THE SECRETARY TO GOVT. OF KERALA, IRRIGATION DEPARTMENT AND OTHERS v. JAMES VARGHESE AND OTHERS

The Judgment of the Court was delivered by G B. R. GAVAI, J.

1Copy pinpoint1. Two important questions of law, with regard to the legislative competence of the Kerala State Legislature to enact the Kerala Revocation of Arbitration Clauses and Reopening of Awards Act, 1998 H

p. 402

A (hereinafter referred to as the “State Act”) and as to whether the State Act encroaches upon the judicial power of the State, are involved in the present appeals. • BACKGROUND:

2Copy pinpoint2. The High Court of Kerala at Ernakulam, by the impugned judgment dated 9th July 2013 delivered in O.P. No.4206 of 1998 and companion matters, has held the State Act to be beyond the legislative competence of the Kerala State Legislature and as such, held the same to be unconstitutional. The High Court has also held that the State Act had an effect of annulling the awards of the arbitrators and the judgments and decrees passed by the courts. It was therefore held that the State Act encroaches upon the judicial power of the State. Being aggrieved thereby, the State of Kerala has approached this Court by filing various appeals.

3Copy pinpoint3. The State of Kerala had started the construction of Kallada D Irrigation Project (hereinafter referred to the “said Project”) in the year

1961. The said project was proposed to be executed with the financial assistance from the International Bank for Reconstruction and Development (for short “World Bank”) from June 1982 to March 1989. As required by the World Bank, a special condition namely, the Local Competitive Bidding Specification (hereinafter referred to as “LCBS”) E as envisaged by the World Bank Authorities was included in the agreements relating to the works connected with the said Project. Clauses 51 and 52 of the LCBS provided for the settlement of matters in dispute or difference through arbitration. The same was provided with a view to enable speedy settlement of matters in dispute or difference in a F just and equitable manner. The State of Kerala found that on account of various disputes and differences, the arbitration references did not have the desired effect inasmuch as several arbitrators had wrongly and arbitrarily awarded unconscionable amounts against the provisions of agreements and without material on record, in collusion with the claimant contractors and officials of the department, thereby causing heavy losses G to the State. As such, the State of Kerala considered it necessary, in public interest, to cancel the arbitration clauses in the agreements executed in terms of LCBS, to revoke the authority of the arbitrators appointed thereunder and to enable the filing of appeals against the awards or decrees already passed in certain arbitration references in respect of H

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 403 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

which the period of limitation had expired. As such, the State Act came A to be enacted with effect from 14th November 1997.

4Copy pinpoint4. The State Act is a short Act and therefore, we deem it appropriate to reproduce the same in its entirety as under: “Kerala Revocation of Arbitration Clauses and Reopening of Awards Act, 1998 B

Preamble ………….. ……….. Section 1 - Short title, extent, commencement and application C (1) This Act may be called the Kerala Revocation of Arbitration Clauses and Reopening of Awards Act, 1998. (2) It extends to the whole of the State of Kerala. (3) It shall be deemed to have come into force on the 14th day of D November, 1997. (4) It shall apply to all agreements executed in terms of the local competitive bidding specification. Section 2 - Definitions E (1) In this Act, unless the context otherwise requires, (a) “agreement” means an agreement executed in terms of the local competitive bidding specification for various works of the Government of Kerala; (b) “local competitive bidding specification” means the local F competitive bidding specification adopted by the Government in their Order G.O. (Ms) No. 3/81/I&R dated the 20th January, 1981. (2) Words and expressions used but not defined in this Act and defined in G (a) the Arbitration Act, 1940 (Central Act 10 of 1940); or (b) the Arbitration and Conciliation. Act, 1996 (Central Act 26 of 1996), in relation to arbitration proceedings commenced on or after the 25th day of January, 1996, H

p. 404

A shall have the meanings, respectively, assigned to them in those Acts. Section 3 - Cancellation of arbitration clauses and revocation of authority of arbitrator (1) Notwithstanding anything contained in the Indian Contract Act, B 1872 (Central Act 9 of 1872) or in the Arbitration Act, 1940 (Central Act 10 of 1940) or in the Arbitration and Conciliation Act, 1996 (Central Act 26 of 1996) or in any other law for the time being in force or in any judgement, decree or order of any court or other authority or in any agreement or other instrument, C (i) the arbitration clauses in every agreement shall stand cancelled; (ii) the authority of an arbitrator appointed under an agreement referred to in clause (i) shall stand revoked; and

D (iii) any agreement referred to in clause (i) shall cease to have effect in so far as it relates to the matters in dispute or difference referred, with effect on and from the date of commencement of this Act. (2) Nothing in sub-section (1) shall be a bar for any party to a E agreement to file a suit in the court having jurisdiction in the matter to which the agreement relates and all questions regarding the validity or effect of the agreement between the parties to the agreement or persons claiming under them and all matters in dispute or difference between the parties to the agreement shall be decided by the court, as if the arbitration clauses had never F been included in the agreement. Section 4 - Period of limitation for filing suits Notwithstanding anything contained in the Arbitration Act, 1940 (Central Act 10 of 1940) or in the Arbitration and Conciliation G Act, 1996 (Central Act 26 of 1996) or in the Limitation Act, 1963 (Central Act 36 of 1963), a suit under sub-section (2) of section 3 may be filed within six months from the date of commencement of this Act or within such period as is allowed by the provisions of the Limitation Act, 1963 (Central Act 36 of 1963), in relation to such suits, whichever is later. H

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 405 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

Section 5 - Power of Government to file appeal against certain awards Notwithstanding anything contained in the Arbitration Act, 1940 (Central Act 10 of 1940) or in the Arbitration and Conciliation Act, 1996 (Central Act 26 of 1996) or in the Limitation Act, 1963 (Central Act 36 of 1963) or in any other law for the time being in force or in any judgement, decree or order of any court or other authority or in any agreement or other instrument, where it appears to the Government that any award passed is not in accordance with the terms of the agreement or there was failure to produce relevant data or other particulars before the Arbitrator before passing the award or the award passed is of unconscionable amounts, they may file appeal against such award within ninety days of the date of commencement of this Act. Section 6 - Procedure before court For the removal of doubts, it is hereby clarified that the provisions of the Code of Civil Procedure, 1908 (Central Act 5 of 1908), shall apply to all proceedings before court and to all appeals under this Act. Section 7 - Arbitration Act not to apply The provisions of this Act shall apply to any proceedings instituted under this Act notwithstanding anything inconsistent herein with the provisions of the Arbitration Act, 1940 (Central Act 10 of 1940) or the Arbitration and Conciliation Act, 1996 (Central Act 26 of 1996) or any other law for the time being in force. Section 8 - Repeal and saving F (1) The Kerala Revocation of Arbitration Clauses and Reopening of Awards Ordinance, 1998 (6 of 1998), is hereby repealed. (2) Notwithstanding such repeal, anything done or deemed to have been done or any action taken or deemed to have been taken under the said Ordinance shall be deemed to have been done or G taken under this Act.”

5Copy pinpoint5. Section 3 of the State Act provides for “Cancellation of arbitration clauses and revocation of authority of arbitrator”. Sub-section (1) of Section 3 of the State Act provides that notwithstanding anything H

p. 406

A contained in the Indian Contract Act, 1872 or in the Arbitration Act, 1940 (hereinafter referred to as “1940 Act”) or in the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “1996 Act”) or in any other law for the time being in force or in any judgment, decree or order of any court or other authority or in any agreement or other instrument, the arbitration clauses in every agreement shall stand cancelled; the authority of an arbitrator appointed under an agreement referred to in clause (i) shall stand revoked; and any agreement referred to in clause (i) shall cease to have effect insofar as it relates to the matters in dispute or difference referred. The same shall be with effect on and from the date of commencement of the State Act. Sub-section (2) of Section 3 of the State Act provides that nothing provided in sub-section (1) of Section 3 of the State Act shall be a bar for any party to an agreement to file a suit in the court having jurisdiction in the matter to which the agreement relates and all questions regarding the validity or effect of the agreement between the parties to the agreement or persons claiming under them and all matters in dispute or difference between the parties to the agreement shall be decided by the court, as if the arbitration clauses had never been included in the agreement.

