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

A the said UNCITRAL Model Law and Rules is that they have harmonized concepts on arbitration and conciliation of different legal systems of the world and thus contain provisions which are designed for universal application.

3. Though the said UNCITRAL Model Law and Rules are intended to deal with international commercial arbitration and conciliation, they could, with appropriate modifications, serve as a model for legislation on domestic arbitration and conciliation. The present Bill seeks to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards and to define the law relating to conciliation, taking into account the said UNCITRAL Model Law and Rules. …………”

78Copy pinpoint78. A perusal thereof would clearly reveal that the General D Assembly of the United Nations has recommended that all countries give due consideration to the UNCITRAL Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practices are concerned.

79Copy pinpoint79. It could thus be seen that there is no binding decision at the E General Assembly of the United Nations to implement the UNCITRAL Model Law. In any case, that recommendation is with regard to only international commercial arbitration practices. No doubt that the Parliament, with certain modifications, has given due consideration to the UNCITRAL Model Law for legislation on the domestic arbitration. However, that cannot by itself be said to be binding on the Parliament to F enact the law in accordance with UNCITRAL Model Law.

80Copy pinpoint80. It will also be relevant to refer to the Resolution dated 11th December 1985 passed by the United Nations General Assembly, which reads thus: “40/72. Model Law on International Commercial G Arbitration of the United Nations Commission on International Trade Law The General Assembly, Recognizing the value of arbitration as a method of settling disputes arising in international commercial relations,

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 435 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

Convinced that the establishment of a model law on arbitration that is acceptable to States with different legal, social and economic systems contributes to the development of harmonious international economic relations, Noting that the Model law on International Commercial Arbitration was adopted by the United Nations Commission B on International Trade Law at its eighteenth session, after due deliberation and extensive consultation with arbitral institutions and individual experts on international commercial arbitration, Convinced that the Model Law, together with the Convention on the Recognition and Enforcement of Foreign Arbitral C Awards and the Arbitration Rules of the United Nations Commission on International Trade Law recommended by the General Assembly in its resolution 31/98 of 15 December 1976, significantly contributes to the establishment of a unified legal framework for the fair and efficient settlement of disputes arising in international commercial relations, D

1. Requests the Secretary-General to transmit the text of the Modern Law on International Commercial Arbitration of the United Nations Commission on International Trade Law, together with the travaux preparatoires from the eighteenth session of the Commission, to Governments and to arbitral institutions and other interested bodies, such as chambers of commerce;

2. Recommends that all States give due consideration to the Model Law on International Commercial Arbitration, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice.” [emphasis supplied]

81Copy pinpoint81. A perusal of the aforesaid Resolution would clearly reveal that what has been done by the United Nations General Assembly vide the aforesaid Resolution is to recommend to all the States to give due consideration to the Model Law on international commercial arbitration. However, a perusal of the Resolution itself would reveal that it does not create any binding obligation on the States to enact the UNCITRAL Model Law as it is. H

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82Copy pinpoint82. Shri Venugopal, in support of his contention, has strongly relied on the following observations of this Court in the case of S. Jagannath (supra): “48. At this stage we may deal with a question which has incidentally come up for our consideration. Under para 2 of the B CRZ Notification, the activities listed thereunder are declared as prohibited activities. Various State Governments have enacted coastal aquaculture legislations regulating the industries set up in the coastal areas. It was argued before us that certain provisions of the State legislations including that of the State of Tamil Nadu are not in consonance with the CRZ Notification issued by the C Government of India under Section 3(3) of the Act. Assuming that be so, we are of the view that the Act being a Central legislation has the overriding effect. The Act (the Environment Protection Act, 1986) has been enacted under Entry 13 of List I Schedule VII of the Constitution of India. The said entry is as under: D “Participation in international conferences, assessment and other bodies and implementing of decisions made thereat.” The preamble to the Act clearly states that it was enacted to implement the decisions taken at the United Nations’ Conference on the Human Environment held at Stockholm in June 1972. E Parliament has enacted the Act under Entry 13 of List I Schedule VII read with Article 253 of the Constitution of India. The CRZ Notification having been issued under the Act shall have overriding effect and shall prevail over the law made by the legislatures of the States.”

83Copy pinpoint83. Shri Venugopal further relied on the following observations of this Court in the case of Mantri Techzone Private Limited (supra): “40. The Tribunal has been established under a constitutional mandate provided in Schedule VII List I Entry 13 of the Constitution of India, to implement the decision taken at the G United Nations Conference on Environment and Development. The Tribunal is a specialised judicial body for effective and expeditious disposal of cases relating to environmental protection and conservation of forests and other natural resources including enforcement of any legal right relating to environment. The right to healthy environment has been construed as a part H

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 437 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

of the right to life under Article 21 by way of judicial A pronouncements. Therefore, the Tribunal has special jurisdiction for enforcement of environmental rights.”

84Copy pinpoint84. At this juncture, it will be relevant to note that the Preamble to the Environment (Protection) Act, 1986 (hereinafter referred to as the “1986 Act”) would itself reveal that it refers to the decision taken at B United Nations Conference on the Human Environment held at Stockholm in June 1972, in which India participated and wherein, a decision was taken to take appropriate steps for the protection and improvement of human environment. It further states that it was considered necessary to implement the decisions aforesaid insofar as they relate to the protection and improvement of environment and the prevention of hazards C to human beings and other living creatures. So also, the National Green Tribunal Act, 2010 (hereinafter referred to as the “NGT Act”) refers to India being a party to the decision taken at the United Nations Conference on the Human Environment held at Stockholm in June 1972, in which India had participated and the decisions were taken to call upon the D States to take appropriate steps for the protection and improvement of human environment. It further refers to the decision taken at the United Nations Conference on Environment and Development held at Rio de Janeiro in June 1992, in which India had participated. The States were called upon to provide effective access to judicial and administrative proceedings including redress and remedy, and to develop national laws regarding liability and compensation for the victims of pollution and other environment damage. It further observes that it is considered expedient to implement the decision taken at the aforesaid conferences.

85Copy pinpoint85. It is thus clear that whereas, the 1986 Act and the NGT Act have been enacted specifically to implement the decisions taken at the international conferences, the 1996 Act is enacted on the basis of the Resolution passed by the General Assembly of the United Nations in 1985, whereby the General Assembly only recommended the adoption of UNCITRAL Model Law insofar as international commercial arbitration practices are concerned. As such, the 1986 Act and the NGT G Act are directly referable to Entry 13 of List I of the Seventh Schedule and Article 253 of the Constitution of India. Therefore, reliance on the above referred judgments, in our view, would not be of any assistance to the case of the respondents, inasmuch as the Resolution of the General Assembly of the United Nations is only recommendatory in nature and there is no binding decision taken thereat. H

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A STATE LEGISLATURE’S ENCROACHMENT ON JUDICIAL POWERS:

86Copy pinpoint86. We next consider the finding of the High Court that since the State Act, in effect, annuls the awards passed by the Arbitrators and/or the judgments or decrees passed by the courts, it will amount to encroachment on judicial powers of the courts and as such, is hit by the doctrine of separation of powers.

87Copy pinpoint87. A perusal of the list containing details of the Kerala arbitration cases involved in the present matters would reveal that in most of the cases, the awards were passed prior to the year 1992 and the awards were made rule of the court prior to the year 1993. In some of the matters, on the date of the enactment of the State Act, the appeals preferred by the State under Section 39 of the 1940 Act were pending before the competent courts.

