Supreme Court of India
G.C. KANUNGOversusSTATE OF ORISSA
- Citation
- 1995 INSC 378
- Decided
- 12 May 1995
- Disposal
- Case Allowed
- Bench
- A M AHMADI
Holding
The Arbitration (Orissa Second Amendment) Act, 1991, insofar as it nullifies awards of Special Arbitration Tribunals (including those made "Rules of Court"), is unconstitutional because it encroaches upon the judicial power of the State.
Summary
The petitioners, contractors who had contracts with the State of Orissa, obtained arbitral awards from Special Arbitration Tribunals which were later made "Rules of Court" by civil courts. The State subsequently enacted the Arbitration (Orissa Second Amendment) Act, 1991, which retrospectively nullified those awards, even where they had become enforceable as court orders. The Supreme Court examined whether the State legislature had competence to amend arbitration law, whether mala fides could invalidate a law, whether the awards merged into court judgments, and whether the 1991 amendment encroached upon judicial power. It held that the State legislature was competent under the Concurrent List and that alleged mala fides does not render a law unconstitutional. The Court found that awards made by Special Arbitration Tribunals do not merge into court judgments even when made "Rules of Court". Consequently, the 1991 amendment, by attempting to nullify those awards, unlawfully intruded into the judicial domain and was unconstitutional. The writ petitions were allowed and the offending provisions of the 1991 Act were struck down.
Issues considered
- The competence of the Orissa State Legislature to enact the Arbitration (Orissa Second Amendment) Act, 1991 under Entry 13 of List III of the Seventh Schedule.
- Whether alleged mala fides in the enactment of the 1991 Amendment renders it unconstitutional.
- Whether awards of Special Arbitration Tribunals merge into the judgments and decrees of courts when made "Rules of Court".
- Whether the 1991 Amendment, by nullifying such awards, encroaches upon the judicial power of the State vested in courts.
- Whether the retrospective nullification of awards is arbitrary and violative of Article 14.
- Whether the 1991 Amendment can be struck down as unconstitutional.
Legislation cited
- Arbitration Act, 1940s. Section 14, s. Section 17, s. Section 2, s. Section 41-A
- Code of Civil Procedure, 1908s. Section 47
- Constitution of Indias. Article 13, s. Article 14, s. Article 32, s. Entry 13 of List III (Concurrent List)
Subjects
ArbitrationLegislative competenceConcurrent ListJudicial powerRule of lawArbitral awardNullificationSeparation of powersConstitutional validitySpecial Arbitration Tribunal
Judgment
A G.C. KANUNGO
v.
STATE OF ORISSA
MAY 12; 1995
B [A.M. AHMADI, CJ AND N. VENKATACHALA, J.]
AriJitration (01issa Second Amendment) Act, 1991:
Legislative competence of-Held Orissa legislature was competent to
C enacf'-Subject of Act covered by E1111y 13--List III to Seventh Schedul&-
Constitution of India.
Arbitration Tribunal-Special AriJitration Tribunal-Awards-Made
Rule of Court-Held awards does not merge in the judgment and decree of
Court which made it the Rule of Court-:A wards-Judgments and decrees
D making rule of Court-Held not judgments and decrees of Courts.
Judicial Power-Judgment-Nullification by legislatur&-Awards made
by Special Arbitration T1ibunal-Abrogation of-Held awards were made in
exercise of judicial power-Statute abrogating awards held encroachment on
E judicial power and violative of basic features of the Constitution.
State legislature-Power to make law-Attribution of ma/a fides or
ulterior motives cannot make the law unconstitutional.
The petitioner and the respondent-State entered into two contracts.
F As the State Government rescinded both the contracts, the petitioner
instituted proceedings under the Arbitration Act, 1940 in the Court of
Sub-Jndge, Bhubaneswar seeking appointment of Arbitrators to decide
disputes relating to his claims. The State of Orissa enacted Arbitration
(Orissa Amendment) Act, 1982 providing for a forum of Arbitration
Tribunal for deciding arbitral disputes arising out of the contracts. Fur-
G ther Arbitration (Orissa Amendment) Act, 1984 provided for referring
certain disputes involving claims of Rupee one crore or above to Special
Arbitration Tribunals to be constituted by the State Government. It also
provided for transfer of disputes involving claims of rupee one crore or
above pending before the Arbitration Tribunals constituted under the 1982
H Amendment Act to the Special Arbitration Tribunal constituted by the
510
G.C. KANUNGO v. STATE OF ORISSA 511
State Government under 1984 Amendment Act. Special Arbitration A
Tribunals constituted by the State Government decided the arbitral dis-
putes by making awards in favour of the petitioners. The awards were also
made Rule of the Court. Thereafter, the State of Orissa promulgated the
Arbitration (Orissa Second Amendment) Act, 1991 which has the effect of
nullifying the awards made in favour of the petitioners by the Special B
Arbitration Tribunals even after each of the Awards had been made a Rule
of Court. Consequently petitions were filed before this Court challenging
the constitutionality of the Arbitration (Orissa Second Amendment) Act,
1991.
On the questions: c
1. Was the Orissa State Legislature not competent to enact the 1991
Amendment Act on the topic of 'arbitration' in the Concnrrent List of
Seventh Schednle to the Constitution when Parliament had already
enacted on the same topic, 'the Arbitration Act, 1940' - 'The Principal Act'
.. • extending its operation to the State of Orissa as well?
2. Was the Orissa State Legislature actuated by malafides in enact-
ing the 1991 Amendment Act and hence the 1991 Amendment Act was
nnconstitutional? '
D
E
3. Did the award made by Special Arbitration Tribuuals merge in
judgments and decrees of Courts, when by such judgments and decrees,
the awards of those Tribunals were made 'Rules of Court'?