6Copy pinpoint6. Section 4 of the State Act enables a party to file a suit under sub-section (2) of Section 3 of the State Act within a period of six months from the date of commencement of the State Act or within such period as is allowed by the provisions of the Limitation Act, 1963 (hereinafter referred to as “1963 Act”), in relation to such suits whichever is later. This is notwithstanding anything contained in the 1940 Act or in the 1996 Act or in the 1963 Act.

7Copy pinpoint7. Section 5 of the State Act enables the State Government to file an appeal against any award within a period of 90 days from the date of commencement of the State Act, where it appears to the State Government that any award passed is not in accordance with the terms of the agreement or there was failure to produce relevant data or other G particulars before the Arbitrator before passing the award or the award passed is of unconscionable amounts. Again, this is notwithstanding anything contained in the 1940 Act or in the 1996 Act or in the 1963 Act or in any other law for the time being in force or in any judgment, decree or order of any court or other authority or in any agreement or other instrument. H

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 407 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

8Copy pinpoint8. Section 6 of the State Act clarifies that the provisions of the A Code of Civil Procedure, 1908 (hereinafter referred to as “CPC”) shall apply to all proceedings before the court and to all appeals under the State Act.

9Copy pinpoint9. Section 7 of the State Act provides that the provisions of the State Act shall apply to any proceedings instituted under the State Act B notwithstanding anything inconsistent therein with the provisions of the 1940 Act or the 1996 Act or any other law for the time being in force.

10Copy pinpoint10. Sub-section (1) of Section 8 of the State Act repeals the Kerala Revocation of Arbitration Clauses and Reopening of Awards Ordinance,

1998. Sub-section (2) of Section 8 of the State Act provides that notwithstanding such repeal, anything done or deemed to have been done or any action taken or deemed to have been taken under the said Ordinance shall be deemed to have been done or taken under the State Act.

11Copy pinpoint11. Immediately after the enactment of the State Act, several petitions came to be filed before the High Court of Kerala challenging the validity thereof. By the impugned judgment, the High Court of Kerala allowed the petitions and held and declared the State Act to be unconstitutional, being beyond the legislative competence of the State Legislature. E

12Copy pinpoint12. It will be relevant to note that the State Act was reserved for the consideration of the President of India and had received his assent as required under Article 254 (2) of the Constitution of India.

13Copy pinpoint13. The reasons that weighed with the High Court of Kerala for holding the State Act to be unconstitutional, are as under: F (i) That the 1940 Act, Arbitration (Protocol and Convention) Act, 1937 (hereinafter referred to as “1937 Act”) and the Foreign Awards (Recognition and Enforcement) Act, 1961 (hereinafter referred to as “1961 Act”) had become outdated. As such, the Parliament found it G expedient to make a law with respect to arbitration and conciliation, taking into account the United Nations Commission on International Trade Law (for short “UNCITRAL”) Model Law and Rules. The 1996 Act was enacted with the clear intention of harmonizing concepts on arbitration and conciliation of different legal H

p. 408

A systems of the world on the basis of UNCITRAL Model Law and Rules. As such, the matters dealt with by the 1996 Act were not the matters merely falling under Entry 13 of List III of the Seventh Schedule to the Constitution of India but also falling within Entries 10 to 14 of List I of the Seventh Schedule to the Constitution of India; B (ii) Since Entries 10 to 14 of List I of the Seventh Schedule to the Constitution of India deal with foreign affairs, relationship with foreign countries, United Nations Organization, participation in international conferences, associations and other bodies and implementing of decisions made thereat, entering into treaties and agreements and implementing of treaties, agreements and conventions, the issue of applicability of Article 253 of the Constitution of India would arise. As such, the Union Parliament had an overriding legislative power to make any law for the whole or any part of the territory of India. Once a Central Legislation referable to Article 253 of the Constitution of India comes into being, then the State Act cannot be said to be valid only in view of the Presidential assent received under Article 254 (2) of the Constitution of India; E (iii) That the executive power of the Union is coextensive with the legislative power of the Parliament under Article 73(1)(b) of the Constitution of India. As such, the 1996 Act is enacted by the Central Legislation in order to give effect to the executive power of the Government F of India, to give effect to the decisions taken at the international conference. As such, if it is held that the Presidential assent under Article 254 (2) of the Constitution of India would validate the State Act, then the very purpose of Article 253 of the Constitution of G India would be destroyed; (iv) That LCBS can be traced only to entries in the Union List, in particular, to Entry 37, as also, Entries 10 and 14 of List I of the Seventh Schedule to the Constitution of India. Entry 37 in List I of the Seventh Schedule to the H Constitution of India deals with foreign loans. That

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 409 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

Article 292 of the Constitution of India specifically deals with the borrowing by the Government of India. That the assistance provided by the World Bank also primarily falls within the executive power of the Union referable to Article 73 (1)(b) of the Constitution of India and as such, the State Act was beyond the legislative competence of the State Legislature; (v) That the proceedings which were made subject matter of the State Act, could have been dealt with only within the Judicial power of the State through the courts in terms of the provisions of the 1940 Act and 1996 Act. As such, the impugned legislation was an encroachment into the Judicial power of the State which was exercised through the courts in terms of the laws already made and in force. It infracts the quality doctrine and the avowed constitutional principles insulating the Judicial function which is cardinal to deliverance of justice as part of the seminal constitutional values, including separation of powers; and (vi) That there was nothing on record to show that any relevant material had gained the attention of the legislature except the superfluous statements in the E Preamble to the State Act with regard to misconduct by arbitrators. As such, the State Act suffers on the said count also.

14Copy pinpoint14. We have extensively heard Shri Jaideep Gupta, and Shri Pallav Shishodia, learned Senior Counsel appearing on behalf of the appellants. F Shri Krishnan Venugopal, learned Senior Counsel led the arguments on behalf of the respondents. The arguments of Shri Venugopal were concisely supplemented by Shri P.C. Sen, learned Senior Counsel, Shri C.N. Sreekumar, learned Senior Counsel, Smt. Haripriya Padmanabhan, learned counsel, Shri Kuriakose Varghese, learned counsel, Shri John Mathew, learned counsel and Shri Roy Abraham, learned counsel. G • SUBMISSIONS ON BEHALF OF THE APPELLANTS:

15Copy pinpoint15. Shri Gupta, learned Senior Counsel submitted that the impugned judgment of the High Court of Kerala suffers on various grounds. Shri Gupta further submitted that the High Court of Kerala committed a basic H

p. 410

A error in holding that the 1996 Act is universally applicable. He submitted that the 1996 Act would be applicable only when there is an agreement between the parties, whereby they have agreed to refer their dispute to arbitration. It is therefore submitted that what has been done by the State Act is a cancellation of contract by a statute and as such, the State Act or a part thereof would be referable to Entry 7 of List III of the B Seventh Schedule to the Constitution of India.

