TaxTMI 
TaxTMI 
2018 (3) TMI 1064
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....ground 3. The State of Karnataka enacted the Karnataka Money Lenders Act, 1961 (for short the M.L. Act) with a view to regulate 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. 4. 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 licence in accordance with the provisions of the Act. 5. 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. 6. 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 ....
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.... of earning profit out of the money, which they would have invested in their business, but for the compulsion to deposit a portion of it in the Government. Therefore, it appears to us that in the absence of any prohibition in the provisions of the Act regarding payment of interest, in view of Article 14, the Government while making Rules for the purposes of the Act under Section 44 of the Money Lenders Act and Section 22 of the Pawn Brokers Act has not only the power but also a duty to provide for payment of interest. As far as the rate of interest is concerned, in our opinion, as the deposit prescribed under Section 7A of the Money Lenders Act and Section 4A of the Pawn Brokers Act is for a period of one year, as the duration of the licence on, each occasion being one year, the Government should pay interest on the amount of security deposit made by a licensee at the rate at which the interest is paid by any Scheduled Bank on a fixed deposit for one year." No appeal was filed by the State of Karnataka against this judgment. However, the money lenders and pawn brokers filed an SLP which was dismissed. It appears that thereafter the State framed certain rules pursuant to the dire....
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....ld that though all other amendments made to Sections 7-A and 7-B of the M.L. Act and Sections 4-A and 4-B of the P.B. Act are constitutionally valid and legal, the provisions providing for non-payment of interest on security deposits were held to be constitutionally bad and were accordingly set aside. 9. The Division Bench held that as far as interest is concerned, in the earlier judgment in Manakchand Motilal's case, the Karnataka High Court had held that the money lenders and pawn brokers were entitled to interest on the amount of deposit and the said judgment had become final since the SLP against the same was dismissed. The Division Bench further held that the judgment of the Apex Court in Ferro Alloys Corpn. Ltd. vs. A.P. State Electricity Board 1993 Supp (4) SCC 136 was not applicable and was wrongly relied upon by the learned Single Judge. It was also observed that the High Court in Manakchand Motilal's case (supra) had clearly held that in case there was a provision for non-payment of interest then such provision would be un-constitutional. It was further held that the State Government could not nullify the judgment of the High Court in Manakchand Motilal's case by way o....
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.... 4-A of the M.L. Act and the P.B. Act respectively providing that security deposit would not carry any interest is contrary to the judgment in Manakchand Motilal's case (supra) and the State was not competent to introduce such amendments; and (iii) Whether the provisions providing that no interest is payable are arbitrary and hence violative of Article 14 of the Constitution of India. Issue No.1 13. As far as the first issue is concerned, at the outset, we may note that 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 carry interest. We have quoted the relevant portion of the judgment in Manakchand Motilial's case in the earlier part of this judgment. The Division Bench noticed that the....
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.... Court, held that even it has competence, the Legislature cannot merely pass a law that a decision of this Court shall not bind. This Court held as follows :- "4........Granted legislative competence, it is not sufficient to declare merely that the decision of the Court shall not bind for that is tantamount to reversing the decision in exercise of judicial power which the Legislature does not possess or exercise. A court's decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances......." 18. In the matter of Cauvery Water Disputes Tribunal, Re 1993 Supp.(1) SCC 96(II) a Constitution Bench of this Court after referring to a large number of authorities held as follows :- "76.The principle which emerges from these authorities is that the legislature can change the basis on which a decision is given by the Court and thus change the law in general, which will affect a class of persons and events at large. It cannot, however, set aside an individual decision inter parties and affect their rights and liabilities alone. Such an act on the part of the legisla....
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.... referring to a large number of judgments, this Court laid down the following principles:- (i) that the doctrine of separation of powers is an entrenched principle in the Constitution of India even though there is no specific provision in the Constitution; (ii) Independence of Courts from Executive and Legislature is fundamental to the rule of law and one of the basic tenets of the Indian Constitution; (iii) the doctrine of separation of powers between the three organs of the State - Legislature, Executive and the Judiciary is a consequence of principles of equality enshrined in Article 14 of the Constitution of India. Consequently, a law can be set aside on the ground that it breaches the doctrine of separation of powers since that would amount to negation of equality under Article 14 of the Constitution of India; (iv) the High Courts and the Supreme Court are empowered by the Constitution of India to determine whether a law made by the Parliament or State Legislature is void; (v) the doctrine of separation of powers applies to the final judgments of the courts. The Legislature cannot declare any decision of a court of law to be void or....