4. If the awards of Special Arbitration Tribunals did not merge in
the judgments and decrees of Courts, when they were made 'Rules of F
Court', can it be said that the 1991 Amendment Act which nullifies the
judgments and decrees of Courts by which the awards of the Special
Arbitration Tribunals, were made 'Rules of Court' is enacted by the Orissa
State Legislature by encroaching upon the judicial power of the State
exclusively vested in courts as sentinals of Rule of Law, basic feature of G
our Constitution, and hence is unconstitutional?
5. If the awards of Special Arbitration Tribunals did not merge in
the judgments and decrees of Courts, can it not be said that the 1991
Amendment Act which nullifies the awards of the Special Arbitration
Tribunals, even where such awards were made 'Rules of Court', is enacted H
512 SUPREME COURT REPORTS [1995) SUPP. 1 S.C.R.
A by the Orissa State Legislature by encroaching upon the judicial power of
the State exclusively vested in Courts as sentinals of Rule of Law, a basic
feature of our Constitution, and hence is unconstitutional"!
Allowing the writ petitions, this Court
B HELD : 1. The Orissa State legislature's enactment viz. Arbitration
(Orissa Second Amendment) Act, 1991 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
C in the principal Act of Parliament, it cannot be held to be unconstitutional
as that made by the Orissa State legislature without any necessary legis-
lative competence. [523-H, 524-A]
2. It is settled that mala tides or ulterior motives attributed to a State
legislature in making a law within its competence can never make such law
D unconstitutional. Hence the 1991 Amendment Act cannot be held to be
-
unconstitutional because of the ulterior motive and the malafides at-
tributed to the Orissa State Legislature. [524-C, Fl
K. Nagaraj & Ors. v. State of Andhra Pradesh & Anr., [1985] 2 SCR
579, relied on.
E
3. The awards of Special Arbitration Tribunals did not merge in
judgments and decrees of the Courts even though the courts by their
judgmeuts and decrees made such awards 'Rules of Court' for their
enforceability though the Courts availing their machinery used for execu·
tion of their decision, that is, their own judgments and decrees. [527-D]
F
Salish Kumar & Ors. v. Surinder Kumar & 01~., [1969] 2 SCR 244,
referred to.
4. The award of a Special Arbitration Tribunal, as that of an award
G of an arbitrator, is, a decision made by it on the claim or cause referre~
for its decision by way of arbitral dispute. When the Court makes such
award of Ii 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
H award is made to come by a party to the dispute before Court for b_eiug
•
G.C. KANUNGO v. STATE 513
made a 'Rule of Court' by its judgment and decree, it is to obtain the super A
added seal of the Court for such award, as provided for under the Prin-
., cipal Act, to make it enforceable against the other party through the
machinery of Court. TI1erefore, the judgment and decree rendered by the
Civil Court in respect of an award is merely to super-add its seal thereon
for making such award enforceable through the mechanism available with B
it for enforcement of its own judgments and decrees. The mere facts that
such judgments or decrees of Courts by which the awards of Special
-· Arbitration Tribunals are made 'Rule of Court' or are affirmed by judg-
ments 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 C
of Courts, 'Rule of Court' for enforcing them through its execution process,
the awards do not merge in the judgments and decrees of Courts, as would
. make them the decisions of Court. (526-A-E)
5. The 1991 Amendment Act in so far as it nullifies judgments and D
decrees of Courts by which awards of Special Arbitration Tribunals are
made 'Rules of Courts', even where they are affirmed by higher Courts,
cannot be regarded as that made by the Orissa State Legislature trans-
gressing upon the judicial power of State vested in Courts as would make
it unconstitutional. [528-H)
E
6. For the 1991 Amendment Act to become unconstitutional on the
ground that it has rendered judgments and decrees of Courts by which the
Special Arbitration Tribunals' awards are made 'Rule 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 F
respect of the subjects of dispute before them and not where they render
judgments and decrees to make the awards of the Special Arbitration
Tri)Junals "Rules of Court' so that they could be made enforceable through
the machinery of Courts. Judgments and decrees made by Civil Courts in
making the awards of the Special Arbitration Tribunals the 'Rules of G
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 Tribunals 'Rules of Court' are not those judgments ~H
514 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.
A 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 Arbitra·
tion Tribunals are made 'Rules of Court', cannot be regarded as that
enacted by the Orissa State Legislature encroaching upon the judicial
B powers of State exercisable under our Constitution by Courts as sentinals
of Rule of law, a basic feature of our Constitution. [527-G-H, 528-F-G]
7. Sections 2 and 3 of the 1991 Amendment Act seek to nullify the
awards of Special Arbitration Tribunals, made on disputes referred to
them from the 26th day of March, 1983 to 24th day of February, 1990under
C the 1984 Amendment Act. Thus, the impugned 1991 Amendment Act seeks
to nullify the awards made by the Special Arbitration Tribunals con·
stituted 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
D State judicial power conferred upon the which cannot be regarded as those
merged in Rules of Court or judgments and decrees of Courts, are sought
to be nullified by 1991 Amendment Act, it admits of no doubt that legisla-
tive power of the State Legislature is used by enacting impugned 1991
Amendment Act to nullify or abrogate the awards of the Special Arbitra-
tion Tribunals by arrogating to itself, a judicial power. From this, it follows
E that the State Legislature by enacting the 1991 Amendment Act has
encroached upon the judicial power entrusted to judicial authority result·
ing in infringement of a basic feature of the Constitution • the Rule of Law.
Thus, when the 1991 Amendment Act nullifies the awards of the Special
Arbitration Tribunals, made in exercise of the judicial power conferred
F upon them under the 1984 Amendment Act, by encroaching upon the
judicial power of the State, Court has no option but to declare it as
unconstitutional having regard to the well settled and undisputed legal
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,
G 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 Tribunals under 1984 Amendment Act.
Moreover, where the arbitral awards sought to be nullified under the 1991
Amendment Act are those made by Special Arbitration Tribunals con·
H stituted by the State itself under 1984 Amendment Act to decide arbitral
G.C. KANUNGO v. STATE [VENKATACHALA, J.] 515
disputes to which State was a party, it cannot be permitted to undo such A
arbitral awards which have gone against it, by having recourse to its
legislative power for gr<mt of such permission as could result in allowing
the State, if nothing else, abuse of its power of legislation.