16Copy pinpoint16. Shri Gupta submitted that the rest of the legislation deals with the consequences of cancellation of the Arbitration clause in the Agreement. It is submitted that on cancellation of an agreement, sub- section (2) of Section 3 of the State Act provides an opportunity to any party to the agreement to file a suit in a competent civil court. He submitted that Section 4 of the State Act extends the period of limitation for filing of the suit. Section 5 of the State Act enables the State Government to challenge the award on various grounds stated therein, within a specified period. It is, therefore, submitted that the State Act is referable to Entries 7 and 13 of List III of the Seventh Schedule to the Constitution of India and as such, within the legislative competence of the State Legislature.

17Copy pinpoint17. Shri Gupta further submitted that the legislative competence of the State Legislature can only be circumscribed by the express prohibition contained in the Constitution of India itself. It is submitted that unless and until there is any provision in the Constitution of India expressly prohibiting legislation on the subject either absolutely or conditionally, there can be no fetter or limitation on the plenary power which the State Legislature enjoys to legislate on the topic enumerated in Lists II and III of the Seventh Schedule to the Constitution of India. In F support of this proposition, he relies on the judgment of this Court in the case of Maharaj Umeg Singh and Others v. State of Bombay and Others 1.

18Copy pinpoint18. Shri Gupta further submitted that there is no repugnancy between the 1996 Act and the State Act. He submitted that the 1996 G Act would apply where there is an arbitration clause in the agreement. If there is no arbitration clause in the agreement, the 1996 Act would not apply. He submitted that the 1996 Act itself is a legislation enacted with reference to Entry 13 of List III of the Seventh Schedule to the

1 H [1955] 2 SCR 164

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 411 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

Constitution of India. In support of this proposition, he relies on the A judgments of this Court in the cases of G.C. Kanungo v. State of Orissa2, State of Gujarat through Chief Secretary and Another v. Amber Builders3, Madhya Pradesh Rural Road Development Authority and Another v. L.G. Chaudhary Engineers and Contractors4 (hereinafter referred to as “MP Rural 2012”), Madhya Pradesh Rural Road B Development Authority and Another v. L.G. Chaudhary Engineers and Contractors5 (hereinafter referred to as “MP Rural 2018”).

19Copy pinpoint19. Shri Gupta submitted that assuming, but without accepting, that there is some conflict between the 1996 Act and the State Act, the State Act having been reserved for the consideration of the President of India and having received his assent, will prevail over the provisions of C the 1996 Act, in view of Article 254 (2) of the Constitution of India.

20Copy pinpoint20. Shri Gupta submitted that the State Act does not relate to any Entry in List I of the Seventh Schedule to the Constitution of India. He submitted that the approach of the High Court of Kerala has been totally erroneous. It is submitted that since all the three Lists of the Seventh D Schedule to the Constitution of India contain a number of entries, some overlapping is bound to happen. In such a situation, the doctrine of pith and substance is required to be applied to determine as to which entry does a given piece of legislation relate to. He submitted that regard must be had to the enactment as a whole, to its main object and to the scope E and effect of its provisions. He submitted that when a legislation is traceable, in pith and substance, to an entry with regard to which a State is competent to legislate, then incidental and superficial encroachments on the other entry will have to be disregarded. Reference in this respect is made to the judgments of this Court in the cases of Hoechst Pharmaceutical Ltd. and Others v. State of Bihar and Others6 and F State of West Bengal v. Kesoram Industries Ltd. and Others7. It is therefore submitted that since the impugned legislation is in pith and substance a legislation in the field covered by Entries 7 and 13 of List III of the Seventh Schedule to the Constitution of India, the same would not invalidate the State Act. G 2 (1995) 5 SCC 96 3 (2020) 2 SCC 540 4 (2012) 3 SCC 495 5 (2018) 10 SCC 826 6 (1983) 4 SCC 45 7 (2004) 10 SCC 201 H

p. 412

21Copy pinpoint21. Shri Gupta submitted that the High Court of Kerala has also erred in holding that the 1996 Act is referable to Article 253 of the Constitution of India. He submitted that the UNCITRAL Model Law which was adopted by the General Assembly of the United Nations, recommended that all the countries give due consideration to it while enacting the laws governing international commercial arbitration B practices. He submitted that, in any case, the Model Law is neither a treaty nor an agreement, convention, decision within the meaning of Article 253 of the Constitution of India or for that matter Entries 13 and 14 of List I of the Seventh Schedule to the Constitution of India. He submitted that following the principle of ejusdem generis, the word C ‘decision’ will have to be construed as one which will mean a binding obligation on the States. In this respect, he relies on the judgment of this Court in the case of Kavalappara Kottarathil Kochuni @ Moopil Nayar v. States of Madras and Kerala and Others8.

22Copy pinpoint22. Shri Gupta also relies on the rule of construction known as D Noscitur a sociis, that is, the meaning of a word is to be judged by the company it keeps. In this respect, he relies on the judgment of this Court in the case of M.K. Ranganathan v. Government of Madras and Others 9.

23Copy pinpoint23. Shri Gupta further submitted that it is a settled rule of E construction of the Constitution, that every attempt should be made to harmonize apparently conflicting provisions and entries, not only of different lists, but also of the same list and to reject the construction that would rob one of the entries of its entire content and make it nugatory. In this respect, he relies on the judgments of this Court in the cases of Calcutta Gas Company (Proprietary) Ltd. v. State of West Bengal F and Others10 and Sri Venkataramana Devaru and Others v. State of Mysore and Others11.

24Copy pinpoint24. Shri Gupta further submitted that since the provisions of Article 253 of the Constitution of India have the effect of restricting the power of the State Legislature, the said Article should be given the narrowest G possible meaning in order to harmonize it with the Entries in Lists II and III of the Seventh Schedule to the Constitution of India. He submitted 8

p. 887

9

p. 374

10 1962 Supp (3) SCR 1 11 H [1958] SCR 895

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 413 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

that this can be done by interpreting that only the legislations enacted to give effect to binding obligation are covered by the said Article.

25Copy pinpoint25. Shri Gupta further submitted that the Model Law is a suggested pattern for law makers which only recommends the practices to be adopted in the international arbitration and not for the domestic arbitration and as such, it cannot be held that it has any binding obligation insofar as domestic arbitration is concerned.

26Copy pinpoint26. Shri Shishodia, learned Senior Counsel submitted that in the earlier statutory scheme prior to the 1996 Act, the 1940 Act governed the domestic arbitration, whereas the 1937 Act and the 1961 Act governed international commercial arbitrations. He submitted that in the 1996 Act, C the domestic arbitrations are governed by Part I, whereas Part II governs international commercial arbitrations with separate specific provisions for Geneva Convention Awards and New York Convention Awards. He submitted that however, even in the 1996 Act, the historical as well as contemporary distinction between an international commercial arbitration and domestic arbitration remains. In this respect, he relies on the judgment D of this Court in the case of Fuerst Day Lawson Limited v. Jindal Exports Limited12. He submitted that the 1996 Act actually consolidates, amends and puts together three different enactments.

27Copy pinpoint27. Shri Shishodia further submitted that after the Presidential assent was received under Article 254 (2) of the Constitution of India, E the test to be applied to the State Law to be held repugnant to Central Law is that “there is no room or possibility for both Acts to apply”. He submitted that no such repugnancy has been pointed out by the respondents in the State Act vis-à-vis the 1940 Act and 1996 Act. In this respect, he relies on the judgment of this Court in the case of Rajiv F Sarin and Another v. State of Uttarakhand and Others13.