88Copy pinpoint88. The appellants have heavily relied on the judgment of this D Court in the case of G.C. Kanungo (supra), wherein this Court has observed thus: “15. What is of importance and requires our examination is, whether such court when makes an award of the Special Arbitration Tribunal filed before it, a “Rule of Court” by its judgment and decree, as provided under Section 17 of the E Principal Act, does such award of the Special Arbitration Tribunal merge in the judgment and decree, as argued on behalf of the petitioners. We find it difficult to accede to the argument. What cannot be overlooked is, that the award of a Special Arbitration Tribunal, as that of an award of an arbitrator, is, as we have already pointed out, a decision made by it on the claim or cause referred for its decision by way of arbitral dispute. When the court makes such award of a Special Arbitration Tribunal a “Rule of Court” by means of its judgment and decree, it is not deciding the claim or cause as it would have done, if it had come before it as a suit for its judgment and decree in the course of exercise of its ordinary civil jurisdiction. Indeed, when such award is made to come by a party to the dispute before court for being made a “Rule of Court” by its judgment and decree, it is to obtain the superadded seal of the court for such award, as provided for under the H Principal Act, to make it enforceable against the other party

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 439 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

through the machinery of court. Therefore, the judgment and decree rendered by the civil court in respect of an award is merely to superadd its seal thereon for making such award enforceable through the mechanism available with it for enforcement of its own judgments and decrees. The mere fact that such judgments or decrees of courts by which the awards of Special Arbitration Tribunals are made “Rules of Court” or are affirmed by judgments and decrees of superior courts in appeals, revisions or the like, cannot make the awards the decisions of courts. Hence, when the awards of Special Arbitration Tribunals are made by the judgments and decrees of court, “Rules of Court” for enforcing them through its execution process, they (the awards) do not merge in the judgments and decrees of courts, as would make them the decisions of court. The legal position as to non-merger of awards in judgments and decrees of courts, which we have stated, receives support from certain observations in the decision of this Court in Satish Kumar v. Surinder Kumar [(1969) 2 SCR 244 : AIR 1970 SC 833] . There, this Court was confronted with the question, whether an award made by an arbitrator which had become unenforceable for want of registration under the Registration Act, ceased to be a decision of the arbitrator, which binds the parties or their privies. In that context, this E Court observed that an award is entitled to that respect which is due to the judgment and decree of last resort. And if the award which had been pronounced between the parties has become final, a second reference of the subject of the award becomes incompetent. It further observed that if the award is final and binding on the parties, it can hardly be said that it is a waste paper unless it is made a “Rule of Court”. Hegde, J. who agreed with the above observations of Sikri, J. (as his Lordship then was) while speaking for Bachawat, J. also observed that the arbitration has the first stage which commences with arbitration agreement and ends with the making of the award, and then a second stage which relates to the enforcement of the award. He also observed that it was one thing to say that a right is not created by the award but it is an entirely different thing to say that the right created cannot be enforced without further steps. H

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A 16. Therefore, our answer to the point is that the awards of Special Arbitration Tribunals did not merge in judgments and decrees of the courts even though the courts by their judgments and decrees made such awards “Rules of Court” for their enforceability through the courts availing their machinery used for execution of their decisions, that is, their own judgments and decrees.

17. It is true, as argued on behalf of the petitioners, that a legislature has no legislative power to render ineffective the earlier judicial decisions by making a law which simply declares the earlier judicial decisions as invalid or not binding, for such power if exercised would not be a legislative power exercised by it but a judicial power exercised by it encroaching upon the judicial power of the State exclusively vested in courts. The said argument advanced, since represents the correct and well- settled position in law, we have thought it unnecessary to refer to the decisions of this Court cited by learned counsel for the petitioners, in that behalf and hence have not referred to them.

18. For the 1991 Amendment Act to become unconstitutional on the ground that it has rendered judgments and decrees of courts by which the Special E Arbitration Tribunals’ awards are made “Rules of Court”, invalid or ineffective, such judgments and decrees must be decisions of courts rendered by them in exercise of their judicial power of decision-making in respect of the subjects of dispute before them and not where they render judgments and decrees to make the awards of F the Special Arbitration Tribunals “Rules of Court” so that they could be made enforceable through the machinery of courts. Thus, the awards of the Special Arbitration Tribunals when get the superadded seals of courts for such awards, by the courts making them G “Rules of Court” by their judgments and decrees, such awards do not get merged in judgments and decrees of courts so as to make them the decisions of courts, rendered in exercise of State’s judicial power of decision- making, as it happens in the causes directly brought before them by way of suits for their decisions. As we H have already pointed out, question of claim or cause of a party

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 441 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

which gets merged in the award of a Special Arbitration A Tribunal, in turn, getting merged in judgment and decree made by civil court, for the purpose of making the award a “Rule of Court”, so as to make it enforceable, cannot arise. What needs to be noted is, that courts even if render their judgments and decrees for making the awards “Rules of Court”, those judgments and decrees cannot substitute their own decisions for the decisions of Special Arbitration Tribunals contained in their awards. This situation makes it clear that power exercised by the civil courts in making the awards of Special Arbitration Tribunals “Rules of Court” by their judgments and decrees is not their judicial power exercised in rendering judgments and decrees, as civil courts exercise their powers vested in them for resolving disputes between parties. To be precise, judgments and decrees made by civil courts in making the awards of the Special Arbitration Tribunals the “Rules of Court” for the sole purpose of their enforceability through the machinery of court, cannot make such judgments and decrees of civil court, the decisions rendered by civil courts in exercise of judicial power of the State exclusively invested in them under our Constitution. Thus, when the judgments and decrees made by civil courts in making the awards of Special Arbitration E Tribunals “Rules of Court” are not those judgments and decrees of courts made in exercise of judicial power of State vested in them under our Constitution, the 1991 Amendment Act when nullifies the judgments and decrees of courts by which awards of Special Arbitration Tribunals are made “Rules of Court”, cannot be regarded as that enacted by the Orissa State F Legislature encroaching upon the judicial powers of State exercisable under our Constitution by courts as sentinels of Rule of Law, a basic feature of our Constitution. Hence, the 1991 Amendment Act insofar as it nullifies judgments and decrees of courts by which awards of Special Arbitration Tribunals are made “Rules of Court”, even where they are G affirmed by higher courts, cannot be regarded as that made by the Orissa State Legislature transgressing upon the judicial power of State vested in courts as would make it unconstitutional.” [emphasis supplied] H

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89Copy pinpoint89. It could be seen that this Court has observed that the judgments and decrees made by the civil courts in making the awards of the Special Arbitration Tribunals the “Rules of Court” are for the sole purpose of their enforceability through the machinery of courts and therefore, cannot be such judgments and decrees of civil courts made in exercise of the judicial power of the State exclusively vested in them under the B Constitution of India. This Court, therefore, held that the 1991 Amendment Act, which nullifies the judgments and decrees of the court by which awards of Special Arbitration Tribunals are made “Rules of Court”, cannot be said to be an encroachment upon the judicial powers of the State exercisable by the courts under the Constitution of India.

90Copy pinpoint90. However, it is to be noted that in the very same judgment, this Court observed thus: “28. Thus, the impugned 1991 Amendment Act seeks to nullify the awards made by the Special Arbitration Tribunals constituted under the 1984 Amendment Act, in exercise of the power conferred upon them by that Act itself. When the awards made under the 1984 Amendment Act by the Special Arbitration Tribunals in exercise of the State’s judicial power conferred upon them which cannot be regarded as those merged in Rules of Court or judgments and decrees of courts, are sought to be nullified by the 1991 Amendment Act, it admits of no doubt that legislative power of the State Legislature is used by enacting the impugned 1991 Amendment Act to nullify or abrogate the awards of the Special Arbitration Tribunals by arrogating to itself, a judicial power. [See Cauvery Water Disputes Tribunal, Re [1993 Supp (1) SCC 96 (2) : AIR 1992 F SC 522 : 1991 Supp (2) SCR 497] ]. From this, it follows that the State Legislature by enacting the 1991 Amendment Act has encroached upon the judicial power entrusted to judicial authority resulting in infringement of a basic feature of the Constitution — the Rule of Law. Thus, when the 1991 G Amendment Act nullifies the awards of the Special Arbitration Tribunals, made in exercise of the judicial power conferred upon them under the 1984 Amendment Act, by encroaching upon the judicial power of the State, we have no option but to declare it as unconstitutional having regard to the well-settled and undisputed legal H

