NDLI: The State of Karnataka & Ors. Vs. The Karnataka Pawn Brokers Assn. & Ors.

Content Provider	Supreme Court of India
e-ISSN	30484839
Language	English
Access Restriction	NDLI
Subject Keyword	Karnataka Money Lenders Act 1961 – s.7-A and 7-B
Content Type	Text
Resource Type	Law Judgement
Jurisdiction	India
Case(s) Referred	Referred Case 0 Referred Case 1 Referred Case 2 Referred Case 3 Referred Case 4 Referred Case 5 Referred Case 6 Referred Case 7
Case Type	Appeal
Court	Supreme Court of India
Disposal Nature	Appeal Allowed
Headnote	Karnataka Money Lenders Act, 1961 – s.7-A and 7-B –Karnataka Pawn Brokers Act, 1961 – s. 4-A and 4-B – Whether theamendments made to the Karnataka Money Lenders Act (M.L. Act)and Karnataka Pawn Brokers Act (P.B. Act) in 1998 providing thatthe security deposit furnished by the money lenders and pawnbrokers in terms of ss. 7-A and 4-A of the Acts respectively shall notcarry interest, is constitutional, legal and valid – Held: Legal andvalid – Businesses of money lending and pawn broking are usuriousbusinesses and the Government may rightly impose onerousconditions to restrict or even discourage people from entering intosuch businesses – Legislature in its wisdom can decide whether itshould make it more difficult for people to engage in the businessof money lending and pawn broking – A money lender or a pawnbroker applies for licence to do this business knowing fully wellthat the security that he shall deposit shall not earn any interest –Nobody forces a person to engage in the trade of money lending orpawn broking – Therefore, the impugned provisions cannot be heldto be unreasonable – Insofar as constitutionality of payment ofinterest on security is concerned, arbitrariness must be writ large tomake it unconstitutional – Whether the interest should be paid ornot is a matter which parties decide amongst themselves – Contractproviding that no interest will be paid on the amount advanced,such clause cannot be said to be so arbitrary that the contractbecomes void – Contracts providing for non-payment of interest onearnest money and security deposits have been considered in thecontext of the Arbitration Acts – In arbitration cases, the Court hasnot construed the provision of the contract providing for nonpaymentof interest to be void – The said provision has, in fact,been legally enforced – Therefore, the impugned provisionsprohibiting payment of interest on the amount of security deposits cannot be said to be arbitrary or violative of Art .14 of theConstitution – Constitution of India – Art.14.Karnataka Money Lenders Act, 1961 – s.7-A and 7-B –Karnataka Pawn Brokers Act, 1961 – s. 4-A and 4-B – In 1985,amendments were made to the Karnataka Money Lenders Act (M.L.Act) and Karnataka Pawn Brokers Act (P.B. Act) providing that thesecurity deposit to be furnished by the money lenders and pawnbrokers in relation to the extent of business carried on by the licensee– Amendments challenged – High Court in case of ManakchandMotilal upheld the validity of ss.7-A and 7-B of M.L. Act and ss.4-A & 4-B of the P.B. Act, however, also held that money lenders/pawn brokers were entitled to interest on security deposits – In 1998,another amendment made by the State in s.7-A of M.L. Act and s.4-A of P.B. Act providing for non-payment of interest on securitydeposits – Writ petitions – Constitutional validity of the amendmentschallenged – Single judge dismissed the writ petitions, however,Division Bench allowed the writ petitions and held provisionsproviding for non-payment of interest on security depositsunconstitutional – Division Bench further held that the State couldnot nullify the judgment of the High Court in Manakchand Motilalby way of subsequent amendment – On appeal, held: High Court inManakchand Motilal itself observed, that there was no provisionprohibiting the payment of interest – Court had observed that evenif such a provision prohibiting payment of interest had been therein the statute such provision would be illegal – Therefore, there wasno error pointed out by the Court which could have been correctedby the State Legislature – State first tried to implement the judgmentby framing rules providing for payment of interest – Later, itincorporated the contentious provisions prohibiting payment ofinterest – These amendments did not in any way alter the basis ofthe judgment – The State, insofar as it has made the amendedprovisions retrospective, has attempted to nullify the writ ofmandamus issued by the Court in favour of the respondents – Thismandamus could not have been set at naught by making theprovisions retrospective – The State could not have nullified thejudgment passed in Manakchand Motilal’s case by retrospectivelyamending the acts – Therefore, the validating Acts insofar as theyare retrospective, are held to be illegal.
Judge	Hon'ble Mr. Justice Deepak Gupta
Neutral Citation	2018 INSC 237
Petitioner	The State Of Karnataka & Ors.
Respondent	The Karnataka Pawn Brokers Assn. & Ors.
SCR	[2018] 10 S.C.R. 409
Judgement Date	2018-03-15
Case Number	5793

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The State of Karnataka & Ors. Vs. The Karnataka Pawn Brokers Assn. & Ors.

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