28Copy pinpoint28. Shri Shishodia as well as Shri Gupta submitted that merely because some part of the said Project is financed by the World Bank, it cannot be a ground to invalidate the State Act which is referable to Entry 13 of List III of the Seventh Schedule to the Constitution of India. G • SUBMISSIONS ON BEHALF OF THE RESPONDENTS:

29Copy pinpoint29. Per contra, Shri Venugopal, learned Senior Counsel appearing on behalf of some of the respondents submitted that the State Act is 12 (2011) 8 SCC 333 13 (2011) 8 SCC 708 H

p. 414

A wholly arbitrary and violative of Article 14 of the Constitution of India. He submitted that the State Act arbitrarily singles out the said Project started in the year 1961 out of all the projects in Kerala, for revocation of arbitration clauses in agreements. He submitted that the High Court of Kerala has rightly held that no material was placed by the State Government to show that collusive awards had been made because of a B nexus between arbitrators and claimant contractors.

30Copy pinpoint30. Learned Senior Counsel submitted that the State Act is traceable to Entries 12, 13, 14 as well as Entry 37 of List I of the Seventh Schedule to the Constitution of India. He submitted that Entries 12 to 14 relate to United Nations Organization, participation in international conferences, C associations and other bodies and implementing of decisions made thereat and entering into treaties and agreements with foreign countries and implementing of treaties, agreements and conventions with foreign countries. He submitted that the State has enacted a legislature which is related to these entries, which are exclusively within the domain of the D Union Legislature. He further submitted that Entry 37 deals with foreign loans. He submitted that since the State Act attempts to deal with the loans taken from the World Bank, it will be an encroachment on the legislative field reserved for the Union Legislature. It is therefore submitted that the State Act is enacted by the State Legislature in respect of entries which are exclusively within the jurisdiction of the Central E Legislation and as such, beyond the competence of the State Legislature. He submitted that the question of Presidential assent under Article 254 (2) of the Constitution of India would arise only when the legislation is in respect of items covered in List III, i.e., the Concurrent List. Since the State Act deals with the entries exclusively in List I, the Presidential F assent would be of no consequence to save the State Act.

31Copy pinpoint31. Shri Venugopal submitted that the 1996 Act is clearly referable to the decision taken at international conference, i.e., the General Assembly of United Nations held on 11th December 1985. In support of the said submission, he relies on the judgment of this Court in the case of G Maganbhai Ishwarbhai Patel Etc. v. Union of India and Another 14. Relying on the judgment of this Court in the case of S. Jagannath v. Union of India and Others15, he submitted that Article 253 of the Constitution of India would also be applicable to the legislations enacted 14 (1970) 3 SCC 400 15 H (1997) 2 SCC 87

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 415 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

for giving effect to the decisions taken at the international conference, which are not binding in nature.

32Copy pinpoint32. Shri Venugopal submitted that a law passed under Article 253 of the Constitution of India would denude the State Legislature of its competence to make any law on the same subject matter regardless of whether the subject matter falls in List II or List III. He therefore submitted that since the 1996 Act has been enacted by the Parliament in exercise of Legislative power under Article 253 of the Constitution of India, the State Legislature would not have the power to make a law which is repugnant thereto, even with regard to subjects falling in List II or List III. A reference is again made to the judgment of this Court in the case of Maganbhai Ishwarbhai Patel (supra). In this regard, the learned C Senior Counsel also relies on the judgments of this Court in the cases of Mantri Techzone Private Limited v. Forward Foundation and Others16, State of Bihar and Others v. Bihar Chamber of Commerce and Others17 and Jayant Verma and Others v. Union of India and Others18. D

33Copy pinpoint33. Shri Venugopal further submitted that the State Act is also discriminatory inasmuch as the State Government has been given an absolute discretion as to against which award, it will prefer an appeal and against which, it will not prefer an appeal. He relies on the judgments of this Court in the cases of Suraj Mall Mohta and Co. v. A.V. E Visvanatha Sastri and Another19 and B.B. Rajwanshi v. State of U.P. and Others20.

34Copy pinpoint34. Shri Venugopal further submitted that the State Act interferes with the doctrine of “separation of powers” and encroaches upon the powers of the judiciary, inasmuch as the State Act empowers the State F to interfere with the awards. He submitted that this is not permissible in view of the law laid down by this Court in the case of B.B. Rajwanshi (supra).

35Copy pinpoint35. Shri Venugopal would further submit that assuming, but without admitting that the State Act was not arbitrary when it was originally G passed, but by passage of time, it has become arbitrary and unreasonable. 16 (2019) 18 SCC 494 17 (1996) 9 SCC 136 18 (2018) 4 SCC 743 19

p. 448

20 (1988) 2 SCC 415 H

p. 416

A He submitted that much earlier to the enactment of the State Act, not only the awards have become final but the amount awarded has already been paid to the claimants. As such, if the State Act is permitted to operate now, it will amount to arbitrariness and unreasonableness. He therefore submitted that the present appeals deserve to be dismissed.

36Copy pinpoint36. Shri P.C. Sen, learned Senior Counsel appearing on behalf of some of the respondents submitted that the State Act has the effect of depriving the respondents’ settled right of property under Article 300-A of the Constitution of India which has been acquired as per law. He submitted that the awards passed, create a right in the property and are enforceable when the same are made a decree of the court. In this regard, he relies on the judgment of this Court in the case of Satish Kumar and Others v. Surinder Kumar and Others21.

37Copy pinpoint37. Shri Sen further submitted that in the present case, the awards have been acted upon and payments have been made. Therefore, vested rights have been crystalized in favour of the respondents. He submitted that such vested rights cannot be taken away by the State Act. Reliance in this respect is placed on the judgment of this Court in the case of Andhra Pradesh Dairy Development Corporation Federation v. B. Narasimha Reddy and Others22.

38Copy pinpoint38. Shri Sen further submitted that a unilateral alteration of contract is violative of the fundamental principle of justice. It is submitted that what has been sought to be done by the State Act is unilateral addition or alteration of the contract and foisting the same on unwilling parties. It is submitted that the same would not be permissible. Reliance in this respect is placed on the judgment of this Court in the case of Ssangyong F Engineering and Construction Company Limited v. National Highways Authority of India (NHAI)23.

39Copy pinpoint39. Shri Sen further submitted that the impugned legislation encroaches upon the judicial power and judicial functions and in turn, amounts to infringement of the basic structure of the Constitution of India. Reliance in this respect is placed on the judgment of this Court in G the case of SREI Infrastructure Finance Limited v. Tuff Drilling Private Limited24. He further submitted that the judgment of this Court 21

p. 244

22 (2011) 9 SCC 286 23 (2019) 15 SCC 131 24 H (2018) 11 SCC 470

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 417 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

in the case of G.C. Kanungo (supra), rather than supporting the case of A the appellants, would support the case of the respondents.

40Copy pinpoint40. Shri Sen, relying on the judgment of this Court in the case of S. Jagannath (supra), would submit that the 1996 Act is referable to Article 253 of the Constitution of India and as such, the State Act which is repugnant thereto, would not be valid in law. B

41Copy pinpoint41. Shri C.N. Sreekumar, learned Senior Counsel appearing on behalf of some of the respondents submitted that the State Act is liable to be declared invalid on the ground of manifest arbitrariness. It is submitted that the State Act has been enacted, which acts to the prejudice of the private parties and undoubtedly favours the State Government. It is submitted that Section 34 (2A) of the 1996 Act came into effect on C 23rd October 2015, i.e., much after the enactment of the State Act. It is therefore submitted that assuming that the State Act was validly enacted, however upon introduction of Section 34 (2A) of the 1996 Act on 23 rd October 2015, the State Act has been impliedly repealed. Reliance in this respect is placed on the judgments of this Court in the cases of D Saverbhai Amaidas v. State of Bombay25 and T. Barai v. Henry Ah Hoe and Another26.

