laws including the power to amiend laws with retrospective effect. However, this can be done to remove cayses of invalidity. When such a law is passed, the Legislature basically correets'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. IC this ¢ the sume does not amount (o statutory overruling." done, 25. However, the Legislature cannot set at naught'the jiudgments which have by pronounced by amending the law not forthe purpose of makin \oving anomalies but to bring in pew: provisions which did corrections or rei not exist earlier. The Legislature may have thé, poiwer 1 remove thé!basis or th The Legislature is bound by the malidamus isstiéd by the court, A°jtidi set aside the judgmen too retrospectively'by introduci a yew provisio: pronouncement is always binding unless the very fundamedtiils Oh, which it and the is based are alt decision could fit have been-given in, the altered rodgicing.an amendment, @ Overturn a judicial pronouncen nullity. Wh: the Legislature can do is to amend“the\provisions of thigstitute to remove the basis of the judgment. xn, *¢ 3 26. Applying these,prineiplés.to the present tase ibis apparent that when the decision was rendered.in Manakchand Motital éase! there was no provision providing for paymentof iaterést or prohibiting payment of interest. The Court had observed that even ffisuch a provision pohibiting payment of interest had been there in the staitite stich provision wouldbe illegal. Therefore, there was no error pointed but by the Court which couild have been corrected by the State Legislature” A®:pointed out above, the State’ in fact, first ried to implement the judgment by2framing rules providing for payment of interest. Later, it incorporajed the contentious provisions prohibiting payment of interest. These amendments did,pot in any. way aligethe hasis of the judgment, and declare it to be wrdn, 27. Therefdre, the State, inSofar as it has made the amended provisions pted to nullify the writ of mandamus issued by the Court retrospective, has att {in favour of the respondents. This mand; “by makin J Manakchand Motil. State of Karnataka, 1991 SCC OnLine Kar 139 : TLR 1991 Kar 1928 us could not haye be n sct at naught the provisions retrospective. This would be a direct breach of the‘SCC Oniine | Page 16 Printed For ‘SCC Oniine | ONLINE® ° True Print” 28. However, since we have clearly held that the observations mgdéin Manakchand Motilal case! that if the provision prohibits payment ofjiiterest then such a provision would be violative of Article 14 of the Constitution:is obiler, the issue whether such an amendment is valid or not svill have to-be — p decided on its own merits. Issue (iii) 29. To decide this issue We must first understand the concept Ofinterest. It has been repeatedly held that interest is basically compensation for the use or retention of money. In Halsbury’s Laws of England, th Edn. Vol. 32, “interest” —¢ has been defined as follows: % “127. Interest in general—Interest is the ettirn &F Compensation for the use or retention by one person of a suntof mgney belonging to or owed to another. Interest accrues from day today éyen if payable only at fitervals, and is, therefore, apportionable in reset of time between persins entitled in succession to the principal.” 30. According to Law Lexicon, by (p. 2402) Vol. 2: * “INTEREST” means the time value of the fund§ or jponey involved, which, unless otherwise agreed, ¥s calculated at the'rate and on the basis customarily accepted by the bankibg community“Tor the funds of money ‘amanathan Aiyar; 9rd lin: (2005) involved.” sity Mag * i 31. In Words and Phrases Permanent Edit ion, Xa. 22 p. 148, “interest” means: & @ : “@ “Interest tg, compensation for loss ¥. Zink!5, A 2d, 9.82 Gi) “Interest” igaris compensation for lie use or forbearance of money. Commeset:tnternal Revenue \. Mever'®, 2d at p. 259 32. Bluck’s Law Dictionary, 6th Edn. Xp. 812) defines “Bor use of money.—sInterest Wthe compensation allowed by law org fixed by the parties for the'use’br forbearance of borrowed money. Jones ¥. Kansas Gas and Electric Company", P 2d p. 604.” f use of principal. Jersey City ¢ interest” as: 3 State EN. v. Stare of Kerafa, 201412 SCC 696 {1 Mana hand Mota . State of Karnataka, 1991 SCC OnLine Kar 139 :1LR 1991 Kar 1928 iy 441024 895-133 NTLaw 437 (1943) h F6s1208 24256 (th Cir 1913) 17 232 Kan 300: 565 P 24597 (197)° ONLINE True Print” 384 SUPREME COURT CASES, 2018) 68 prohibiting payment of interest on the amount of security deposits cannot be = said to be arbitrary or violative of Article 14 of the Constitution of India. 50. In view of the above discussion, it is held as follows: 50.1. Sections 7-A and 7-B of the ML Act and Sections 4-A and 4-B of the: PB Act are valid from the date of their en: 51, In view of the above discussion the appeals are partl judgment of the High Court of Karnataka is set aside in the;aforesaid, terms. Pending application(s), if any, stand(s) disposed of. sf