[533-C, D-H, 534-A-B]
Re : Cauvery Water Disputes Tribunal, [1991] Supp. 2 S.C.R. 497, B
referred to.
8. The Arbitration (Orissa Second Amendment) Act, 1991, in so far
as it nullifies the arbitral awards made by the Special Arbitration
Tribunals constituted by respondent-State nuder the 1984 Amendment
Act, including the awards of the petitioners which are made 'Rules of C
Court', is struck down as uncons.titutional. [534-F]
CIVIL APPELLATE JURISDICTION: Writ Petition (C) No. 1151
of 1991 Etc.
D
(Under Article 32 of the Constitution of India)
N. Santosh Hedge, Vinoo Bhagat, Yashank Andhyaru, J.K Das,
Millon Kanungo, R.F. Nariman, AK Gupta, R.K. Mehta and AK. Panda
for the appearing parties.
E
The Judgment of the Court was delivered by
VENKATACHALA, J. Question of constitutionality of the Arbitra-
tion (Orissa Second Amendment) Act, 1991, to be referred to hereinafter
as the 1991 Amendment Act', which has amended the Arbitration Act,
1940, to be referred to hereinafter as 'the Principal Act', in its application F
to the State of Orissa, arises for our consideration and decision in the
present writ petitions filed under. Article 32 of the Constitution.
Petitioner in Writ Petition No. 1151 of 1991 had entered into two
contracts with the Orissa Government in the years 1969 and 1970 for
construction of 'high level bridges' - one over the river Daya and another G
over the river Rushikulya. Any dispute to arise between the parties under
the said contracts, was required to be resolved by having recourse to
arbitration under the Principal Act because of the arbitration clause that
stood incorporated· in each of them, by agreement of parties. The Orissa
Goverrunent which rescinded both the contracts - one in the year 1974 and H
516 SUPREME COURT REPORTS [1995] SUPP.1 S.C.R.
A another in the year 1975, it appears, did not concede to the petitioner's
claim, exceeding rupees one crore made in relation to each of them. This
situation appears to have led the petitioner to institute two separate
proceedings under the Principal Act in the Court of Sub-Judge,
Bhuvaneshwar-'the Court of Sub-Judge' seeking appointment of ar-
B bitrators to decide the disputes relating to his claims made in respect of
the said two contracts. The appointment of a separate arbitrator for
deciding each of the said disputes, it appears, was made by the Court of
Sub-Judge in the year 1981. But, in the year 1982 when the Principal Act,
as applicable to the State of Orissa, was amended by the Arbitration
(Orissa Amendment) Act, 1982:-'the 1982 Amendment Act, providing a
C forum of Arbitration Tribunal for deciding arbitral disputes arisen or
arising from contracts as those of the petitioner, a controversy appears to
have cropped up, as to whether the arbitrators appointed by the Court of
Sub- Judge, in the proceedings before it, had to be replaced by an Arbitra-
tion Tribunal to be constituted according to 'the 1982 Amendment Act'.
D When the said controversy had still to be resolved, the Arbitration (Orissa
Amendment) Act, 1984-'The 1984 Amendment Act', it is said, came into
force amending the Principal Act insofar as it became applicable to the
Orissa State by providing for a Special Arbitration Tribunal to be con-
stituted by the State Government, for deciding arbitral disputes arisen or
E arising in relation to the contracts, as those of the petitioner, where claim
involved was, of rupees one crore or above. The aforesaid controversy,
whether the arbitrators earlier appointed by the Court of Sub-Judge,
should be replaced by Special Arbitration Tribunals to be appointed by the
State Government as required under the 1984 Amendment Act, which had
F cropped up because of the coming into force of the said two Amendment
Act, it is said, ultimately ended in this Court, with the replacement of
arbitrators who had been appointed by the Court of Sub-Judge, by Special
Arbitration Tribunals constituted by the State Government with power
conferred on those Special Arbitration Tribunals to decide the arbitral
disputes raised by the petitioner in respect of his two contracts which had
G been entered into with the State Government but rescinded by the latter.
Two Special Arbitration Tribunals which were so constituted by the State
Government, it is said decided the arbitral disputes of the petitioner
referred to them, by the making of awaids - one in the year 1988 and
aoother in the year 1989. The Court of Sub-Judge, before which those two
H awards had come to be placed for making them 'Rules of Court', are said
G.C. KANUNGOv. STATE[VENKATACHALA,J.] 517
to have been made 'Rules of Court' by its judgments and decrees. The A
'Rules of Court' so made in relation to each award by the Court of
Sub-Judge, is said to have been affirmed by the High Court of Orrisa.