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 443 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

position that a legislature has no legislative power to render ineffective the earlier judicial decisions by making a law which simply declares the earlier judicial decisions as invalid and not binding, for such powers, if exercised, would not be legislative power exercised by it, but judicial power exercised by it encroaching upon the judicial power of the State vested in a judicial tribunal as the Special Arbitration Tribunal under the 1984 Amendment Act. Moreover, where the arbitral awards sought to be nullified under the 1991 Amendment Act are those made by Special Arbitration Tribunals constituted by the State itself under the 1984 Amendment C Act to decide arbitral disputes to which State was a party, it cannot be permitted to undo such arbitral awards which have gone against it, by having recourse to its legislative power for grant of such permission as could result in allowing the State, if nothing else, abuse of its power of D legislation.” [emphasis supplied]

91Copy pinpoint91. The court further held that under the 1984 Amendment Act, the Special Arbitration Tribunals were constituted by the State itself to decide arbitral disputes. It held that the State was a party before such E Tribunals and therefore, it cannot be permitted to undo such arbitral awards which had gone against it. It further held that if such an exercise is permitted to be done, by having recourse to its legislative power, it would result in nothing elsebut allowing the State, abuse of its power of legislation. F

92Copy pinpoint92. The Court goes on to hold that the awards made under the 1984 Amendment Act by the Special Arbitration Tribunals are sought to be nullified by the 1991 Amendment Act. As such, the legislative power of the State Legislature is used by enacting the impugned 1991 Amendment Act to nullify or abrogate the awards of the Special Arbitration Tribunals by abrogating to itself a judicial power. In this respect, G the Court relied on the judgment of this Court in the case of Cauvery Water Disputes Tribunal41. This Court further goes on to hold that the State Legislature by enacting the 1991 Amendment Act has encroached upon the judicial power vested in judicial authorities and as such, infringed 41 1993 Supp (1) SCC 96 (2) H

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A the basic feature of the Constitution of India the “Rule of Law”. As such, this Court held the 1991 Amendment Act to be unconstitutional on the ground that the arbitral awards passed by the Special Arbitration Tribunals under the 1984 Amendment Act are sought to be nullified by the 1991 Amendment Act.

93Copy pinpoint93. A perusal of the aforesaid observations made in the case of G.C. Kanungo (supra) would reveal that on one hand, this Court goes on to hold that the judgments and decrees by which the civil courts make the awards “Rules of Court” are not passed in exercise of its judicial powers. As such, the awards do notmergein the judgments and decrees of the court. But on the other hand, the Court goes on to hold that the C awards passed by the Special Arbitration Tribunals are the awards passed by the Tribunals exercising the judicial power and as such, when the State nullifies such awards, it abrogates to itself a judicial power and the Statute which annuls it, is unconstitutional being encroachment on the judicial power of the State.

94Copy pinpoint94. Since G.C. Kanungo (supra) has ultimately held the 1991 Amendment Act to be unconstitutional on the ground that it annuls the awards passed by the Special Arbitration Tribunals, it may not be necessary to consider the question as to whether G.C. Kanungo (supra) was right in holding that the judgments and decrees vide which the awards are made “Rules of Court”, are not passed in exercise of judicial power. However, the perusal of paragraph 17 in the case of G.C. Kanungo (supra) would reveal that this Court recorded the submissions made on behalf of the petitioners therein that, a Legislature has no legislative power to render ineffective the earlier judicial decisions by making a law which simply declares the earlier judicial decisions as invalid or not binding. It also recorded that if such a power is exercised, it will not be legislative power exercised by it but a judicial power, encroaching upon the judicial power of the State exclusively vested in courts. It further appears that various decisions of this Court were cited by the counsel for the petitioners therein, however, this Court did not find it necessary to refer to the said decisions, since this Court found that the said submissions represent a correct and well-settled position in law. It will be worthwhile to note that in the said case, this Court was considering the provisions of the 1940 Act as against the provisions of the Orissa State Act. In the present case also, all the awards so also the judgments and decrees passed by the civil courts making such awards “Rules of H

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 445 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

Court” have been passed under the 1940 Act. We, therefore, find that it A will be appropriate to examine the correctness of the said finding.

95Copy pinpoint95. It will be necessary to consider the scheme of the 1940 Act as will be found in Sections 15, 16, 17 and 30 thereof, which read thus: “15. Power of Court to modify award.—The Court may by order modify or correct an award— B (a) where it appears that a part of the award is upon a matter not referred to arbitration and such part can be separated from the other part and does not affect the decision on the matter referred; or (b) where the award is imperfect in form, or contains any obvious error which can be amended without affecting such decision; or (c) where the award contains a clerical mistake or an error arising from an accidental slip or omission.

16. Power to remit award.—(1) The Court may from time to time remit the award or any matter referred to arbitration to the arbitrators or umpire for reconsideration upon such terms as it thinks fit— (a) where the award has left undetermined any of the matters referred to arbitration, or where it determines any matter not referred to arbitration and such matter cannot be separated without affecting the determination of the matters referred; or (b) where the award is so indefinite as to be incapable of execution; or (c) where an objection to the legality of the award is apparent upon the face of it. (2) Where an award is remitted under sub-section (1) the Court shall fix the time within which the arbitrator or umpire shall submit his decision to the Court: G Provided that any time so fixed may be extended by subsequent order of the Court. (3) An award remitted under sub-section (1) shall become void on the failure of the arbitrator or umpire to reconsider it and submit his decision within the time fixed. H

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A 17. Judgment in terms of award.—Where the Court sees no cause to remit the award or any of the matters referred to arbitration for reconsideration or to set aside the award, the Court shall, after the time for making an application to set aside the award has expired, or such application having been made, after refusing it, proceed to pronounce judgment according to the award, and upon B the judgment so pronounced a decree shall follow, and no appeal shall lie from such decree except on the ground that it is in excess of, or not otherwise in accordance with the award. ……………..

C 30. Grounds for setting aside award.— An award shall not be set aside except on one or more of the following grounds, namely— (a) that an arbitrator or umpire has misconducted himself or the proceedings; D (b) that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under Section 35; (c) that an award has been improperly procured or is otherwise invalid.” E

96Copy pinpoint96. A perusal of Section 15 of the 1940 Act would reveal that the court, by an order, may modify or correct an award, where it appears that a part of the award is upon a matter not referred to arbitration and such part can be separated from the other part and does not affect the decision on the matter referred. The Court may also modify or correct F the award, where the award is imperfect in form, or contains any obvious error which can be amended without affecting such decision. The power under Section 15 of the 1940 Act could also be exercised, where the award contains a clerical mistake or an error arising from an accidental slip or omission.

97Copy pinpoint97. Section 16 of the 1940 Act empowers the court to remit the award or any matter referred to arbitration to the arbitrators or umpire for reconsideration, where it finds that the award has left undetermined any of the matters referred to arbitration, or where it determines any matter not referred to arbitration and such matter cannot be separated without affecting the determination of the matters referred. Such power H

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 447 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

can also be exercised, where the award is so indefinite as to be incapable of execution. So also, where an objection to the legality of the award is apparent upon the face of it, the court would be empowered to remit the award.

98Copy pinpoint98. Section 30 of the 1940 Act provides the grounds on which an award could be set aside. It provides that the award could be set aside when an arbitrator or umpire has misconducted himself or the proceedings. It could be set aside when it is found that the award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under Section 35. The award could also be set aside when the court finds that the award has been improperly procured or is otherwise invalid. C

99Copy pinpoint99. Section 17 of the 1940 Act empowers the court to pronounce a judgment according to the award, and upon the judgment so pronounced a decree is to follow. It further provides that no appeal shall lie on such decree except on the ground that it is in excess of, or not otherwise in accordance with, the award. However, prior to pronouncing the judgment, D the court is required to be satisfied that no cause to remit the award or any of the matters referred to arbitration for reconsideration or to set aside the award, is made out. The Court is also required to wait till the time for making an application to set aside the award has expired, or such application having been made, has been refused. E

100Copy pinpoint100. The perusal of the scheme of the 1940 Act would itself reveal that the passing of the judgment and decree under Section 17 of the 1940 Act is not a mere formality. The judgment can be pronounced only when the court is satisfied that no cause is made out for remitting the award or setting aside the award. The court is also entitled to remit or F modify the awards. As such, it cannot be said that the court, while passing a judgment, which is followed by a decree, does not exercise judicial power. The court is not supposed to act mechanically and be a Post- Office.