42Copy pinpoint42. Smt. Padmanabhan, learned counsel appearing on behalf of some of the respondents submitted that the assent of the President of India under Article 254(2) of the Constitution of India is not a matter of E idle formality. She submitted that unless the State satisfies that relevant material was placed before the President of India and he was made aware about the grounds on which the Presidential assent was sought, the Presidential assent would not save the State Act from being invalid. In this respect, she relies on the judgment of this Court in the case of Gram Panchayat of Village Jamalpur v. Malwinder Singh and F Others27.

43Copy pinpoint43. Smt. Padmanabhan submitted that the State Act is also arbitrary and violative of Article 14 of the Constitution of India. She submitted that the State Act treats unequals equally by failing to make a distinction between the cases where there is a fraud and where there is no fraud. G In this respect, she relies on the judgment of this Court in the case of State of Maharashtra v. Mrs. Kamal Sukumar Durgule and Others 28. 25

p. 799

26 (1983) 1 SCC 177 27 (1985) 3 SCC 661 28 (1985) 1 SCC 234 H

p. 418

44Copy pinpoint44. Relying on the judgments of this Court in the cases of Ashok Kumar alias Golu v. Union of India and Others29, S.S. Bola and Others v. B.D. Sardana and Others30 and Madras Bar Association v. Union of India and Another31,Smt. Padmanabhan submitted that the legislature does not have the competence to enact a legislation which sets aside the judgment or an award passed by a court. B

45Copy pinpoint45. Shri John Mathew, learned counsel appearing on behalf of some of the respondents submitted that the State Act is discriminatory in nature. He submitted that the State, out of 343 cases, has chosen to file an appeal only insofar as 55 claims/cases are concerned. He also submitted that the State Act has sought to alter the rights and remedies in the contracts executed with the State nearly a decade before the State Act was brought into effect. He submitted that certain claimants are being denied the equal treatment as is available to large number of similarly situated claimants who are getting benefits under the 1996 Act.

46Copy pinpoint46. Shri Mathew submitted that if the legislative power is exercised by the State Legislature in transgression of Constitutional limitations with respect to Article 13(2) of the Constitution of India which prohibits the State from making any law which takes away or abridges the rights conferred by Part-III of the Constitution of India, such an exercise of power would be invalid in law. In this regard, he relies on the judgment of this Court in the case of State of Kerala and Others v. Mar Appraem E Kuri Company Limited and Another32.

47Copy pinpoint47. Shri Mathew further submitted that the State Act is not only in conflict with the 1996 Act but is also in conflict with the Commercial Courts Act, 2015 (hereinafter referred to as “2015 Act”). He submitted that all the disputes involved in the present matters are commercial F disputes as defined under Section 2(c) of the 2015 Act. He submitted that the 2015 Act is a subsequent Central enactment and therefore, the State Act being an earlier Act enacted by the State Legislature and repugnant to the Central enactment, cannot exist. It is submitted that the enactment of the 2015 Act would amount to a pro tanto repeal of the State Act. Reliance in this respect is placed on the judgments of this G Court in the cases of T. Barai (supra) and Mar Appraem Kuri Company Limited and Another (supra). 29 (1991) 3 SCC 498 30 (1997) 8 SCC 522 31 2021 SCC OnLine SC 463 32 H (2012) 7 SCC 106

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 419 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

48Copy pinpoint48. Shri Mathew further submitted that only when the proceedings A went against the State, they illegally enacted the State Act in order to either deny payments or delay them by compelling the respondents to face or to undergo an altogether different remedy for the very same cause of action. In this regard, he relies on the judgments of this Court in the cases of State of Tamil Nadu and Others v. K. Shyam Sunder B and Others33 and Deep Chand and Others v. State of Uttar Pradesh and Others34.

49Copy pinpoint49. Shri Kuriakose Varghese, learned counsel appearing on behalf of some of the respondents submitted that apart from making the bald allegation that there was collusion between the contractors and the officials, no material is placed on record. He submitted that the State C Act which has been enacted, in the absence of sufficient material, would not be sustainable in law. Reliance in this respect is placed on the judgment of this Court in the case of Ladli Construction Co. (P) Ltd. v. Punjab Police Housing Corpn. Ltd. and Others35.

50Copy pinpoint50. Shri Varghese submitted that though the State Act is purportedly enacted in public interest, rather than it being in public interest, it is contrary to the public interest. It is submitted that this Court in the case of Hindustan Construction Co. Ltd. and Another v. Union of India and Others36, has held that reasonableness, adequate determining principle and public interest have to march hand in hand.He submitted that the State Act derogates from the principle of speedy settlement of disputes in an arbitrary and selective manner and therefore, is not valid being contrary to public interest.

51Copy pinpoint51. Shri Roy Abraham, learned counsel appearing on behalf of some of the respondents also made submissions which are on similar lines as are made by other counsel for respondents. • SUBMISSIONS ON BEHALF OF THE APPELLANTS IN REJOINDER:

52Copy pinpoint52. Shri Gupta, learned Senior Counsel, in rejoinder, submitted that the reliance placed by the respondents on the judgment of this Court G in the case of Kesoram Industries Ltd. (supra) is misplaced inasmuch 33 (2011) 8 SCC 737 34 [1959] Supp (2) SCR 8 35 (2012) 4 SCC 609 36 (2020) 17 SCC 324 H

p. 420

A as the paragraphs which are relied on by the respondents are from the minority judgment. He submitted that, on the contrary, the majority judgment upholds the validity of the State Legislation. He submitted that insofar as the reliance placed by the respondents on the judgments of this Court in the cases of S. Jagannath (supra) and Mantri Techzone Private Limited (supra) are concerned, the same nowhere held that the B State Legislature would be denuded of the field altogether, beyond what the treaty and/or the Parliamentary legislation covered. He submitted that merely because the said Project was, in part, financed by the World Bank, it cannot be said that the State Act is, in pith and substance, a legislation in the field of foreign loans and is therefore, beyond the competence of the State Legislature.

53Copy pinpoint53. Shri Gupta refuted the allegations with regard to arbitrary and discriminatory nature of the State Act. He submitted that the correctness of the reasons stated by the State Legislature cannot be the subject matter of judicial review. Reliance in this respect is placed on the judgment of this Court in the case of K. Nagaraj and Others v. State of Andhra Pradesh and Another37.

54Copy pinpoint54. Shri Gupta submitted that Section 9 of the CPC provides for the plenary jurisdiction of the civil courts to decide disputes of civil nature unless excluded by law. He submitted that so long as the parties are governed by an arbitration agreement, the civil courts, though having jurisdiction to entertain civil suits in respect of disputes arising out of the contract between the parties, are required to refer the disputes, if any, to arbitration under Sections 8 and 11 of the 1996 Act and Sections 20 and 34 of the 1940 Act. However, once the arbitration agreement stands cancelled, all fetters would stand removed and the civil courts will have the jurisdiction to entertain the disputes. It is submitted that the argument with regard to the forum to which an appeal would lie, being not provided is without substance. He submitted that by virtue of Section 6 of the State Act, CPC is applicable to all the proceedings and an appeal will lie to the court, based on the court which is rendering the judgment or award and/or passing the decree on award. As such, the argument regarding vagueness is without substance.