When the 'Rules of Court' so affirmed by the High Curt in both the matters
were brought up before this Court by the Orissa Government in S.L.P's,
one of them has been dismissed while in the other leave has been granted, B
however, allowing the petitioner to take Rs. 25 lakhs out of the amount
payable under the concerned award made in his favour by one of the
Special Arbitration Tribunals. It appears, one of those awards which was
made a 'Rules of Court' by the Sub- Judge and unsuccessfully challenged
upto this Court by the Orissa Government, is under execution in an
execution proceeding before the Court of Sub-Judge. Thus, when the C
amount payable under the award which was made a 'Rules of Court' was
pending realisation before the Executing Court and another arbitral award
which was made a 'Rules of Court' by the Court of Sub-Judge, was pending
consideration by this Court in a Civil Appeal, the State Government, it is
said, promulgated the Arbitration (Orissa Amendment) Ordinance, 1991, D
amending the Principal Act as amended by the earlier amendment Acts,
in its application to the State of Orissa. However, that Ordinance came to
be replaced by the 1991 Amendment Act. As the 1991 Amendment Act
has in effect nullified the aforesaid two awards made in favour of the
petitioner by two Special Arbitration Tribunals constituted by the State
Government under the 1984 Amendment Act, even after each of them had E
been made a 'Rules of Court' and directed the petitioner to get the arbitral
disputes raised by him, resolved afresh by the Arbitration Tribunal con-
stituted under the Principal Act as stood amended by the 1982 Amendment
Act, the constitutionality of the 1991 Amendment Act, has been challenged
by the petitioner by filing the Writ Petition. p
Coming to the petitioner in Writ Petition No. 491 of 1992, he is a
contractor who had entered into two contracts in the year 1972 with the
Orissa Government for improving two sections of the National Highway
No. 5. In the year 1974 certain disputes having arisen between the parties G
in relation to execution of works concerned in the said contract, the
petitioner who was a party to such contracts, appears to have instituted a
proceeding before the Court of Sub-Judge, seeking reference of the dis-
putes to an arbitrator to be appointed by it under the .Principal Act, since
the arbitration clause found in each of those contracts required reference
of such arbitral disputes to an Arbitrator. Thereafter, the Court of Sub- H
518 SUPREME COURT REPORTS (1995] SUPP. 1 S.C.R.
A Judge appears to have appointed a retired District Judge as an arbitrator
and referred the arbitral disputes to him for being decided by him. That
arbitrator, appears to have, accordingly, decided the arbltral disputes by
his awards made in the year 1981, itself. Though the Court of Sub-Judge
appears to have refused to make each of the said awards a 'Rules of Court',
B the High Court is said to have made each of them a 'Rules of Court' in the
year 1990. The S.L.P's of the Orissa Government filed before this Court
against the judgment of the High Court, it i' said, came to be dismissed in
the year 1991. When the amounts payable under the awards which had
been made 'Rules of Court' were sought to be realised in execution of
'Rules of Court', directions appear to have been given to the State Govern-
C ment by the Executing Court to pay all the amounts payable under the said
awards to the petitioner. Some proceedings taken by the Orissa Govern-
ment before the Court of Sub-Judge under section 47 of the Code of Civil
Procedure, 1908 questioning the orders made in execution proceedings
appear to have proved futile, all through. The 1991 Amendment Act,
D according to the petitioner, has the effect of nullifying the awards made in
his favour by their arbitrator, even though each of them is made a 'Rules
of Court' by the High Court and affirmed by this Court and making him
have his arbitral dispute resolved by the Arbitration Tribunal constituted
under the Principal Act as amended by the Amendment Acts. That is the
reason, it is said, as to why the petitioner has filed the writ petition to
E challenge the constitutionality of the 1991 Amendment Act.
The petitioners in the present Writ Petitions have since challenged
the constitutionality of the 1991 Amendment Act, which is found in the
notification published in the Orissa Gazette Extra-Ordinary on 22nd
F January 1991, that Notification itself, for the sake of convenience, is
reproduced:
No. 1117-Legis.-The following Act of the Orissa Legislative As-
sembly having been assented to by the President on the 22nd
January, 1992 is hereby published for general information.
G
ORISSA ACT 3 OF 1992
THE ARBITRATION (ORISSA SECOND AMENDMENT)
ACT, 1991
H An Act to amend the Arbitration Act, 1940 in its application to
G.C. KANUNGO v. STATE [VENKATACHALA. J.] 519
the State of Orissa. A
Be it enacted by the Legislature of the State of Orissa in the
Forty-second year of the Republic of India as follows :-
1. (i) This Act may be called the Arbitration (Orissa Second
Amendment) Act, 1991. B
(2). It shall be deemed to have come into force on the 24th day
of September, 1991.
2. In the Arbitration Act, 1940 in its application to the State of
Orissa (hereinafter referred to as the principal Act), in section C
41-A, after sub-section (1), the following sub-section shall be
deemed to have been inserted with effect from the 26th day of
March, 1983 and in force during the period between the said date
and the 24th day of January, 1990 (both the days inclusive),
namely:-
D
'(1-a) No reference to arbitration of any dispute specified in
sub-section (1) involving a claim of rupees one crore or above shall
' be made under the said sub-section to a Special Arbitration
Tribunal, unless the amount agreed to by the parties in the contract
out of which such dispute has arisen is more than half the amount E
of such claim'.
3. Notwithstanding anything to the contrary in the principal Act,
or in any award made by Special Arbitration Tribunal in relation
to any dispute, or in any Judgment, decree or order passed by any
Court in relation to any such dispute or award, - F
(i) the amendment made by section 2 shall apply to and in
relation to every dispute in respect of which award has been made
by Special Arbitration Tribunal, whether such award has been, or
is pending to be, made the rule of the Court under section 17 of G
the principal Act;
(ii) any reference made to Special Arbitration Tribunal in
respect of a dispute referred to in clause (i) inconsistently with the
provision of sub-section (1-a) of section 41-A of the principal Act
as inserted by section 2 of this Act shall be deemed to be invalid H -
520 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.
A as if the said sub-section (1-a) of section 41-A was in force at the
time when such reference was made; and
(iii) in the case of every dispute, the reference in respect of
which is so deemed to be invalid under clause (ii), a fresh reference
to arbitration shall be made to the Arbitration Tribunal within
B ninety days from the date of publication of the Arbitration (Orissa
Amendment) Ordinance, 1991 in the official Gazette.
Explanation - For the purposes of this section, the expression
'Special Arbitration Tribunal' shall mean a Special Arbitration
c Tribunal constituted under sub-section (!) of section 41-A of the
principal Act as it stood prior to the 25th day of January, 1990.
4. (1). The Arbitration (Orissa Amendment) Ordinance, 1991
is hereby repealed.
D (2) Notwithstanding such repeal, anything done or any action
taken under the principal Act as amended by the said Ordinance
shall be deemed to have been done or taken under the principal
Act as amended by this Act.
By order of the Governor
E Sd/-
P.K. PANIGRAHI
Secretary to Government."
