Legislature cannot overturn a judgment by amendment to make the judgment wrong or a nullity-Supreme Court

The Legislature cannot overturn a judgment by way of introducing an amendment to make the judgment wrong or a nullity-Supreme Court declares retrospective amendment as illegal

ABCAUS Case Law Citation:
ABCAUS 2253 (2018) (03) SC

The Karnataka Money Lenders Act, 1961 (M.L. Act) regulates 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. Similarly, the Karnataka Pawn Brokers Act, 1961 (the P.B Act) to regulate and control the business of pawn brokers which was enacted simultaneously making 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.

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 valuable articles like gold, gold ornaments etc. as pledge for security of the payment.

Legislature cannot overturn a judgment by retrospective amendment

In 1985, amendments were brought out to both the Acts providing that the persons desirous of obtaining a licence had to deposit a security and the rate of security was fixed slab-wise in relation to the extent of business carried on by the licensee. These amendments were challenged. The High Court held that the money lenders / pawn brokers were entitled to interest on the security deposits and the State Government was also directed to make proper rules in this behalf.

In 1998, the State of Karnataka amended both the Acts namely Sub-section 3 of Section 7-A and 4-A of the M.L. and the P.B. Acts providing that no interest shall be payable in the security deposits. The amendments had retrospective in application, ie they  were deemed to be inserted from 31.05.1985.

However, the provisions providing for non-payment of interest on security deposits were held to be constitutionally bad and were set aside by the High Court of Karnataka. It was further held that the State Government could not nullify the judgment of the High Court by way of subsequent amendment.

In this background, the instant appeal was filed by the State of Karnataka.

One of the issue before the Hon’ble Supreme Court was whether the effect of the judgment of the Karnataka High Court could be undone by bringing out amendments in question?

The Hon’ble Supreme Court analysed the several judgments including that of the Constitution Benches and observed 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. The Legislature may have the power to remove the basis or foundation of the judicial pronouncement but the Legislature cannot overturn or set aside the judgment, that too retrospectively by introducing a new provision. The legislature is bound by the mandamus issued by the Court. A judicial pronouncement is always binding unless the very fundamentals on which it is based are altered and the decision could not have been given in the altered circumstances. The Legislature cannot, by way of introducing an amendment, overturn a judicial pronouncement and declare it to be wrong or a nullity. What the Legislature can do is to amend the provisions of the statute to remove the basis of the judgment

Therefore, the Hon’ble Supreme Court opined that in so far as the State had made the amended provisions retrospective, it 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.

The Hon’ble Supreme Court opined that the State Legislature could not have nullified the judgment of the Karnataka High Court by retrospectively amending both the Acts. Therefore, the validating Acts in so far as they are retrospective, were held to be illegal.  

The Hon’ble Supreme Court opined that normally a person would be entitled to interest for the period he is deprived of the use of money and the same is used by the person with whom the money is lying. However the question was whether a provision providing for non-payment of interest so inequitable that it could be termed to be arbitrary and held to be violative of Article 14 of the Constitution of India.

It was observed that the Court while dealing with the question whether the interest on the security deposits is payable in equity or under common law, held that there was no equitable right to claim interest. Also, while dealing with question as to whether the stipulation that no interest was payable on the securities furnished would be un-constitutional and arbitrary, the Court had held that the clause not providing for interest was neither arbitrary nor palpably unreasonable, nor even unconscionable.

The Hon’ble Supreme Court opined 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. The courts have frowned upon the “trade” of money lending. The profession of money lending, may be a trade, but onerous restrictions may be placed on such trade which is definitely usurious. These onerous restrictions would be reasonable keeping in view the nature of the trade. The Legislature in its wisdom can decide whether it should make it more difficult for people to engage in the business of money lending and pawn broking.

The Hon’ble Supreme Court opined that a money lender or a pawn broker applies for licence to do this business knowing fully well that the security that he shall deposit shall not earn any interest. He with open eyes accepts the condition which is part of the Acts. Nobody forces a person to engage in the trade of money lending or pawn broking. Therefore, the impugned provisions cannot be held to be unreasonable.

Finally the Hon’ble Supreme Court held that the 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.

It was held as under:

(i) 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;

(ii) The provisions amendments retrospective from 1985 are illegal and invalid.

Legislature cannot overturn a judgment by retrospective amendment

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