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2018 (3) TMI 1064 - SC - Indian LawsConstitutional validity of amendments made to the Karnataka Money Lenders Act, 1961 and the Karnataka Pawn 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. What is the scope, ambit and effect of the judgment of the Karnataka High Court in Manakchand Motilal’s case [1991 (3) TMI 395 - SUPREME COURT OF INDIA], where the Division Bench upheld the validity of Sections 7-A & 7-B of the M.L. Act and Sections 4-A & 4-B of the P.B. Act? - Held that: - It would also be apposite to mention that after making the aforesaid observation, the Division Bench again noted that in the absence of any prohibition in the provisions of the Acts, regarding payment of interest, in view of Article 14, the Government while making rules must provide for payment of interest. This itself was a clear indicator that the Court decided the issue in Manakchand Motilal’s case mainly on the ground that there was no 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 which did not exist earlier - 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 - However, since we have clearly held that the observations made in Manakchand Motilal’s case (supra) that if the provision prohibits payment of interest then such a provision would be violative of Article 14 of the Constitution, is obiter, the issue whether such an amendment is valid or not will have to be decided on its own merits. Whether the provisions providing that no interest is payable are arbitrary and hence violative of Article 14 of the Constitution of India? - Held that: - 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 - the impugned provisions 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. Section 7-A & 7-B of the M.L. Act and 4-A & 4-B of the P.B. Act are valid from the date of their enactment - That the provisions making these amendments retrospective from 1985 are illegal and invalid. Appeal allowed in part.
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