The 1991 Amendment Act, as seen from its provisions, makes it
F abundantly clear that every reference made to a Special Arbitration
Tribunal between 26th March, 1983 and 24th January, 1990 in respect of a
dispute involving a claim of rupees one crore or above, if such claim was
more than double the amount agreed to by the parties in the contract out
of which such dispute arose, becomes invalid and a fresh reference of such
arbitral dispute shall be made to the Arbitration Tribunal within the
G stipulated period, notwithstanding anything to the contrary in the Principal
Act or in any award made by a Special Arbitration Tribunal in relation to
any dispute or any judgment, decree or order passed by any court in
relation to any such dispute or award and also notwithstanding whether
such award of the Special Arbitration Tribunal has been or has to be, made
H the 'Rules of Court' under Section 17 of the Principal Act.
G.C. KANUNGO v. STATE [VENKATACHALA, J.] 521
Arguments addressed before us against the constitutionality of the A
said 1991 Amendment Act by Shri Vinoo Bhagat and Shri R.F. Nariman,
=-
,.... learned counsel for the petitioners, briefly put, are these:
The 1991 Amendment Act is unconstitutional as it relates to the topic
of arbitration, in the Concurrent List of Seventh Schedule to the Constitu-
B
tion, which was already covered by parliamentary legislation, 'the Principal
Act'. The 1991 Amendment Act being the result of mala fide exercise of
power by the Orissa Slate Legislature, the same was unconstitutional. The
awards of Special Arbitration Tribunals constituted according to the
provisions of the Principal Act as applicable, to the State of Orissa, when
are made 'Rules of Court' by judgments and decrees of Courts, such c
awards get merged in judgments and decrees of the Courts. Therefore,
awards of Special Arbitration Tribunals, cease to have any independent
existence when they are made by judgments and decrees of Courts 'Rules
of Court'. When that is so, no legislature under our Constitution, of which
Rule of Law is a basic feature has the power to nullify the awards of the D
.
Special Arbitration Tribunals which had become 'Rules of Court' by judg-
·~ ments and decrees of Courts, for such nullification would amount to
nullification of judgments and decrees of Courts. Therefore, when the
Orissa State Legislature by enacting the 1991 Amendment Act has nullified
the awards made by the Special Arbitration Tribunals, which had merged
in the judgments and decrees of Courts they having been made 'Rules of E
Court', the 1991 Amendment Act was unconstitutional being that made by
the Orissa State Legislature not in exercise of legislative power of the State
vested in it under our Constitution but by encroaching upon the judicial
power of the State which was exclusively exercisable according to our
Constitution, of which Rule of Law is its basic feature, only by Tribunals F
or Courts. Even otherwise, the 1991 Amendment Act was unconstitutional
since it was made encroaching upon the judicial power of the State, when
it has nullified the awards (decisions) of Special Arbitration Tribunals
constituted by the State Government under the 1984 Amendment Act,
which had conferred upon with the judicial power of the State of adjudica-
tion of disputes between parties. In any event, the 1991 Amendment Act G
being arbitrary and unreasonable for the reason that it nullifies arbitral
disputes relating to the year 1983, the same was violative of Article 14 of
the Constitution and hence unconstitutional.
On the other hand, Shri M. Santosh Hedge, the learned counsel, who H
SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.
A addressed arguments before us for the State of Orissa urged th~t every
argument made by learned counsel for the petitioners against the con-
stitutionality of the 1991 Amendment Act lacked merit and did not warrant
our acceptance.
As our decision on the question of constitutionality of the 1991
B Amendment Act has to depend on the answers to be given by us on the
points which have emerged from the arguments of learned counsel for the
opposing parties, those points could be formulated, for their proper con-
sideration and determination, thus:
c 1. Was the Orissa State Legislature not competent to enact the 1991
Amendment Act on the topic of 'arbitration' in the Concurrent
List of Seventh Schedule to the Constitution when Parliament
had already enacted on the same topic, 'the Arbitration Act,
1940' - 'the Principal Act', extending its operation to the State
of Orissa as well?
D
2. Was the Orissa State Legislature actuated by mala fides in <·
enacting the 1991 Amendment Act and hence the 1991 Amend-
ment Act was unconstitutional?
3. Did the awards made by Special Arbitration Tribunals merge in
E
judgments and decrees of Courts, when by such judgments and
decrees, the awards of those Tribunals were made 'Rules of
Court'?
4. If the awards of Special Arbitration Tribunals did not merge in
F the judgments and decrees of Courts, when they were made
'Rules of Court', can it be said that the 1991 Amendment Act
which nullifies the judgments and decrees of Courts by which the
awards of the Special Arbitration Tribunals, were made 'Rules
of Court' is enacted by the Orissa State Legislature by encroach-
ing upon the judicial power of the State exclusively vested in
G Courts as sentin~ls of Rule of Law, a basic feature of our
Constitution, and hence is unconstitutional?
5. If the awards of Special Arbitration Tribunals did not merge in
the judgments and decrees of Courts, can it not be said that the
H 1991 Amendment Act which nullifies the awards of the Special
G.C. KANUNGOv. STATE[VENKATACHALA,J.] 523
Arbitration Tribunals, even where such awards were made 'Rules A
of Court', is enacted by the Orissa State Legislature by encroach-
ing upon the judicial power of the State exclusively vested in
Courts as sentinals of Rule of Law, a basic feature of our
Constitution, and hence is unconstitutional?
6. Is the nullification brought about by the 1991 Amendment Act B
of awards made by Special Arbitration Tribunals on arbitral
disputes referred to them as early as in the year 1983 was
arbitrary and unreasonable, as would attract the inhibition of
Article 14 of the Constitution and make that Act unconstitution-
al? c
We shall not proceed to consider and answer each of the said points
in their serial order.