101Copy pinpoint101. A Constitution Bench of this Court in the case of Harinagar G Sugar Mills Ltd. v. Shyam Sundar Jhunjhunwala and Others42, had an occasion to consider the scope of Section 111 of the Companies Act,

1956. It was sought to be urged before this Court that the authority of the Central Government under Section 111 of the Companies Act, 1956 42 [1962] 2 SCR 339 H

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A was an administrative authority. Rejecting the said submission, J.C. Shah, J. observed thus: “………But that in an appeal under Section 111 clause (3) there is a lis or dispute between the contesting parties relating to their civil rights, and the Central Government is invested with the power to determine that dispute according to law i.e. it has to consider and decide the proposal and the objections in the light of the evidence, and not on grounds of policy or expediency. The extent of the power which may be exercised by the Central Government is not delimited by express enactment, but the power is not on that account unrestricted. The power in appeal to order registration of transfers has to be exercised subject to the limitations similar to those imposed upon the exercise of the power of the court in a petition for that relief under Section 155: the restrictions which inhere the exercise of the power of the court also apply to the exercise of the appellate power by the Central Government i.e. the Central Government has to decide whether in exercising their power, the directors are acting oppressively, capriciously or corruptly, or in some way mala fide. The decision has manifestly to stand those objective tests, and has not merely to be founded on the subjective satisfaction of the authority deciding the question. The authority cannot proceed to decide the question posed for its determination on grounds of expediency: the statute empowers the Central Government to decide the disputes arising out of the claims made by the transferor or transferee which claim is opposed by the company, and by rendering a decision upon the respective contentions, the rights of the contesting parties are directly affected. Prima facie, the exercise of such authority would be judicial. It is immaterial that the statute which confers the power upon the Central Government does not expressly set out the extent of the power: but the very nature of the jurisdiction requires that it is to be exercised subject to the limitations which apply to the court under Section 155. The proviso to sub-section (8) of Section 111 clearly indicates that in circumstances specified therein reasonable

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compensation may be awarded in lieu of the shares. This A compensation which is to be reasonable has to be ascertained by the Central Government; and reasonable compensation cannot be ascertained except by the application of some objective standards of what is just having regard to all the circumstances of the case. B In The Province of Bombay v. Kusaldas S. Advani [(1950) SCR 621] this Court considered the distinction between decisions quasi-judicial and administrative or ministerial for the purpose of ascertaining whether they are subject to the jurisdiction to issue a writ of certiorari, Fazl Ali, J. at p. 642 observed: C

“The word ‘decision’ in common parlance is more or less a neutral expression and it can be used with reference to purely executive acts as well as judicial orders. The mere fact that an executive authority has to decide something does not make the decision judicial. It is the manner in which D the decision has to be arrived at which makes the difference, and the real test is: Is there any duty to decide judicially?” The Court also approved of the following test suggested in King v. London County Council [(1931) 2 KB 215, 233] by Scrutton, L.J.: E

“It is not necessary that it should be a court in the sense in which this Court is a court; it is enough if it is exercising, after hearing evidence, judicial functions in the sense that it has to decide on evidence between a proposal and an opposition; and it is not necessary to be strictly a court; if it is a tribunal which has to decide rights after hearing evidence and opposition, it is amenable to the writ of certiorari.” In Bharat Bank Ltd., Delhi v. Employees [(1950) SCR 459] the question whether an adjudication by an Industrial Tribunal functioning under the Industrial Tribunals Act was subject to the jurisdiction of this Court under Article 136 of the Constitution fell to be determined: Mahajan, J. in that case observed: “There can be no doubt that varieties of Administrative Tribunals and Domestic Tribunals are known to exist in this H

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A country as well as in other countries of the world but the real question to decide in each case is as to the extent of judicial power of the State exercised by them. Tribunals which do not derive authority from the sovereign power cannot fall within the ambit of Article 136. The condition precedent for bringing a tribunal within the ambit of Article B 136 is that it should be constituted by the State. Again a tribunal would be outside the ambit of Article 136 if is not invested with any part of the judicial functions of the State but discharges purely administrative or executive duties. Tribunals however which are found invested with certain C functions of a court of justice and have some of its trappings also would fall within the ambit of Article 136 and would be subject to the appellate control of this Court whenever it is found and necessary to exercise that control in the interests of justice.” D It was also observed by Fazi Ali, J. at p. 463, that a body which is required to act judicially and which exercises judicial power of the State does not cease to be one exercising judicial or quasi-judicial functions merely because it is not expressly required to be guided by any recognised substantive law in deciding the E disputes which come before it. The authority of the Central Government entertaining an appeal under Section 111(3) being an alternative remedy to an aggrieved party to a petition under Section 155 the investiture of authority is in the exercise of the judicial power of the State. F Clause (7) of Section 111 declares the proceedings in appeal to be confidential, but that does not dispense with a judicial approach to the evidence. Under Section 54 of the Indian Income Tax Act (which is analogous) all particulars contained in any statement made, return furnished or account or G documents produced under the provisions of the Act or in any evidence given, or affidavit or deposition made, in the course of any proceedings under the Act are to be treated as confidential; but that does not make the decision of the taxing authorities merely executive. As the dispute between the parties relates to the civil rights and the Act provides H

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for a right of appeal and makes detailed provisions about A hearing and disposal according to law, it is impossible to avoid the inference that a duty is imposed upon the Central Government in deciding the appeal to act judicially.” [emphasis supplied] B

102Copy pinpoint102. It has been held by this Court that the restrictions which inhere the exercise of the power of the court also apply to the exercise of the appellate power by the Central Government. It has been held that the Central Government has to decide whether in exercising their power, the directors are acting oppressively, capriciously or corruptly, or in some way mala fide. The decision has manifestly to stand those objective tests, and has not merely to be founded on the subjective satisfaction of the authority deciding the question. It has been held that the very nature of the jurisdiction requires that it is to be exercised subject to the limitations which apply to the court under Section 155 of the Companies Act, 1956. It could be seen that this Court has held that since the dispute between the parties relates to the civil rights and the Act provides for a right of appeal and makes detailed provisions about hearing and disposal according to law, it is impossible to avoid the inference that a duty is imposed upon the Central Government in deciding the appeal to act judicially.

103Copy pinpoint103. M. Hidayatullah, J., in a separate but concurring judgment, observed thus: “Courts and tribunals act “judicially” in both senses, and in the term “court” are included the ordinary and permanent tribunals and in the term “tribunal” are included all others, which are not so included. Now, the matter would have been simple, if the F Companies Act, 1956 had designated a person or persons whether by name or by office for the purpose of hearing an appeal under Section 111. It would then have been clear that though such person or persons were not “courts” in the sense explained, they were clearly “tribunals”. The Act G says that an appeal shall lie to the Central Government. We are, therefore, faced with the question whether the Central Government can be said to be a tribunal. Reliance is placed upon a recent decision of this Court in Shivji Nathubai v. Union of India [(1960) 2 SCR 775] where it was H

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A held that the Central Government in exercising power of review under the Mineral Concession Rules, 1949, was subject to the appellate jurisdiction conferred by Article 136. In that case which came to this Court on appeal from the High Court’s order under Article 226, it was held on the authority of Province of Bombay v. Kushaldas S. Advani [(1950) SCR 621] B and Rex v. Electricity Commissioners [(1924) 1 KB 171] that the action of the Central Government was quasi-judicial and not administrative. It was then observed: “It is in the circumstances apparent that as soon as Rule 52 gives a right to an aggrieved party to apply for review a lis is created between him and the party in whose favour the grant has been made. Unless therefore there is anything in the statute to the contrary it will be the duty of the authority to act judicially and its decision would be a quasi-judicial act.” This observation only establishes that the decision is a quasi-judicial one, but it does not say that the Central Government can be regarded as a tribunal. In my opinion, these are very different matters, and now that the question has been raised, it should be decided. The function that the Central Government performs under the Act and the Rules is to hear an appeal against the action of the Directors. For that purpose, a memorandum of appeal setting out the grounds has to be filed, and the company, on notice, is required to make representations, if any, and so also the other side, and both sides are allowed to tender evidence to support their representations. The Central Government by its order then directs that the shares be registered or need not be registered. The Central Government is also empowered to include in its orders, directions as to payment of costs or otherwise. The function of the Central Government is curial and not executive. G There is provision for a hearing and a decision on evidence, and that is indubitably a curial function. Now, in its functions the Government often reaches decisions, but all decisions of the Government cannot be regarded as those of a tribunal. Resolutions of the Government may affect H

