Supreme Court: State Act which interferes with judicial functions is liable to be declared unconstitutional

Sakunjay Vyas

Published on: May, 6, 2022 at 14:52 IST

The Two Judge Bench of Justice L Nageswara Rao and Justice BR Gavai of the Supreme Court dismissed the appeals filed by the State of Kerala against a Kerala High Court judgment, where-in it was held the law in question to be unconstitutional.

The Supreme Court recently ruled that the state Act which interferes with the judicial functions is liable to be declared unconstitutional.

The Contentions made by the appellant were:

1. That the State Act is not repugnant to the Arbitration and Conciliation Act, 1996.
2. That the State Act pertains to cancellation of contract and would be covered by Entries 7 and 13 of the Concurrent List of the Seventh Schedule of the Constitution.
3. That while tracing the source of the State Act, the doctrine of pith and substance ought to be applied and the enactment needs to be read as a whole along with its object, scope and effect.
4. That without any explicit prohibition in the Constitution, the State legislature cannot be restrained from legislating on entries enumerated in the State List and Concurrent list of the Seventh Schedule.

The Contentions made by the respondent were:

1. That that the State legislature had traveled beyond its jurisdiction to enact a statute which draws its power from Entries 12,13, 14, 37 of the Union List of the Seventh Schedule.
2. That the State Act meddled with the doctrine of separation of powers and encroached upon the powers of the judiciary.
3. That once Section 34(2A) was inserted in the 1996 Act in the year 2015, the State Act was impliedly repealed.
4. That unless the State establishes that relevant material was placed before the President, the assent alone would not be sufficient to defend the validity of the Act.
5. That the legislature cannot by way of an enactment set aside an award passed by a court.
6. That the State Act is contrary to public interest as it confers unbridled power to the State to derogate from the principle of speedy settlement to disputes.

The Apex Court relying on various previously decided cases stated that Entry 13 of the Concurrent List deals with arbitration. It was of the view that the State could legislate on the subject of arbitration, but the same ought to have been reserved for the assent of the President.

That in cases of repugnancy between State and Central Legislations, Central law would prevail under Article 254(1), however when State law received assent of the President, it would prevail in terms of Article 254(2) of the Constitution of India.

That the implementation of 1996 Act was not in perusal of the decision of the international conference in terms of article 253. A resolution recommending adoption of UNCITRAL Model Law served as the basis for enacting it.

That thus, Article 253 does not accrue to the benefit of the 1996 Act

“…the 1996 Act was not enacted to implement the decision of an international conference in terms of Article 253 of Constitution. It was enacted on the basis of a resolution where recommendation was made to adopt the UNCITRAL Model Law. Therefore, Article 253 does not enure to the benefit of the 1996 Act.”, The Court said.

The Apex Court stated that the Per incuriam of the 1940 Act and Constitution Bench judgments of the Supreme Court, and also as a result of the rule of sub silentio, the Court held in Kanungo that decrees making awards ‘Rules of Court’ are not passed in the exercise of judicial power.

That Accordingly judgments and decrees from civil courts could only be set aside by higher courts, not by legislation.

That the Act violates the doctrine of separation of powers because it encroaches on judicial powers and with the ultra vines power vested in it can annul awards that become the Law of Court.

“…it went on to hold that the powers exercised by a court while making an award “Rule of Court”, are not judicial powers. We find that the finding to that effect in the case of G.C. Kanungo (supra), apart from being per incuriam the provisions of the 1940 Act and the law laid down by the Constitution Bench in the cases of Harinagar Sugar Mills Ltd. (supra) and Shankarlal Aggarwala and Others (supra), would also be hit by the rule of sub silentio.”, The Court said.

The Apex Court further stated that considering the State Act’s terms, as well as the issues it deals with, an interference with the judicial function is evident.

That thus, we consider it to be a transgression of the judicial functions of the State when the State Act annuls awards which in effect became “Rules of Court”. This thereby also violates the doctrine of “separation of powers”.

That, therefore, the State Act would be considered unconstitutional.

“Upon consideration of the terms of the State Act, the issues with which it deals, it is clear that the State Act interferes with the judicial functions.

We are therefore of the considered view that the State Act, which has the effect of annulling the awards which have become “Rules of Court”, is a transgression on the judicial functions of the State and therefore, violative of doctrine of “separation of powers”. As such, the State Act is liable to be declared unconstitutional on this count.”, the court said. 

As a result, the Apex Court held Kerala Revocation of Arbitration Clauses and Reopening of Awards Act, 1998, to be unconstitutional as it annuls the judicial decisions and gives arbitrary powers to the authorities.