Point-I:
D
Want of legislative competence on the part of the Orissa State
Legislature to enact the 1991 Amendment Act was indeed not argued very
seriously by learned counsel for the petitioners. Subject of arbitration finds
place in Entry 13 of List III, i.e., the Concurrent List of VII Schedule to
the Constitution on which the legislation could be made either by Parlia-
ment or the State legislature. When there is already the legislation of E
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 List and when a particular State
Legislature has made a law or Act on that subject for making it applicable F
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 enact.ed
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 G
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 con- H
524 SUPREME COURT REPORTS [1995] SUPP.1 S.C.R.
A tained 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.
Point-2:
B The argument advanced on behalf of the petitioners that the 1991
Amendment Act was enacted by the Orissa State legislature which was
actuated by mala fides and hence the same is unconstitutional, is difficult
of acceptance. That mala fides or ulterior motives attributed to a State
legislature in making a law within its competence can never make such law
C unconstitutional, is well settled. In K Nagaraj & Ors. v. State of Andhra
Pradesh & Anr., [1985] 2 SCR 579, while dealing with the mala fides
attributed to a legislature in which it had competence to make the law, this
Court said thus :
"The legislature, as a body, cannot be accused of having passed
D a law for an extraneous purpose. If no reasons are so stated as
appear from the provisions enacted by it. Its reasons for passing a
law or those that are stated in the Objects and Reasons. Even •
assuming that the executive, in a given case, has an ulterior motive
in moving a legislation, that motive cannot render the passing of
the law mala fide. This kind of 'transferred malice' is unknown in
E the field of legislation."
Hence, we have no hesitation in finding that the 1991 Amendment
Act cannot be held to be unconstitutional because of the ulterior motive
and the mala tides attributed to the Orissa State Legislature.
F Point-3:
This point concerns merger of awards of Special Arbitration
Tribunals in the judgments and decrees of Courts when such awards are
made 'Rules of Court'.
G Section 41-A of the Principal Act was inserted in the Principal Act
by the 1982 Amendment Act so as to make it applicable to the State of
Orissa. The provision therein required the reference of arbitral disputes in
all cases where the State Government, a local or other authority controlled
by the State Government, a statutory corporation or
a Government com-
H pany was a party, to be made to the Arbitration Tribunal comprised of
- G.C. KANUNGO v. STATE [VENKATACHALA,J.]
three members-vne member chosen from among the officers belonging to
the Orissa Superior judicial Service (Senior Branch) and another member
525
A
chosen from among the officers of the Public Works Departments of the
State Government not below the rank of a Superintending Engineer and a
third member chosen from among the officers belonging to the Orissa
Finance Service not below the Superior Administrative Cadre in Class-I.
B
But, by its provisions the 1984 Amendment Act required that arbitral
disputes referred to or referable to the Arbitration Tribuna~ shall be
referred to Special Arbitration Tribunals comprised of one or more retired
High Court Judges to be constituted by the State Government from time
to time, if any of such disputes involved a claim of rupees one crore or
above. When the arbitral dispute involving a claim of rupees one crore or c
above, was referred to Special Arbitration Tribunal for deciding it by
making an award thereon, what was so referred in the form of arbitral
dispute was the claim or cause which one party had against the other in
respect of the contract entered into by them, admits of no controversy.
Again, when Special Arbitration Tribunal decided such arbitral dispute by D
... making an award in respect of it, the claim or cause of a party arisen
against the other party in relation to the contracts entered into by them
and which had given scope for raising an arbitral dispute and getting it
referred to the Special Arbitration Tribunal for its decision merges in the
award so made by it, cannot also admit of any controversy. If that be so,
when a Special Arbitration Tribunal makes an award, it, as ought to be, E
binds the parties to the dispute and their privies. Such awards of the
Special Arbitration Tribunals bind the parties and their privies cannot be
controverted, in that, condition 7 of the implied conditions of arbitration
agreements, contained in the First Schedule to the Principal Act, recog-
nises the position by declaring that the awards shall be final and binding F
on the parties and persons claiming under them, respectively. No doubt, it
is open to any of the parties to the award, if so chosen, to cause the Special
Arbitration Tribunal, as provided for under section 14 of the Principal Act,
to file such award in court for making it a 'Rules of Court', by its judgment
and decree to be rendered or made under section 17 of the Principal Act.
Such Court is a Civil Court having jurisdiction to decide the questions G·
forming the subject-matter of the reference if the same had been the
subject-matter of a suit, as becomes clear from the definition clause (c) of
Section 2 of the Principal Act.
What is of importance and requires our examination is, whether .such H
526 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.
A Court when makes an award of the Special Arbitration Tribunal filed
before it, a 'Rules of Court' by its judgment and decree, as provided under
Section 17 of the Principal Act, does such awed 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
B 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 'Rules of Court' by means of its judgment and decree, it is not
C 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 'Rules of Court' by its judgments
and decree, it is to obtain the super added seal of the Court for such award,
D as provided for under the Principal Act, to make it enforceable against the
other party through the machinery of Court. Therefore, the judgment and
decree rendered by the Civil Court in respect of an award is merely to
super-add 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 of decrees of Courts by which
E 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
F 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, \Vhich we have stated, receives support from certain
observations in the decision of this Court in Salish Kumar & Ors. v. Swinder
G Kumar & Ors., [1969] 2 SCR 244. 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 Court observed that an award is entitled to that respect
H which is due to the judgment and decree of last resort. And if the award
G.C. KANUNGO v. STATE [VENKATACHALA, J.] 527
which had been pronounced between the parties has become final, a 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 'Rules 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 B
arbitration has the first stage which commences with arbitration agree-
ments 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 C
without further steps.
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 Court by their judgments and decrees made such
awards 'Rules of Court' for their enforceability through the Courts availing D
their machinery used for execution of their decisions, that is, their own
judgments and decrees.
Point-4
It is true, as argued on behalf of the petitioners, that a legislature has E
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-stated position in Jaw, we F
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.
For the 1991 Amendment act to become unconstitutional on the G
ground that it has rendered judgments and decrees of Courts by which the
Special 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 mark the awards of the Special Arbitration H
528 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.