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rights of parties, and yet, they may not be in the exercise of the judicial power. Resolutions of the Government may be amenable to writs under Articles 32 and 226 in appropriate cases, but may not be subject to a direct appeal under Article 136 as the decisions of a tribunal. The position, however, changes when Government embarks upon curial functions, and proceeds to exercise judicial power and decide disputes. In those circumstances, it is legitimate to regard the officer who deals with the matter and even Government itself as a tribunal. The officer who decides, may even be anonymous; but the decision is one of a tribunal, whether expressed in his name or in the name of the Central Government. The word “tribunal” is C a word of wide import, and the words “court” and “tribunal” embrace within them the exercise of judicial power in all its forms. The decision of the Government thus falls within the powers of this Court under Article 136.” [emphasis supplied] D

104Copy pinpoint104. M. Hidayatullah, J. proceeded to consider as to whether the Central Government, while exercising its powers under Section 111 of the Companies Act, 1956, can be said to be a “Tribunal”. On perusal of the scheme of Section 111 of the Companies Act, 1956, His Lordship has observed that the function of the Central Government under the said section is curial and not executive. There is a provision for a hearing and a decision on evidence, and that is indubitably a curial function. His Lordship further held that in its various functions, Government often reaches a decision, but all decisions of the Government cannot be regarded as those of a tribunal. However, when Government embarks upon curial functions, and proceeds to exercise judicial power and decide disputes, it is legitimate to regard the officer who deals with the matter and even Government itself as a tribunal. His Lordship further goes on to hold that the officer who decides, may even be anonymous; but the decision is one of a tribunal, whether expressed in his name or in the name of the Central Government. G

105Copy pinpoint105. A Constitution Bench of this Court in the case of Shankarlal Aggarwala and Others v. Shankarlal Poddar and Others 43,was considering a question as to whether the order passed by the Company 43

[1964] 1 SCR 717

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A Judge confirming the sale was an administrative order or a judicial order. Answering the said question, this Court, speaking through N. Rajagopala Ayyangar, J., observed thus: “On the basis of these provisions, we shall proceed to consider whether the confirmation of the sale was merely an order in the course of administration and not a judicial order. The sale by the liquidator was, of course, effected in the course of the realisation of the assets of the company and for the purpose of the amount realised being applied towards the discharge of the liabilities and the surplus to be distributed in the manner provided by the Act. It would also be correct to say that when a liquidator effects a sale he is not discharging any judicial function. Still it does not follow that every order of the Court merely for the reason that it is passed in the course of the realisation of the assets of the company must always be treated as merely an administrative one. The question ultimately depends upon the nature of the order that is passed. An order according sanction to a sale undoubtedly involves a discretion and cannot be termed merely a ministerial order, for before confirming the sale the Court has to be satisfied, particularly where the confirmation is opposed, that the sale has been held in accordance with the conditions subject to which alone the liquidator has been permitted to effect it, and that even otherwise the sale has been fair and has not resulted in any loss to the parties who would ultimately have to share the realisation. The next question is whether such an order could be classified as an administrative order. One thing is clear, that the mere fact that the order is passed in the course of the administration of the assets of the company and for realising those assets is not by itself sufficient to make it an administrative, as distinguished from a judicial order. For instance, the determination of amounts due to the company from its debtors which is also part of the process of the realisation of the assets of the company is a matter which arises in the course of the administration. It does not on that account follow that the determination of the particular amount due from a debtor who is brought before the Court is an administrative order. H

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It is perhaps not possible to formulate a definition which would satisfactorily distinguish, in this context, between an administrative and a judicial order. That the power is entrusted to or wielded by a person who functions as a Court is not decisive of the question whether the act or decision is administrative or judicial. But we conceive that an administrative order would be one which is directed to the regulation or supervision of matters as distinguished from an order which decides the rights of parties or confers or refuses to confer rights to property which are the subject of adjudication before the Court. One of the tests would be whether a matter which involves the exercise of discretion is left for the decision of the authority, particularly if that authority were a Court, and if the discretion has to be exercised on objective, as distinguished from a purely subjective, consideration, it would be a judicial decision. It has sometimes been said that the essence of a judicial proceeding or of a judicial order is that there should be two parties and a lis between them which is the subject of adjudication, as a result of that order or a decision on an issue between a proposal and an opposition. No doubt, it would not be possible to describe an order passed deciding a lis before the authority, that it is not a judicial order but it does not follow that the absence of a lis necessarily negatives the order being judicial. Even viewed from this narrow standpoint it is possible to hold that there was a lis before the Company Judge which he decided by passing the order. On the one hand were the Claims of the highest bidder who put forward the contention that he had satisfied the requirements laid down for the acceptance of his bid and was consequently entitled to have the sale in his favour confirmed, particularly so as he was supported in this behalf by the official liquidators. On the other hand there was the 1st respondent and not to speak of him, the large body of unsecured creditors whose interests, even if they were not represented by the 1st respondent, the Court was bound to protect. If the sale of which confirmation was sought was characterised by any deviation from the conditions subject to which the sale was directed to be held or even otherwise was for a gross undervalue in the sense that very much more could reasonably be expected to be obtained if the sale were properly held in view of the figure of Rs 3,37,000 which had been H

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A bid by Nandlal Agarwalla, it would be the duty of the Court to refuse the confirmation in the interests of the general body of creditors and this was the submission made by the 1st respondent. There were thus two points of view presented to the Court by two contending parties or interests and the Court was called upon to decide between them. And the decision vitally affected the B rights of the parties to property. In this view we are clearly of the opinion that the order of the Court was, in the circumstances, a judicial order and not an administrative one and was therefore not inherently incapable of being brought up in appeal.

C [emphasis supplied]

106Copy pinpoint106. The Constitution Bench in the case of Shankarlal Aggarwala and Others (supra) held that the question as to whether the order passed by a court is administrative or judicial, would depend upon the nature of the order that is passed. The order undoubtedly involves D a discretion and cannot be termed merely a ministerial order. His Lordship distinguished an administrative order to be one which is directed to the regulation or supervision of matters as against an order which decides the rights of parties or confers or refuses to confer rights to property which are the subject of adjudication before the court. It has further been held that one of the tests for deciding whether the power exercised E is administrative or judicial, would be whether a matter, which involves the exercise of discretion, is left for the decision of the authority, particularly if that authority were a court, and if the discretion has to be exercised on objective, as distinguished from a purely subjective, consideration, it would be a judicial decision.

107Copy pinpoint107. We have, hereinabove, elaborately considered the scheme under Sections 15, 16 and 17 of the 1940 Act. The perusal of the said scheme would clearly reveal that before making an award “Rule of Court” by passing a judgment and decree, the court is required to take into consideration various factors, apply its mind and also exercise its G discretion judicially. We find that the aforesaid provisions have not been considered in the case of G.C. Kanungo (supra). The perusal of the aforesaid provisions, as has been considered by us hereinabove, would clearly show that the power exercised by the court under Section 17 of the 1940 Act is a judicial power. We are therefore of the view that the findings in this respect as recorded by this Court in paragraphs 15 to 18 H

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in the case of G.C. Kanungo (supra) would be per incuriam the A provisions of the 1940 Act.

