Facts

The State of Karnataka enacted the Karnataka Money Lenders Act, 1961 (for short the M.L. Act) with a view to regulate and control 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 license before carrying on the business  of money lending.

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 license in accordance with the provisions of the Act.

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.

The Hon’ble High Court in the case of Manakchand Motilal v. State of Karnataka I.L.R 1991 KAR 1928 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.

In the year 1985, amendments were brought out to both the Acts. Section 7-A &  7-B were introduced in the M.L. Act and corresponding Sections 4-A & 4-B were introduced in the P.B. Act. These amendments provided 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 by a large number of pawn brokers and money lenders.

Issue

Whether the amendments brought into sections 7-A and 4-A of M.L. Act and P.B. Act, respectively providing that the security deposit would not carry any interest   is contrary to precedent laid down in Manakchand Motilal’s case and State of Karnataka was notcompetent to introduce such amendments?

Views

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 carryinterest.

That under the Arbitration Act of 1940, this Court held that the arbitrator could award pendente lite interest Secretary, Irrigation Department, Government of Orissa v. G.C. Roy [1992] 1 SCC 508 but under the Arbitration and Conciliation Act, 1996 the arbitrator cannot award interest prior to the date of award Sayeed Ahmed & Co. v. State of Uttar Pradesh [2009] 12 SCC 26, Sree Kamatchi Amman Constructions v.  Divisional Railway Manager (Works), Palghat [2010]   8 SCC 767, Union of India v. Bright Power Projects (India) (P.)  Ltd., [2015] 9  SCC 69. The clause for non-payment of interest has not been held void in any   case. Therefore, the Court was clearly of the view that 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.

Held

Legislature by way of introducing an amendment can overturn a judicial pronouncement and declare it to be wrong or a nullity and the same would not     be violative of Article 14 of the Constitution. (CA Nos. 5793 of 2008, 2874-2878     of 2018 dt. 15-3-2018)

Editorial: Refer, for the doctrine of promissory estoppel, Motilal Padampat Sugar Mills Co Ltd v. State of Uttar Pradesh (1979) 118 ITR 326 (SC)

“There are two days in the year that we cannot do anything, yesterday andtomorrow.”

– Mahatma Gandhi