55Copy pinpoint55. Insofar as the argument with regard to the State having the right to pick and choose cases in which appeals are to be filed, Shri 37 H (1985) 1 SCC 523

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 421 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

Gupta submitted that every litigant has a choice to accept the judgment A and order of a trial court or to challenge the same. He submitted that it is not the case where alternative proceedings are available to the State to take administrative action against different parties, some of which are more onerous than others. In this regard, he relies on the judgments of this Court in the cases of Nagpur Improvement Trust and Another v. B Vithal Rao and Others38 and State of Kerala and Others v. T.M. Peter and Others39. He further submitted that Section 5 of the State Act itself provides sufficient guidelines regarding the cases in which the State would be empowered to file an appeal. As such, it cannot be said that the power given to the State to file an appeal is unguided. C

56Copy pinpoint56. Shri Gupta concluded by submitting that the argument that the State Act interferes with the judicial power of the State is also devoid of any substance. The State Act merely provides for an appeal against the decree which will be tested in the appeal and as such, the final word still remains with the judiciary. He therefore submitted that all the contentions raised on behalf of the respondents are without merit. D

• CONSIDERATION: LEGISLATIVE COMPETENCE OF THE STATE LEGISLATURE TO ENACT THE STATE LAW: E

57Copy pinpoint57. We first propose to consider the question as to whether the State Act is within the legislative competence of the State Legislature as contended by the appellants or as to whether it is beyond the legislative competence of the State Legislature as contended by the respondents. For that, the question that will have to be answered is as to whether the source of the impugned legislation (State Act) is Entry 13 of List III of F the Seventh Schedule to the Constitution of India or as to whether the impugned legislation (State Act) is referable to Entries 12, 13, 14 and 37 of List I of the Seventh Schedule and Article 253 of the Constitution of India. We will also have to examine the scope of clause (2) of Article 254 of the Constitution of India. G

58Copy pinpoint58. It will be relevant to reproduce Entries 12, 13, 14 and 37 of List I of the Seventh Schedule to the Constitution of India as under:

38 (1973) 1 SCC 500 39 (1980) 3 SCC 554 H

p. 422

A “Seventh Schedule (Article 246) List I – Union List ………….

B 12. United Nations Organization.

13. Participation in international conferences, associations and other bodies and implementing of decisions made thereat.

14. Entering into treaties and agreements with foreign countries and implementing of treaties, agreements and conventions with C foreign countries. ……..

37. Foreign loans. ……….” D

59Copy pinpoint59. It will also be apposite to refer to Entry 13 of List III of the Seventh Schedule to the Constitution of India, which reads thus: “Seventh Schedule (Article 246) E List III – Concurrent List …………

13. Civil procedure, including all matters included in the Code of Civil Procedure at the commencement of this Constitution, limitation and arbitration. ……….”

60Copy pinpoint60. Article 253 of the Constitution of India reads thus: “253.Legislation for giving effect to international agreements. – Notwithstanding anything contained in the foregoing provisions of this Chapter, Parliament has power to make any law for the whole or any part of the territory of India for implementing any treaty, agreement or convention with any other country or countries or any decision made at any international conference, association or other body.” H

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 423 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

61Copy pinpoint61. For considering the question in hand, it will be apposite to seek A guidance from the precedents of this Court. It will be relevant to refer to the following observations of this Court in the case of G.C. Kanungo (supra): “10. …… Subject of arbitration finds place in Entry 13 of List III, i.e., the Concurrent List of Seventh Schedule to the Constitution B on which the legislation could be made either by Parliament or the State Legislature. When there is already the legislation of Parliament made on this subject, it operates in respect of all States in India, if not excepted. Since it is open to a State Legislature also to legislate on the same subject of arbitration, in that, it lies within its field of legislation falling in an entry in the Concurrent C List and when a particular State Legislature has made a law or Act on that subject for making it applicable to its State, all that becomes necessary to validate such law is to obtain the assent of the President by reserving it for his consideration. When such assent is obtained, the provisions of the State Law or Act so enacted prevails in the State concerned, notwithstanding its repugnancy to an earlier Parliamentary enactment made on the subject. It was not disputed that insofar as the 1991 Amendment is concerned, it has been assented to by the President of India after it was reserved for his consideration. Hence, the Orissa State Legislature’s enactment, the 1991 Amendment Act is that made on a subject within its legislative field and when assent of the President is obtained for it after reserving it for his consideration it becomes applicable to the State of Orissa, notwithstanding anything contained therein repugnant to what is in the Principal Act of Parliament, it cannot be held to be unconstitutional as that made by the Orissa State Legislature without the necessary legislative competence.”

62Copy pinpoint62. It could thus be seen that this Court has observed that the subject of arbitration finds place in Entry 13 of List III, i.e., the Concurrent List of the Seventh Schedule to the Constitution of India. It has been held that the legislation pertaining to the said entry could be made either by the Parliament or the State Legislature. It has been held that since the subject of arbitration is in the Concurrent List, the State can also make a law with regard to the same. The only requirement is that to validate such a law, it is necessary to reserve the same for consideration H

p. 424

A of the President of India and obtain his assent. When such an assent is obtained, the provisions of the State Law or Act so enacted would prevail in the State concerned, notwithstanding its repugnancy with an earlier Parliamentary enactment made on the subject. It is not in dispute that in the present case also, the State Act was reserved for consideration of the President of India and the assent of the President of India has been B obtained. As such, the State Act so enacted would prevail in the State of Kerala.

63Copy pinpoint63. It will further be pertinent to note that in the case of MP Rural 2012, the M.P. Madhyastham Adhikaran Adhiniyam, 1983 (State enactment) provided for mandatory statutory arbitration in the State of C M.P. irrespective of the arbitration agreement in respect of works contracts in the State of M.P. or its instrumentalities. An argument was sought to be made on behalf of the claimants that the State Act was repugnant to the 1996 Act and that in view of Section 85 of the 1996 Act, the M.P. Act, 1983 stood impliedly repealed. There was a difference D of opinion between the two learned Judges on the Bench. A.K. Ganguly, J., on the Bench, observed thus: “38. The argument of repugnancy is also not tenable. Entry 13 of the Concurrent List in the Seventh Schedule of the Constitution runs as follows: E “13. Civil procedure, including all matters included in the Code of Civil Procedure at the commencement of this Constitution, limitation and arbitration.” In view of the aforesaid entry, the State Government is competent to enact laws in relation to arbitration. F

39. The M.P. Act of 1983 was made when the previous Arbitration Act of 1940 was in the field. That Act of 1940 was a Central law. Both the Acts operated in view of Section 46 of the 1940 Act. The M.P. Act, 1983 was reserved for the assent of the President and admittedly received the same on 17-10-1983 which was G published in the Madhya Pradesh Gazette Extraordinary dated 12-10-1983. Therefore, the requirement of Article 254(2) of the Constitution was satisfied. Thus, the M.P. Act of 1983 prevails in the State of Madhya Pradesh. Thereafter, the AC Act, 1996 was enacted by Parliament repealing the earlier laws of arbitration of

1940. It has also been noted that the AC Act, 1996 saves the H

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 425 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

provisions of the M.P. Act, 1983 under Sections 2(4) and 2(5) A thereof. Therefore, there cannot be any repugnancy. (See the judgment of this Court in T. Barai v. Henry Ah Hoe [(1983) 1 SCC 177 : 1983 SCC (Cri) 143 : AIR 1983 SC 150] .)