A Tribunals 'Rules of Court' so that they could be made enforceable through
the machinery of Courts. Thus, the awards of tpe Special Arbitration
Tribunals when get the super-added seals of Courts for such awards, by
the Courts making them '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
B judicial power of decision making, as it happens in the causes directly
brought before them by way of suits for their decisions. As we have already
pointed out, question of claim or cause of a party which gets merged in
the award of a Special Arbitration Tribunal, in turn, getting merged in
judgment and decree made by Civil Court, for the purpose of making the
C award a 'Rules of Court', so as to make it enforceable, can not 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
D 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
E 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 Tribunals 'Rules of Court' are not those
judgments and decrees of Courts made in exercise of judicial power of
F 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 legislature encroaching upon
the judicial powers of State exercisable under our Constitution by Courts
G as sentinals of Rule of Law, a basic feature of our Constitution. Hence, the
1991 Amendment Act in so far as it nullifies judgments and decrees of
Courts by which awards of Special Arbitration Tribunals are made 'Rules
of Court', even where they are 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 unconstitu-
.H tional.
G.C. KANUNGO v. STATE [VENKATACHALA, J.] 529
Poi11t-5: A
If the awards made by Special Arbitration Tribunals which are
sought to be nullified by the 1991 Amendment Act enacted by the Orissa
State legislature, are regarded as those made by the Special Arbitration
Tribunals in exercise of Judicial power of the State conferred upon them,
by an enactment of the State Legislature, the 1984 Amendment Act, was B
it open to the State Legislature to enact the 1991 Amendment act to simply
nullify such awards without encroaching upon the judicial power of the
State especially conferred on Special Arbitration Tribunals in the matter
of adjudicating upon arbitral disputes not coming before them at the
instance of parties, is the point. C
When awards are made in disputes between the parties by the
arbitrators of their choice or arbitrators who may be appointed by the
Court on their behalf, as provided for under the Principal Act, such
awards, can never be regarded as those made by the arbitrators in exercise
of the judicial power of the State conferred upon them. However, if D
reasoned awards are made by Special Arbitration Tribunals constituted
under a legislative enactment in exercise of the power conferred upon them
under such enactment in the matter of adjudicating upon disputes between
the parties according to accepted norms of judicial procedure, can such
awards be not regarded as those rendered by the arbitration tribunals in E
exercise of the judicial power of the State conferred upon them under the
legislative enactment, is the principal question.
As the Objects and Reasons annexed to the Bill on the basis of which
the impugned 1991Amendment Act has been enacted for constituting
Special Arbitration Tribunals by the State and for conferring power of F
adjudicating disputes between parties referred to them, furnishes the his-
torical background in which the Bill was introduced in the State Legisla-
ture, it would be useful to reproduce the same thus:
"Section 41-A of the Arbitration Act, 1940 as it applies to the G
State of Orissa was amended with effect from 26.3.1983 by the
Arbitration (Ori'5a Amendment) Act 1984, whereby, a proviso to
sub-section (1) of the said section was inserted to the effect that
reference to arbitration of disputes specified in the said sub-section
involving claims of rupees one crore or above may be made to a
Special Arbitration Tribunal comprising one or more retired High H
530 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.
A Court Judges, as may be constituted by the State Government from
time to time. In the course of operation of this proviso it was
experienced that a tendency has developed among the Contractors
to seek constitution of Special Arbitration Tribunals by inflating
their claims to rupees one crore and above, inter alia, to avoid
depositing the security money required for reference to the Ar-
B
bitration Tribunal. Therefore, the said proviso was deleted with
effect from 25.1.1990 by the Arbitration (Orissa Amendment) Act
1989 (Orissa Act 1 of 1990). While so deleting the proviso, the
cases which were pending before the Special Arbitration Tribunal
for disposal, whereas the cases in which award was already passed
c were left unaffected in view of prospective operation of the amend-
ment.
Later it came to the notice of the Government that in some of
the cases, in which award was made by a Special Arbitration
D Tribunal, not only the Contractors inflated their claims abnormally
but also the awards passed in respect thereof are surprisingly high
and unreasonable. This is a matter of serious concern for the
Government since the amounts involved in such awards, besides
being unreasonable and assessed improperly and inaccurately for
the reason that the one man Special Arbitration tribunals were not
E assisted by any technical and Finance members as in the case of
the Arbitration Tribunal, put a heavy and undesirable burden on
the public exchequer to which the government, in vie\v of its serious
responsibility to the people as well as the obligation to the Con-
stitution cannot close their eyes.
F
Accordingly, it is considered necessary in the public interest to
make the provision relating to reference of disputes to the Special
Arbitration Tribunals during the period of operation of the proviso
to sub-section (1) of section 41-A i.e., between 26.3.1983 and
G 24.1.1994, subject to one more condition so that any reference to
arbitration made to a Special Arbitration Tribunal during the said
period inconsistently with the proposed new condition shall be
invalid and, in every such case, a fresh reference shall be made to
the Arbitration Tribunal within the stipulated period for adjudica-
H tion of the dispute.
G.C. KANUNGO v. STATE [VENKATACHALA, J.] 531
For the above purpose, the Arbitration (Orissa Amendment) A
Ordinance, 1991 (Orissa Ordinance No. 7 of 1991) was promul-
gated to amend section 41-A of the Arbitration Act, 1940 as
applicable to the State of Orissa and necessary consequential
provision was made in such Ordinance. The said Ordinance 1s
required to be replaced by an Act of the State Legislature. B
The Bill seeks to achieve the above object."
