shaking hands, handshake, hands

The Secretary to Government of Kerala vs. James Varghese

FACTS

The state of Kerala had started the construction of Kallada Irrigation Project in the year 1961.World Bank was financially aiding Kerala government on this project from June 1982 to March 1989. As required by the world bank, a special condition namely, the local competitive bidding specification (LCBS) as envisaged by the world bank authorities was included in the agreements relating to the works connected with the Kallada Irrigation Project. Clause 51 and 52 of the local competitive bidding specification (LCBS) provided for the settlement of matters in dispute or difference through arbitration.[2]The same was provided a view to enable speedy settlement of matters in dispute or difference in a just and equitable manner. In that, adding an arbitration clause was mandatory. This arbitration clause was causing hurdles along with the differences and disputes in the working of the Kerala government. They did not had desired result as several arbitrators had wrongly and arbitrarily awarded unconscionable amounts against the provisions of agreements and without material in record, in collusion with the claimant.

In result of this, the Kerala government bought The Kerala Revocation of Arbitration Clauses and Reopening of Awards Act, 1998, in public interest. The act came to be enacted with effect from 14th November 1997. The major motto behind this act was to surpass the arbitration clause and then they would not be bound to follow the clause. When this act passed, several petitions were filed raising the question of arbitrariness before the Kerala High Court.

ISSUES RAISED

  • Whether the Kerala government was legislative competent to enact The Kerala Revocation of Arbitration Clauses and Reopening of Awards Act, 1998(state act)? Whether it is constitutional under article 254 of The Constitution of India?
  • Whether the state act encroaches upon the judicial power of the state, are involved in the present appeals?

CONTENTION

Respondent contended that it goes against the subjects mentioned in the Union List of schedule 7 of our Indian constitution .This act is arbitrary. It is also against the doctrine of separation of power. It is also against The Constitution of India. As per section 89 of The Code of Civil Procedure, 1908, which defines Alternative Dispute Resolution (ADR), such removal of arbitration clauses would be against the judiciary as well. This act is ultra vires.

Appellant raised the contention that this act is not arbitrary and not unconstitutional too. They also contended that as per article 254 of the Indian constitution, they (state government) have the power to pass such acts that will be applied in the state and this is the matter of state as well as concurrent list. They further added that they took the president’s ascent over the bill. They said that it is their right then how it could be unconstitutional. This act was bought in public interest by canceling the arbitration clauses in the agreement, to revoke the authority of the arbitrators appointed thereunder and to enable the filing of appeals against the awards or decrees already passed in certain arbitration references in respect of which the period of limitation had expired.[3]

RATIONALE

The Hon’ble Court concluded that:

(i) That the State Act in pith and substance is referable to 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 v. State of Orissa[4]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 Arbitration Act, 1940 and the judgments of the Constitution Bench in the cases of Harinagar Sugar Mills Ltd. v. Shyam Sundar Jhunjhunwala and Others[5] and Shankarlal Aggarwala and Others v. Shankarlal Poddar and Others[6]; 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.[7]

DEFECTS OF LAW

Terming the Kerala revocation of arbitration clauses and reopening of awards act 1998 as unconstitutional, The Supreme Court observed that the act having the effect of annulling the awards which have become rules of court, is a transgression on the judicial functions of the state and violate of doctrine of separation of powers. The law made by the state, under article 254 of the Indian constitution, must not be against public interest and Union List. The object and nature of the act will be taken into consideration. This is what is called the doctrine of pith and substance.

The division bench of justice L. Nageswara Rao and justice B.R. Gavai affirmed ,”….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.”

A division bench of the high court , in its judgment, on July 9 ,2013,had declared the act unconstitutional. The high court also held that the state act had an effect of annulling the awards of the arbitrators and the judgments and decrees passed by the courts. It encroaches on the power of the judiciary.

INFERENCE

The Apex Court held that the act passed by the Kerala government is constitutional and justified by the doctrine of pith and substance. Though the court held that passing an order to surpass the arbitration clause is narrowing the power of judiciary and it is also restricting the powers of judiciary and violating the doctrine of separation of power. Thus, the act was dismissed and was held as unconstitutional. The bench of  L.Nageswara Rao and B.R. Gavai decided the case.

By Sanya Singh[1] 

HEERALAL YADAV LAW COLLEGE

3rd Year 5th semester of B.A.LL.B.


give your full college details, year and batch


[1]Appeal (Civil), 6258 of 2014, 64 SC, Judgment Date: May 04, 2022

[2] The Secretary to Government of Kerala vs. James Varghese , https://indiankanon.org, 23 September 2022,6:38 p.m.

[3] The Secretary to Government of Kerala vs. James Varghese , https://indiankanon.org, 23 September 2022,6:46 p.m.

[4] (1995) 5 SCC 96

[5] [1962] 2 SCR 339

[6] [1964] 1 SCR 717

[7] 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”, the State Act is liable to be declared unconstitutional – The Secretary to Govt. of Kerala, Irrigation Department and Others Vs. James Varghese and Others – Supreme Court, https://ibclaw.in , 23 September 2022,6:44 p.m.