40. In this connection the observations made by the Constitution Bench of this Court in M. Karunanidhi v. Union of India [(1979) B 3 SCC 431 : 1979 SCC (Cri) 691] are very pertinent and the following observations are excerpted: (SCC p. 450, para 37) “37. … It is, therefore, clear that in view of this clear intention of the legislature there can be no room for any argument that the State Act was in any way repugnant to the Central Acts. C We have already pointed out from the decisions of the Federal Court and this Court that one of the important tests to find out as to whether or not there is repugnancy is to ascertain the intention of the legislature regarding the fact that the dominant legislature allowed the subordinate legislature to operate in the same field pari passu the State Act.” D

41. It is clear from the aforesaid observations that in the instant case the latter Act made by Parliament i.e. the AC Act, 1996 clearly showed an intention to the effect that the State law of arbitration i.e. the M.P. Act should operate in the State of Madhya Pradesh in respect of certain specified types of arbitrations which E are under the M.P. Act, 1983. This is clear from Sections 2(4) and 2(5) of the AC Act, 1996. Therefore, there is no substance in the argument of repugnancy and is accordingly rejected.”

64Copy pinpoint64. Since Gyan Sudha Mishra, J. disagreed with A.K. Ganguly, J. in the said case, the matter was referred to a larger Bench. F

65Copy pinpoint65. The Bench consisting of three learned Judges in the case of MP Rural 2018, agreed with the view expressed by Ganguly, J.

66Copy pinpoint66. It could be seen that this Court in the case of G.C. Kanungo (supra) as well as in the case of MP Rural 2018, has held that the G source of the enactment of the 1940 Act, 1996 Act so also the State Acts legislated by Orissa and MP Legislatures is Entry 13 of List III of the Seventh Schedule to the Constitution of India. Ordinarily, if there is any conflict between the Central law and the State law, in view of clause (1) of Article 254 of the Constitution of India, the Central law would prevail. However, in view of clause (2) of Article 254 of the Constitution H

p. 426

A of India, the State law would prevail when it is reserved for consideration and receives assent of the President of India.

67Copy pinpoint67. Recently, this Court, in the case of G. Mohan Rao and Others v. State of Tamil Nadu and Others40, has observed thus: “47. Article 254(2) is produced again for ready reference thus: B “254. Inconsistency between laws made by Parliament and laws made by the Legislatures of States. — (1) … (2) Where a law made by the Legislature of a State C with respect to one of the matters enumerated in the Concurrent List contains any provision repugnant to the provisions of an earlier law made by Parliament or an existing law with respect to that matter, then, the law so made by the Legislature of such State shall, if it has D been reserved for the consideration of the President and has received his assent, prevail in that State:” (emphasis supplied)

48. The basic ingredients for the application of Article 254(2) can be noted thus: E (i) A law made by the legislature of the State (the 2019 Act in this case); (ii) Such law is made on a subject falling in the concurrent list (Entry-42 of the Concurrent List in this case);

F (iii) Such law is repugnant to the provisions of an earlier/existing law made by the Parliament (the 2013 Act in this case); and (iv) The State law is reserved for the assent of the President and has received the same.

49. Upon fulfilment of the above conditions, such State law would G prevail in the State despite there being a law made by the Parliament on the same subject and despite being repugnant thereto. The most peculiar feature of Article 254(2) is the recognition of existence of repugnancy between the law made by the Parliament and State law and rendering that repugnancy 40 H 2021 SCC OnLine SC 440

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 427 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

inconsequential upon procurement of Presidential assent. In this case, the State legislature duly passed the 2019 Act (State law) on a subject of the concurrent list in the presence of a law made by the Parliament (2013 Act) and obtained the assent of the President to the same on 02.12.2019 after duly placing the State law before the President and duly stating the reason for reserving it for his assent. A priori, we hold that this is in compliance of Article 254(2).

50. This understanding of Article 254(2) is well settled and reference can be usefully made to the following paragraph of Pt. Rishikesh40: C “15. Clause (2) of Article 254 is an exception to clause (1). If law made by the State Legislature is reserved for consideration and receives assent of the President though the State law is inconsistent with the Central Act, the law made by the Legislature of the State prevails over the Central law and operates in that State as valid law. If Parliament amends the law, after the amendment made by the State Legislature has received the assent of the President, the earlier amendment made by the State Legislature, if found inconsistent with the Central amended law, both Central law and the State Law cannot coexist without colliding with each other. Repugnancy thereby arises and to the extent of the repugnancy the State law becomes void under Article 254(1) unless the State Legislature again makes law reserved for the consideration of the President and receives the assent of the President. Full Bench of the High Court held that since U.P. Act 57 of 1976 received the assent of the F President on 30-12-1976, while the Central Act was assented on 9-9-1976, the U.P. Act made by the State Legislature, later in point of time it is a valid law.” (emphasis supplied) G

51. The petitioners have advanced lengthy arguments as to how the 2019 Act is repugnant to the 2013 Act. We are constrained to observe that the whole exercise of pointing out any repugnancy after a validating Act has obtained the assent of the President is otiose. For, the whole purpose of Article 254(2) is to resuscitate H

p. 428

A and operationalize a repugnant Act or repugnant provisions in such Act. For, the Constitution provides concurrent powers to the states as well on subjects falling in List-III. After duly complying with the requirements of Article 254(2), the Court is left with nothing to achieve by identifying repugnancy between the laws because the same has already been identified, accepted and validated as per the sanction of the Constitution under Article 254(2). To indulge in such an exercise would be intuitive. Moreover, the Court ought not to nullify a law made in compliance with Article 254(2) on the sole ground of repugnancy. For, repugnancy, in such cases, is said to have been constitutionalized. To put it differently, the very purpose of engaging in the exercise, in terms of clause (2) of Article 254, presupposes existence of repugnancy and is intended to overcome such repugnancy. Therefore, the endeavour of the petitioners in the present matter to highlight repugnancy, is misdirected, flimsy and inconsequential.”

68Copy pinpoint68. As such, once the State Act was reserved for consideration and received the assent of the President of India, it would prevail. Once that is the position, any endeavour to find out any repugnancy between the two, would be futile. No doubt, that it is sought to be urged on behalf of the appellants that there is no repugnancy between the State Act and the Central Act and that applying the principle of harmonization, both can exist. We find that in view of the State Act receiving the Presidential assent, it will not be necessary to consider the said issue.

69Copy pinpoint69. It is next sought to be urged on behalf of the respondents that the State Act is essentially within the legislative competence of the Union. It is submitted by the respondents that the State legislation is with respect to Entries 12, 13, 14 and 37 of List I of the Seventh Schedule to the Constitution of India and as such, exclusively within the competence of the Central Legislation. Entry 12 deals with United Nations Organization. Entry 13 deals with participation in international conferences, associations and other bodies and implementing of decisions made thereat. Entry 14 G deals with entering into treaties and agreements with foreign countries and implementing of treaties, agreements and conventions with foreign countries. Entry 37 deals with foreign loans.

70Copy pinpoint70. It will be apposite to refer to the following observations of the Constitution Bench in the case of Kesoram Industries Ltd. and Others H

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 429 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