108Copy pinpoint108. We further find that the two Constitution Benches in the cases of Harinagar Sugar Mills Ltd. (supra) and Shankarlal Aggarwala and Others (supra) have elaborately considered as to what could be construed as judicial power of a court. In the case of Harinagar B Sugar Mills Ltd. (supra), though the power to be exercised was by the Central Government, the Constitution Bench, upon examining the scope of Section 111 of the Companies Act, 1956, held the said power to be a judicial one. In the case of Shankarlal Aggarwala and Others (supra), the Constitution Bench distinguished between the administrative and judicial powers of the court. This Court in paragraph 17 in the case of C G.C. Kanungo (supra) rightly observed that the State Legislature has no legislative power to render ineffective the earlier judicial decisions by making a law. It cannot simply declare the earlier decisions invalid or not binding. However, observing this, in paragraph 18, this Court held that the power exercised by the court in making the awards of the Special D Arbitration Tribunals the “Rules of Court”, is not a judicial power. We are of the considered view that the aforesaid finding is not only per incuriam the provisions of the 1940 Act but also the two judgments of the Constitution Bench in the cases of Harinagar Sugar Mills Ltd. (supra) and Shankarlal Aggarwala and Others (supra). E

109Copy pinpoint109. A seven-Judge Bench of this Court in the case of Bengal Immunity Company Limited v. State of Bihar and Others44, was considering the question as to whether the majority decision in the case of State of Bombay and Another v. United Motors (India) Limited and Others45 laid down a correct law. The authority of the court to go beyond the majority decision was questioned. While considering the said objection, before going into the merits of the matter, S.R. Das, Acting C.J., observed thus: “……..Learned counsel for some of the interveners question our authority to go behind the majority decision. It is, therefore, necessary at this stage to determine this preliminary question before entering upon a detailed discussion on the question of construction of Article 286. 44

[1955] 2 SCR 603

45 [1953] SCR 1069 H

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A In England, the Court of Appeal has imposed upon its power of review of earlier precedents a limitation, subject to certain exceptions. The limitation thus accepted is that it is bound to follow its own decisions and those of courts of Coordinate jurisdiction, and the “full” court is in the same position in this respect as a division Court consisting of three members. The only exceptions to this Rule are: (1) the court is entitled and bound to decide which of the two conflicting decisions of its own it will follow; (2) the Court is bound to refuse to follow a decision of its own which, though not expressly overruled, cannot, in its opinion stand with a decision of the House of Lords; and (3) the court is not bound to follow a decision of its own, if it is satisfied that the decision was given per incuriam e.g. where a statute or a rule having statutory effect which would have affected the decision was not brought to the attention of the earlier court. [See Young v. Bristol Aeroplane Co. Ltd. [LR 1944 KB 718 CA] which, on appeal to the House of Lords, was approved by Viscount Simon in LR 1946 AC 163 at p. D 169]. A decision of the House of Lords upon a question of law is conclusive and binds the House in subsequent case. An erroneous decision of the House of Lords can be set right only by an Act of Parliament. [See Street Tramways v. London County Council [1898 AC 375] This limitation was repeated by Lord E Wright in Radcliffe v. Ribble Motor Services Ltd. [1939 AC 215 at p. 245]”

110Copy pinpoint110. In the case of State of U.P. and Another v. Synthetics and Chemicals Ltd. and Another46, this Court observed thus: “40. ‘Incuria’ literally means ‘carelessness’. In practice per F incuriam appears to mean per ignoratium. English courts have developed this principle in relaxation of the rule of stare decisis. The ‘quotable in law’ is avoided and ignored if it is rendered, ‘in ignoratium of a statute or other binding authority’. (Young v. Bristol Aeroplane Co. Ltd. [(1944) 1 KB 718 : (1944) G 2 All ER 293] ). Same has been accepted, approved and adopted by this Court while interpreting Article 141 of the Constitution which embodies the doctrine of precedents as a matter of law. In Jaisri Sahu v. Rajdewan Dubey [(1962) 2 SCR 558 : AIR 1962 SC 83] this Court while pointing out the procedure to be 46 H (1991) 4 SCC 139

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followed when conflicting decisions are placed before a bench A extracted a passage from Halsbury’s Laws of England incorporating one of the exceptions when the decision of an appellate court is not binding.

41. Does this principle extend and apply to a conclusion of law, which was neither raised nor preceded by any consideration. In B other words can such conclusions be considered as declaration of law? Here again the English courts and jurists have carved out an exception to the rule of precedents. It has been explained as rule of sub-silentio. “A decision passes sub-silentio, in the technical sense that has come to be attached to that phrase, when the particular point of law involved in the decision is not perceived by the court or present to its mind.” (Salmond on Jurisprudence 12th Edn., p. 153). In Lancaster Motor Company (London) Ltd. v. Bremith Ltd. [(1941) 1 KB 675, 677 : (1941) 2 All ER 11] the Court did not feel bound by earlier decision as it was rendered ‘without any argument, without reference to the crucial words of the rule and without any citation of the authority’. It was approved by this Court in Municipal Corporation of Delhi v. Gurnam Kaur. [(1989) 1 SCC 101] The bench held that, ‘precedents sub- silentio and without argument are of no moment’. The courts thus have taken recourse to this principle for relieving from injustice perpetrated by unjust precedents. A decision which is not express and is not founded on reasons nor it proceeds on consideration of issue cannot be deemed to be a law declared to have a binding effect as is contemplated by Article 141. Uniformity and consistency are core of judicial discipline. But that which escapes in the judgment without any occasion is not ratio decidendi. In B. F Shama Rao v. Union Territory of Pondicherry [AIR 1967 SC 1480 : (1967) 2 SCR 650 : 20 STC 215] it was observed, ‘it is trite to say that a decision is binding not because of its conclusions but in regard to its ratio and the principles, laid down therein’. Any declaration or conclusion arrived without application of mind or preceded without any reason cannot be deemed to be declaration G of law or authority of a general nature binding as a precedent. Restraint in dissenting or overruling is for sake of stability and uniformity but rigidity beyond reasonable limits is inimical to the growth of law.” H

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111Copy pinpoint111. This Court further in the case of Sundeep Kumar Bafna v. State of Maharashtra and Another47, observed thus: “19. It cannot be overemphasised that the discipline demanded by a precedent or the disqualification or diminution of a decision on the application of the per incuriam rule is of great importance, since without it, certainty of law, consistency of rulings and comity of courts would become a costly casualty. A decision or judgment can be per incuriam any provision in a statute, rule or regulation, which was not brought to the notice of the court. A decision or judgment can also be per incuriam if it is not possible to reconcile its ratio with that of a previously pronounced judgment of a co- equal or larger Bench; or if the decision of a High Court is not in consonance with the views of this Court. It must immediately be clarified that the per incuriam rule is strictly and correctly applicable to the ratio decidendi and not to obiter dicta. It is often encountered in High Courts that two or more mutually irreconcilable decisions of the Supreme Court are cited at the Bar. We think that the inviolable recourse is to apply the earliest view as the succeeding ones would fall in the category of per incuriam.”

112Copy pinpoint112. The perusal of the judgment in the case of G.C. Kanungo E (supra) would reveal that though the court has recorded the submissions of the counsel for the petitioners therein, that the Legislature has no power to render ineffective the earlier judicial decisions by making a law and though judgments were cited in support of the said proposition, the court did not consider it necessary to refer to the said decisions. F However, without considering the provisions of the 1940 Act or the two judgments of the Constitution Bench in the cases of Harinagar Sugar Mills Ltd. (supra) and Shankarlal Aggarwala and Others (supra), it went on to hold that the powers exercised by a court while making an award “Rule of Court”, are not judicial powers. We find that the finding to that effect in the case of G.C. Kanungo (supra), apart from being G per incuriam the provisions of the 1940 Act and the law laid down by the Constitution Bench in the cases of Harinagar Sugar Mills Ltd. (supra) and Shankarlal Aggarwala and Others (supra), would also be hit by the rule of sub silentio.

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113Copy pinpoint113. The perusal of the subsequent judgments of this Court would A also fortify the position that the powers exercised by the court under the provisions of the 1940 Act are judicial powers and that the power to make an award “Rule of Court” is not a mechanical power.