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....ing 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. 24. Applying these principles to the present case it is apparent that 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. Therefore, there was no error pointed out by the Court which could have been corrected by the State Legislature. As pointed out above, the State, in fact, first tried to implement the judgment by framing rules providing for payment of interest. Later, it incorporated the contentious provisions prohibiting payment of interest. These amendments did not in any way alter the basis of the judgment. 25. Therefore, the State, in so far a....
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....sation allowed by law or fixed by the parties for the use or forbearance of borrowed money. Jones V. Kansas Gas & Electric Co.222 Kan. 390, 565, P.2d 597, 604." 28. There is no manner of doubt 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. The issue that arises for determination is whether a provision providing for non-payment of interest is so inequitable that it can be termed to be arbitrary and held to be violative of Article 14 of the Constitution of India. 29. The respondents have referred to the recommendations made by the Law Commission of India in its 63rd Report. In Para 7.9 of the Report it was noted that in case of security deposits, if a demand for interest is not made, interest is not recoverable. This observation is based on the decision of the Nagpur High Court in Sheikh Mehtab S/o Sheikh Farid Mussalman vs. Dharamrao Bhujangrao AIR (31) 1944 Nagpur 330. The Law Commission felt that in view of the fact that deposits are often taken for performance of contractual or statutory obligations it would be fair that interest from the date of depos....
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....correct because in the nature of contract it is liable to be appropriated for the satisfaction of any amount liable to be paid by the consumer to the Board for violation of any conditions of supply in the context of wide-scale theft of energy, tampering with the meters and such other methods adopted by the consumers. Therefore, the said consumption security deposit serves not only to secure the interest of the Board for any such violation but should serve as a deterrent on the consumer in discharging his obligations towards the Board." The Court clearly held that there was no equitable right to claim interest. 34. This Court also considered the question as to whether the stipulation that no interest is payable on the securities furnished would be un-constitutional and arbitrary, and held as follows:- "143. In the light of the above discussion, we hold that the clause not providing for interest is neither arbitrary nor palpably unreasonable, nor even unconscionable. In holding so we have regard to the following: 1. The consumer made the security deposit in consideration of the performance of his obligation for obtaining the service which is essential to him. ....
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....sp; xxx 38........These are weaker sections for whom constitutional concern is shown because institutional credit instrumentalities have ignored them. Money lending may be ancillary to commercial activity and benignant in its effects, but money-lending may also be ghastly when it facilitates no flow of trade, no movement of commerce, no promotion of intercourse, no servicing of business, but merely stagnates rural economy, strangulates the borrowing community and turns malignant in its repercussions. The former may surely be trade, but the latter - the law may well say - is not trade. In this view, we are more inclined to the view that this narrow, deleterious pattern of money- lending cannot be classed as "trade"...." 38. Thereafter this Court observed as follows :_ "42.Maybe, some stray money-lenders may be good souls and to stigmatise the lovely and unlovely is simplistic betise. But the legislature cannot easily make meticulous exceptions and has to proceed on broad categorisations, not singular individualisations. So viewed, pragmatics overrule punctilious and unconscionable money-lenders fall into a defined group.....
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.... person to engage in the trade of money lending or pawn broking. Therefore, the impugned provisions cannot be held to be unreasonable. 42. Lastly, we have to consider the submission as to whether a provision providing that no interest is payable on the security deposit is so arbitrary, as to make it unconstitutional. 43. In Independent Thought vs. Union of India and Anr. (2017) 10 SCC 800 this Court held that arbitrariness must be writ large to make it un-constitutional. Whether the interest should be paid or not is a matter which parties decide amongst themselves. Supposing, there is a contract providing that no interest will be paid on the amount advanced; can it be said that such a clause in the contract is so arbitrary that the contract becomes void or becomes inoperative. We do not think so. If we make reference to every day transactions, banks do not pay interest on current account. Supposing, a person's money lies in the current account for 3-4 years he cannot claim interest only on the ground that the bank would have utilized this money for commercial purposes. There are various instances where schools, other educational institutions, clubs, societies ask for refun....