(supra). In the said case, R.C. Lahoti, J., speaking for the majority, has observed thus: “31. Article 245 of the Constitution is the fountain source of legislative power. It provides — subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the legislature of a State may make laws for the whole or any part of the State. The legislative field between Parliament and the legislature of any State is divided by Article 246 of the Constitution. Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule, called the “Union List”. Subject to the said power of Parliament, the legislature of any State has power to make laws with respect to any of the matters enumerated in List III, called the “Concurrent List”. Subject to the abovesaid two, the legislature of any State has exclusive power to make laws with respect to any of the matters enumerated in List II, called the “State List”. Under Article 248 the exclusive power of D Parliament to make laws extends to any matter not enumerated in the Concurrent List or State List. The power of making any law imposing a tax not mentioned in the Concurrent List or State List vests in Parliament. This is what is called the residuary power vesting in Parliament. The principles have been succinctly summarised and restated by a Bench of three learned Judges of E this Court on a review of the available decision in Hoechst Pharmaceuticals Ltd. v. State of Bihar [(1983) 4 SCC 45 : 1983 SCC (Tax) 248] . They are: (1) The various entries in the three lists are not “powers” of legislation but “fields” of legislation. The Constitution effects a F complete separation of the taxing power of the Union and of the States under Article 246. There is no overlapping anywhere in the taxing power and the Constitution gives independent sources of taxation to the Union and the States. (2) In spite of the fields of legislation having been demarcated, G the question of repugnancy between law made by Parliament and a law made by the State Legislature may arise only in cases when both the legislations occupy the same field with respect to one of the matters enumerated in the Concurrent List and a direct conflict is seen. If there is a repugnancy due H

p. 430

A to overlapping found between List II on the one hand and List I and List III on the other, the State law will be ultra vires and shall have to give way to the Union law. (3) Taxation is considered to be a distinct matter for purposes of legislative competence. There is a distinction B made between general subjects of legislation and taxation. The general subjects of legislation are dealt with in one group of entries and power of taxation in a separate group. The power to tax cannot be deduced from a general legislative entry as an ancillary power. C (4) The entries in the lists being merely topics or fields of legislation, they must receive a liberal construction inspired by a broad and generous spirit and not in a narrow pedantic sense. The words and expressions employed in drafting the entries must be given the widest-possible interpretation. This is because, to quote V. Ramaswami, J., the allocation of the subjects to the lists is not by way of scientific or logical definition but by way of a mere simplex enumeratio of broad categories. A power to legislate as to the principal matter specifically mentioned in the entry shall also include within its expanse the legislations touching incidental and ancillary matters. (5) Where the legislative competence of the legislature of any State is questioned on the ground that it encroaches upon the legislative competence of Parliament to enact a law, the question one has to ask is whether the legislation relates to any of the entries in List I or III. If it does, no further question need be asked and Parliament’s legislative competence must be upheld. Where there are three lists containing a large number of entries, there is bound to be some overlapping among them. In such a situation the doctrine of pith and substance has to be applied to determine as to which entry does a given piece of legislation relate. Once it is so determined, any incidental trenching on the field reserved to the other legislature is of no consequence. The court has to look at the substance of the matter. The doctrine of pith and substance is sometimes expressed in terms of ascertaining the true character of legislation. The name given by the legislature to the legislation

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 431 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

is immaterial. Regard must be had to the enactment as a whole, to its main objects and to the scope and effect of its provisions. Incidental and superficial encroachments are to be disregarded. (6) The doctrine of occupied field applies only when there is a clash between the Union and the State Lists within an area common to both. There the doctrine of pith and substance is to be applied and if the impugned legislation substantially falls within the power expressly conferred upon the legislature which enacted it, an incidental encroaching in the field assigned to another legislature is to be ignored. While reading the three lists, List I has priority over Lists III and II and List III has priority over List II. However, still, the predominance of the C Union List would not prevent the State Legislature from dealing with any matter within List II though it may incidentally affect any item in List I. (emphasis supplied) D

71Copy pinpoint71. It could thus be seen that the Constitution Bench has held that when the legislative competence of a State Legislature is questioned on the ground that it encroaches upon the legislative competence of the Parliament, since some entries are bound to be overlapping, in such a situation, the doctrine of pith and substance has to be applied to determine as to which entry does a given piece of legislation relate to. Once it is so determined, any incidental trenching on the field reserved to the other legislature is of no consequence. The court has to look at the substance of the matter. The true character of the legislation has to be ascertained. Regard must be had to the enactment as a whole, to its main objects and to the scope and effect of its provisions. It has been held that incidental and superficial encroachments are to be disregarded. It has been held that the predominance of the Union List would not prevent the State Legislature from dealing with any matter within List II, though it may incidentally affect any item in List I.

72Copy pinpoint72. If we look at the scheme of the State enactment, the subject matter of the enactment is arbitration. As has been held by the Constitution Bench in the case of Kesoram Industries Ltd. and Others (supra), if the State is competent to legislate on the subject, any incidental encroachment on any item in List I would not affect the State Legislature. In any case, as already observed hereinabove, this Court, in the cases of H

p. 432

A G.C. Kanungo (supra) and MP Rural 2018, has specifically held that the 1940 Act, the 1996 Act and the State Acts legislated by the Orissa and M.P. Legislatures are referable to Entry 13 of List III of the Seventh Schedule to the Constitution of India. As such, in view of the Presidential assent under clause (2) of Article 254 of the Constitution of India, the State Legislature would prevail. B

73Copy pinpoint73. Shri Venugopal, learned Senior Counsel has strongly relied on paragraphs 234, 238, 239 and 293 in the case of Kesoram Industries Ltd. and Others (supra), in support of the proposition that the State Act is not within the legislative competence of the State Legislature, which read thus: C “234. The Constitution-makers found the need for power-sharing devices between the Centre and the State having regard to the imperatives of the State’s security and stability and, thus, propelled the thrust towards centralisation by using non obstante clause under Article 246 so as to see that the federal supremacy is achieved. D …………..

238. It can be seen that Article 253 contains non obstante clause. Article 253, thus, operates notwithstanding anything contained in Article 245 and Article 246. Article 246 confers power on Parliament to enact laws with respect to matters enumerated in E List I of the Seventh Schedule to the Constitution. Entries 10 to 21 of List I of the Seventh Schedule pertain to international law. In making any law under any of these entries, Parliament is required to keep Article 51 in mind.

239. Article 253 of the Constitution provides that while giving effect to an international treaty, Parliament assumes the role of the State Legislature and once the same is done the power of the State is denuded. ………….

293. Parliament in enacting the Tea Act has exercised its superior power in the matter in terms of Article 253 of the Constitution of India. Such superior power in certain situations can also be exercised in terms of Entry 33 List III as also overriding powers of Parliament during national emergency including those under Articles 249, 250, 251 and 252 of the Constitution of India. (See ITC H Ltd. [(2002) 9 SCC 232])”

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 433 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

74Copy pinpoint74. It is to be noted that the aforesaid paragraphs are from the A minority view expressed by Sinha, J. As such, the view expressed by the learned Judge, contrary to the majority judgment in the Constitution Bench, would not support the case of the respondents any further. UNCITRAL MODEL LAW - A DECISION OR RECOMMENDATION? : B

75Copy pinpoint75. That leaves us to consider the contention on behalf of the respondents that the 1996 Act is enacted by the Parliament under Article 253 of the Constitution of India and since the said Act has been enacted in accordance with the decision taken at the international conference to implement the UNCITRAL Model law, the State Legislature is not C competent to enact the State Law.

76Copy pinpoint76. It is submitted that since the 1996 Act has been enacted in accordance with the decision taken by the General Assembly of the United Nations, the same would be referable to Article 253 of the Constitution of India. D

77Copy pinpoint77. In this respect, it is to be noted that the Preamble of the 1996 Act would reveal that the recommendation of the General Assembly of the United Nations is for adopting UNCITRAL Model Law insofar as international commercial arbitrations are concerned. It will further be relevant to refer to paragraphs (2) and (3) of the Statement of Objects E and Reasons of the 1996 Act: “Statement of Objects and Reasons

1. ……………

2. The United Nations Commission on International Trade Law F (UNCITRAL) adopted in 1985 the Model Law on International Commercial Arbitration. The General Assembly of the United Nations has recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice. The UNCITRAL also adopted G din 1980 a set of Conciliation Rules. The General Assembly of the United Nations has recommended the use of these Rules in cases where the disputes arise in the context of international commercial relations and the parties seek amicable settlement of their disputes by recourse to conciliation. An important feature of H

p. 434