114Copy pinpoint114. In the case of Steel Authority of India Ltd. v. J.C. Budharaja, Government and Mining Contractor 48, this Court B observed thus: “17. ……Whether the arbitrator has acted beyond the terms of the contract or has travelled beyond his jurisdiction would depend upon facts, which however would be jurisdictional facts, and are required to be gone into by the court……” C [emphasis supplied]

115Copy pinpoint115. While considering the discretion to be exercised by the court under Section 16 of the 1940 Act, this Court, in the case of Ramachandra Reddy & Co. v. State of A.P. and Others49,observed thus: D “5. Under the Arbitration Act, Section 16 is the provision under which the court may remit the award for reconsideration of an arbitrator and necessity for remitting the award arises when there are omissions and defects in the award, which cannot be modified or corrected. Remission of an award is in the discretion of the court and the powers of the court are circumscribed by the provisions of Section 16 itself. Ordinarily, therefore, a court may be justified in remitting the matter if the arbitrator leaves any of the matters undetermined or a part of the matter which had not been referred to and answered and that part cannot be separated from the remaining part, without affecting the decision on the matter, which was referred to arbitration or the award is so indefinite as to be incapable of execution or that the award is erroneous on the face of it. Discretion having been conferred on the court to remit an award, the said discretion has to be judicially exercised and an appellate court would not be justified in interfering with the exercise of discretion unless the discretion has been misused. What is an error apparent on the face of an award which requires to be corrected, has always been a subject-matter 48 (1999) 8 SCC 122 49 (2001) 4 SCC 241 H

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A of discussion. An error of law on the face of the award would mean that one can find in the award or a document actually incorporated thereto stating the reasons for a judgment some legal propositions which are the basis of the award and which can be said to be erroneous. Documents not incorporated directly or indirectly into the award cannot be looked into for the purpose of finding out any alleged error. The courts are not to investigate beyond the award of the arbitrators and the documents actually incorporated therein and, therefore, when there would be no patent error on the face of the award, it would not be open for the court to go into the proceedings of the award. If the application for remittance filed by the claimants invoking jurisdiction of the court under Section 16 is examined from the aforesaid standpoint and if the order of the learned civil court, remitting Claim Item 1 is tested in the light of the discussions made above, the conclusion is irresistible that no case for remittance had been made out and the learned trial Judge exercised his discretion on the grounds which do not come within the four corners of the provisions of Section 16 of the Arbitration Act. In fact no reasons had been ascribed for interference with the award, rejecting Claim Item 1 and for remittance of the same. The High Court being the court of appeal, was therefore, fully justified in exercise of its appellate power in correcting the error made by the Civil Judge in remitting Claim Item 1.” [emphasis supplied]

116Copy pinpoint116. A seven-Judge Bench of this Court, in the case of SBP & Co. v. Patel Engineering Ltd. and Another50, was considering the question as to whether the powers of the Chief Justice of High Court or Chief Justice of India under Sections 11(6) and 8 of the 1996 Act are administrative or judicial.

117Copy pinpoint117. After referring to the earlier decisions, P.K. Balasubramanyan, J., delivering a majority judgment, observed thus: G “36. Going by the above test it is seen that at least in the matter of deciding his own jurisdiction and in the matter of deciding on the existence of an arbitration agreement, the Chief Justice when confronted with two points of view presented by the rival parties, 50 H (2005) 8 SCC 618

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is called upon to decide between them and the decision vitally affects the rights of the parties in that, either the claim for appointing an Arbitral Tribunal leading to an award is denied to a party or the claim to have an arbitration proceeding set in motion for entertaining a claim is facilitated by the Chief Justice. In this context, it is not possible to say that the Chief Justice is merely exercising an administrative function when called upon to appoint an arbitrator and that he need not even issue notice to the opposite side before appointing an arbitrator.

37. It is fundamental to our procedural jurisprudence, that the right of no person shall be affected without he being heard. This necessarily imposes an obligation on the Chief Justice to issue notice to the opposite party when he is moved under Section 11 of the Act. The notice to the opposite party cannot be considered to be merely an intimation to that party of the filing of the arbitration application and the passing of an administrative order appointing an arbitrator or an Arbitral Tribunal. It is really the giving of an opportunity of being heard. There have been cases where claims for appointment of an arbitrator based on an arbitration agreement are made ten or twenty years after the period of the contract has come to an end. There have been cases where the appointment of an arbitrator has been sought, after the parties had settled the accounts and the party concerned had certified that he had no further claims against the other contracting party. In other words, there have been occasions when dead claims are sought to be resurrected. There have been cases where assertions are made of the existence of arbitration agreements when, in fact, such existence is strongly disputed by the other side who appears on issuance of notice. Controversies are also raised as to whether the claim that is sought to be put forward comes within the purview of the arbitration clause concerned at all. The Chief Justice has necessarily to apply his mind to these aspects before coming to a conclusion one way or the other and before proceeding to appoint an arbitrator or declining to appoint an arbitrator. Obviously, this is an adjudicatory process. An opportunity of hearing to both parties is a must. Even in administrative functions if rights are affected, rules of natural justice step in. The principles settled by Ridge v. Baldwin [(1963) 2 All ER 66 : 1964 AC 40 : (1963) 2 WLR 935 (HL)] are well known. Therefore, to the H

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A extent, Konkan Rly. [(2002) 2 SCC 388] states that no notice need be issued to the opposite party to give him an opportunity of being heard before appointing an arbitrator, with respect, the same has to be held to be not sustainable.”

118Copy pinpoint118. It could thus be seen that this Court in unequivocal terms has held that the powers exercised by the Chief Justice of the High Court or Chief Justice of India under Section 11(6) of the 1996 Act are not administrative but are judicial powers. It would thus not sound to reason, that when a power under Section 11(6) of the 1996 Act for appointment of an arbitrator has been held to be a judicial power, the power to make an award a “Rule of Court”, which can be made only upon the satisfaction of the court on the existence of the eventualities set out in Section 17 of the 1940 Act, is not an exercise of judicial power.

119Copy pinpoint119. A Constitution Bench of this Court in the case of State of Tamil Nadu v. State of Kerala and Another51, after an elaborate survey of all the earlier judgments, has summed up the Law on “separation of powers doctrine” under the Constitution of India, as under: “Summary of separation of powers doctrine under the Indian Constitution

126. On deep reflection of the above discussion, in our opinion, the constitutional principles in the context of Indian Constitution relating to separation of powers between the legislature, executive and judiciary may, in brief, be summarised thus: 126.1. Even without express provision of the separation of powers, the doctrine of separation of powers is an entrenched principle in the Constitution of India. The doctrine of separation of powers informs the Indian constitutional structure and it is an essential constituent of rule of law. In other words, the doctrine of separation of power though not expressly engrafted in the Constitution, its sweep, operation and visibility are apparent from the scheme of Indian Constitution. Constitution has made demarcation, without drawing formal lines between the three organs—legislature, executive and judiciary. In that sense, even in the absence of express provision for separation of powers, the separation of powers between the legislature, executive and judiciary is not

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THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 465 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

different from the Constitutions of the countries which contain A express provision for separation of powers. 126.2. Independence of courts from the executive and legislature is fundamental to the rule of law and one of the basic tenets of Indian Constitution. Separation of judicial power is a significant constitutional principle under the Constitution of India. B 126.3. Separation of powers between three organs—the legislature, executive and judiciary—is also nothing but a consequence of principles of equality enshrined in Article 14 of the Constitution of India. Accordingly, breach of separation of judicial power may amount to negation of equality under Article C

14. Stated thus, a legislation can be invalidated on the basis of breach of the separation of powers since such breach is negation of equality under Article 14 of the Constitution. 126.4. The superior judiciary (High Courts and Supreme Court) is empowered by the Constitution to declare a law made by the legislature (Parliament and State Legislatures) void if it is found to have transgressed the constitutional limitations or if it infringed the rights enshrined in Part III of the Constitution. 126.5. 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 of no effect. It can, however, pass an amending Act to remedy the defects pointed out by a court of law or on coming to know of it aliunde. In other words, 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. F 126.6. If the legislature has the power over the subject-matter and competence to make a validating law, it can at any time make such a validating law and make it retrospective. The validity of a validating law, therefore, depends upon whether the legislature possesses the competence which it claims over the subject-matter G and whether in making the validation law it removes the defect which the courts had found in the existing law. 126.7. The law enacted by the legislature may apparently seem to be within its competence but yet in substance if it is shown as an attempt to interfere with the judicial process, such law may be H

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A invalidated being in breach of doctrine of separation of powers. In such situation, the legal effect of the law on a judgment or a judicial proceeding must be examined closely, having regard to legislative prescription or direction. The questions to be asked are: B (i) Does the legislative prescription or legislative direction interfere with the judicial functions? (ii) Is the legislation targeted at the decided case or whether impugned law requires its application to a case already finally decided? C (iii) What are the terms of law; the issues with which it deals and the nature of the judgment that has attained finality? If the answer to Questions (i) and (ii) is in the affirmative and the consideration of aspects noted in Question (iii) sufficiently establishes that the impugned law interferes with the judicial functions, the Court may declare the law unconstitutional.”