What are the Special Arbitration Tribunals, adverted to in the above
Objects and Reasons of the Bill, the awards of which are sought to be
invalidated by the Amendment Act to be made pursuant to that Bill C
requires mention here for understanding as to how they have come into
existence, as to what is the power exercised by them in resolving the
disputes referred to them and as to how they are resolved by making the
award. Under the 1982 Amendment Act, a Special provision had been
made empowering the State Government to constitute Arbitration
Tribunals consisting of three members and referring certain disputes for D
decision by those Arbitration Tribunals. When 1984 Amendment Act was
enacted by the State Legislature, it provided for referring certain disputes
involving claims of Rs. 1 crore or above, to Special Arbitration Tribunals
to be constituted by the State Government comprised of one or more
retired High Court Judges, from time to time. It also provided for transfer E
of disputes involving claims of Rs. lcrore or above pending before the
Arbitration Tribunals constituted under the 1982 Amendment Act to the
Special Arbitration Tril;mnal to be constituted by the State Government
under 1984 Amendment Act. One of the provisions in the 1984 Amend-
ment Act read thus:
F
· "The business of the Arbitration Tribunal or Special Arbitration
Tribunal shall be conducted in such manner as the tribunal may
determine and awards made and signed shall be supported by
reasons."
From what we have stated hereinbefore, it becomes obvious that the G
Special Arbitration Tribunals had been constituted by the State Govern-
ment in accordance with the 1984 Amendment Act to adjudicate upon or
decide the disputes referred to them under that Act, by making reasoned
awards. The power of deciding the disputes conferred upon those Special
Tribunals was not conferred upon them by the parties to the disputes. H
532 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.
A Instead such power had been conferred upon them by the State under the
provisions of the 1984 Amendment Act. Such Arbitration Tribunals had to
make the reasoned awards because they were enjoined to do so under that
Amendment Act itself. Though the Special Arbitration Tribunals themsel-
ves are entitled under the provisions of the said Amendment Act to evolve
B their own procedure or conducting its proceedings, ordinary norms of
judicial procedure had to be adopted by them so as Jo conform to the
principles of natural justice being Tribunals constituted under a legislative
enactment with power conferred upon them to adjudicate upon disputes
between parties.
C Thus, when under the 1984 Amendment Act, the Special Arbitration
Tribunals had been constituted by the State Government and were con-
ferred by that enactment the power of adjudicating upon the disputes
between parties referred to them, conforming to the normal judicial pro-
cedure and by making reasoned awards, the awards so made by Special
D Arbitration Tribunals, we cannot but hold are those made in exercise of
State's judicial power conferred upon them under the 1984 Amendment
Act for deciding the disputes between the parties by having recourse to
normal judicial process.
No doubt, by the 1989 Amendment Act, referred to in the Objects
E and Reasons of the Bill, the provision relating to constitution of Special
Arbitration Tribunals introduced in the principal Act by the 1984 Amend-
ment Act was deleted and a provision was made therein for transfer of
matters pending consideration before such Special Arbitration Tribunal to
the Arbitration Tribunals constituted under the 1982 Amendment Act and
F decision to be made thereon. But, for getting rid of the awards which had
already been made by the Special Arbitration Tribunals referred for their
decision under the 1984 Amendment Act, by the State Government, 1991
Ordinance was promulgated by the State and the same is subsequently
replaced by the 1991 Amendment Act.
G The 1991 Amendment Act which is reproduced by us earlier contains
hardly four Sections. Out of them Sections 2 and 3 alone are material.
Insofar as Section 2 is concerned by its deemed retrospective operation
between 26th day of March 1983 and 24th day of February, 1990 forbids
the making of reference under sub-section (1) of Section 42-A of the
H Principal Act, involving a claim of Rs. 1 crore of more unless the amount
G.C.KANUNGOv. STATE [VENKATACHALA,J.] 533
agreed to by the _parties in the Contract exceeds the amount of such claim. A
Then, coming to Section 3 it declares that all the awards made by ,
the Special Arbitration Tribunals on references made to it under the 1984
Amendment Act during the period adverted to under Section 2 invalid
even where those awards were made 'Rules of Court', i.e., judgments and B
decrees of Courts. Further, that Section requires the making of fresh
references to arbitration of such dispute to the Arbitration Tribunals
constituted under the 1982 Amendment Act. Thus, Sections 2· and 3 of the
1991 Amendment Act seek to nullify the awards of Special Arbitration
Tribunals, made on disputes referred to them from the 26th day of March,
1983 to 24th day of February, 1990 under the 1984 Amendment Act C
becomes obvious.
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 D
Act itself. When, the awards made under the 1984 Amendment Act by the
Special Arbitration Tribunals in exercise of the State judicial power con-
ferred 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
1991 Amendment Act, it admits of no doubt that legislative power of the
State Legislature is used by enacting impugned 1991 Amendment Act to E
nullify or abrogate the awards of the Special Arbitration Tribunals by
arrogating to itself, a judicial power. (See Re: Cauveiy Water Disputes
Tribunal [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 F
basic feature of the Constitution - the Rule of Law. Thus, when the 1991
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 position that a legislature has no legisla- G
live 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 H
534 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.
A Arbitration Tribunals under 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 1984 Amendment Act to decide arbitral disputes to which State was
a party, it cannot be permitted to undo such arbitral awards which have
B 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 legislation.
Point-6:
C The argument on this point is that the provisions in the 1991 Amend-
ment Act are arbitrary and unreasonable being violative of Article 14 of
the Constitution, and it is, therefore, unconstitutional.
Since, we have found the impugned 1991 Amendment Act as uncon-
stitutional in answering Point-5, for the reason that it is made, encroaching
.D upon the judicial power of the State invested in Courts and tribunals, we
have considered it unnecessary to decide on this point.
As the answer we have given on Point-5 goes against the con-
stitutionality of the Arbitration (Orissa Second Amendment) Act, 1991, the
Rules issued in Writ Petitions are required to be made absolute.
E
In the result, we allow the writ petitions, make the 'Rules' issued in
them absolute and strike down the Arbitration (Orissa Second Amend-
ment) Act, 1991, in so far as it nullifies the arbitral awards made by the
Special Arbitration Tribunals constituted by respondent-State under the
1984 Amendment Act, including the awards of the petitioners which are
F made 'Rules of Court', as unconstitutional. No costs.
T.N.A. Petitions allowed.
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