120Copy pinpoint120. It could thus be seen that the Constitution Bench in the aforesaid case held that, though a law enacted by the Legislature may apparently seem to be within its competence but yet in substance if it is shown as an attempt to interfere with the judicial process, such law may be invalidated being in breach of doctrine of separation of powers. The Constitution Bench stipulated three questions to be asked in such a situation, which are reproduced hereinabove.

121Copy pinpoint121. We have already held that since the State Act is referable to Entry 13 of List III of the Seventh Schedule to the Constitution of India, F it is within the competence of the State Legislature. The question that will have to be considered is whether it is an attempt to interfere with the judicial process. For that, we will have to consider the three questions framed by the Constitution Bench in the case of State of Tamil Nadu v. State of Kerala and Another (supra). A perusal of the various provisions of the State Act would clearly show that the State Act has been enacted since the State Government was aggrieved by various awards passed against it. It was therefore found expedient, in the public interest, to cancel the arbitration clause in the agreement, to revoke the authority of the arbitrators appointed thereunder and to enable the filing of appeals against the awards or decrees. As already discussed hereinabove, most of the awards were made “Rules of Court” prior to 1993. In many of the

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 467 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

cases, appeals were also preferred by the State Government. As such, we find that the legislative prescriptions and legislative directions in the State Act undoubtedly interfere with the judicial functions. It is also clear that the legislation is targeted at the awards passed which have become “Rule of Court”. As already discussed hereinabove, the powers exercised by the courts under Section 17 of the 1940 Act are judicial powers of the B State. As such, we are of the considered view that question Nos. 1 and 2 as framed by the Constitution Bench in the case of State of Tamil Nadu v. State of Kerala and Another (supra) are required to be answered in the affirmative. Upon consideration of the terms of the State Act, the issues with which it deals, it is clear that the State Act interferes with the judicial functions. C

122Copy pinpoint122. We are therefore of the considered view that the State Act, which has the effect of annulling the awards which have become “Rules of Court”, is a transgression on the judicial functions of the State and therefore, violative of doctrine of “separation of powers”. As such, the State Act is liable to be declared unconstitutional on this count. D

123Copy pinpoint123. We may also gainfully refer to the observations of this Court in the case of P. Tulsi Das and Others v. Govt. of A.P. and Others52. In the said case, this Court, while considering the legislative power of the State to enact a law, which amounted to taking away the rights, which are already accrued to the parties long back, has observed thus: E “14. On a careful consideration of the principles laid down in the above decisions in the light of the fact situation in these appeals we are of the view that they squarely apply on all fours to the cases on hand in favour of the appellants. The submissions on behalf of the respondent State that the rights derived and claimed by the appellants must be under any statutory enactment or rules made under Article 309 of the Constitution of India and that in other respects there could not be any acquisition of rights validly, so as to disentitle the State to enact the law of the nature under challenge to set right serious anomalies which had crept in and deserved to be undone, does not merit our acceptance. It is by now well settled that in the absence of rules under Article 309 of the Constitution in respect of a particular area, aspect or subject, it is permissible for the State to make provisions in exercise of its executive powers under Article 162 which is coextensive with its 52 (2003) 1 SCC 364 H

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A legislative powers laying conditions of service and rights accrued to or acquired by a citizen would be as much rights acquired under law and protected to that extent. The orders passed by the Government, from time to time beginning from February 1967 till 1985 and at any rate up to the passing of the Act, to meet the administrative exigencies and cater to the needs of public interest really and effectively provided sufficient legal basis for the acquisition of rights during the period when they were in full force and effect. The orders of the High Court as well as the Tribunal also recognised and upheld such rights and those orders attained finality without being further challenged by the Government, in the manner known to law. Such rights, benefits and perquisites acquired by the teachers concerned cannot be said to be rights acquired otherwise than in accordance with law or brushed aside and trampled at the sweet will and pleasure of the Government, with impunity. Consequently, we are unable to agree that the legislature could have validly denied those rights acquired by the appellants retrospectively not only depriving them of such rights but also enact a provision to repay and restore the amounts paid to them to the State. The provisions of the Act, though can be valid in its operation “in futuro” cannot be held valid insofar as it purports to restore status quo ante for the past period taking away the benefits already available, accrued and acquired by them. For all the reasons stated above the reasons assigned by the majority opinion of the Tribunal could not be approved in our hands. The provisions of Sections 2 and 3(a) insofar as they purport to take away the rights from 10-2-1967 and obligate those who had them to repay or restore them back to the State are hereby struck down as arbitrary, unreasonable and expropriatory and as such are violative of Articles 14 and 16 of the Constitution of India. No exception could be taken, in our view, to the prospective exercise of powers thereunder without infringing the rights already acquired by the appellants and the category of the persons similarly situated whether approached the courts or not seeking relief individually. The provisions contained in Section 2 have to be read down so as to make it only prospective, to save the same from the unconstitutionality arising out of its retrospective application.” H [emphasis supplied]

THE SECRETARY TO GOVT. OF KERALA, IRRIGATION 469 DEPARTMENT v. JAMES VARGHESE [B. R. GAVAI, J.]

124Copy pinpoint124. It could be seen that this Court has held that the provisions of A Sections 2 and 3(a) of the Andhra Pradesh Education Service Untrained Teachers (Regulation of Services and Fixation of Pay) Act, 1991 insofar as they purport to take away the rights accrued in favour of the citizens and requiring them to repay or restore them back to the State, are arbitrary, unreasonable and expropriatory. It has, therefore, been held that the said provisions are violative of Articles 14 and 16 of the Constitution of India.

125Copy pinpoint125. As already discussed hereinabove, what has been done by the State Act, is annulling the awards and the judgments and decrees passed by the court vide which the awards were made “Rule of Court”. As such, the rights which accrued to the parties much prior to the enactment of the State Act have been sought to be taken away by it.

126Copy pinpoint126. Though, elaborate arguments have been advanced before us on various other issues, since we have held that the State Act is liable to be held unconstitutional on the ground of encroachment upon the judicial powers of the State, we do not find it necessary to deal with the submissions made on behalf of the parties with regard to other issues. • CONCLUSION:

127Copy pinpoint127. In the result, we hold as under: (i) That the State Act in pith and substance is referable to E Entry 13 of List III of the Seventh Schedule to the Constitution of India and not to the Entries 12, 13, 14 and 37 of List I of the Seventh Schedule nor to Article 253 of the Constitution of India. The State Act, therefore, is within the legislative competence of the State Legislature. In any case, in view of the Presidential assent under Article 254(2) of the Constitution of India, the State Act would prevail within the State of Kerala. The finding of the High Court of Kerala, to the contrary, is erroneous in law; (ii) That the finding in the case of G.C. Kanungo (supra) to the effect that the powers exercised by the courts in passing judgments and decrees for making the arbitration awards “Rule of Court” is not an exercise of judicial power, is per incuriam the provisions of the 1940 Act and the judgments of the Constitution Bench in the cases of Harinagar Sugar H

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A Mills Ltd. (supra) and Shankarlal Aggarwala and Others (supra); and (iii) That the High Court of Kerala is right in law in holding that the State Act encroaches upon the judicial power of the State and is therefore liable to be struck down as being unconstitutional.

128Copy pinpoint128. The present appeals are accordingly disposed of. Pending application(s), if any, shall stand disposed of in the above terms. No order as to costs.

129Copy pinpoint129. Before we part with the judgment, we place on record our deep appreciation for the valuable assistance rendered by the learned counsel appearing on behalf of the parties.

Bibhuti Bhushan Bose Appeals disposed of.