LexTHE STATE OF KARNATAKA & ORS. versus THE KARNATAKA PAWN BROKERS ASSN. & ORS.
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
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THE STATE OF KARNATAKA & ORS.
v.
THE KARNATAKA PAWN BROKERS ASSN. & ORS.
(Civil Appeal No. 5793 of 2008)
MARCH 15, 2018
[MADAN B. LOKUR AND DEEPAK GUPTA, JJ.]
Karnataka Money Lenders Act, 1961 – s.7-A and 7-B –
Karnataka Pawn Brokers Act, 1961 – s. 4-A and 4-B – Whether the
amendments made to the Karnataka Money Lenders Act (M.L. Act)
and Karnataka Pawn Brokers Act (P.B. Act) in 1998 providing that
the security deposit furnished by the money lenders and pawn
brokers in terms of ss. 7-A and 4-A of the Acts respectively shall not
carry interest, is constitutional, legal and valid – Held: Legal and
valid – Businesses of money lending and pawn broking are usurious
businesses and the Government may rightly impose onerous
conditions to restrict or even discourage people from entering into
such businesses – Legislature in its wisdom can decide whether it
should make it more difficult for people to engage in the business
of money lending and pawn broking – A money lender or a pawn
broker applies for licence to do this business knowing fully well
that the security that he shall deposit shall not earn any interest –
Nobody forces a person to engage in the trade of money lending or
pawn broking – Therefore, the impugned provisions cannot be held
to be unreasonable – Insofar as constitutionality of payment of
interest on security is concerned, arbitrariness must be writ large to
make it unconstitutional – Whether the interest should be paid or
not is a matter which parties decide amongst themselves – Contract
providing that no interest will be paid on the amount advanced,
such clause cannot be said to be so arbitrary that the contract
becomes void – Contracts providing for non-payment of interest on
earnest money and security deposits have been considered in the
context of the Arbitration Acts – In arbitration cases, the Court has
not construed the provision of the contract providing for non-
payment of interest to be void – The said provision has, in fact,
been legally enforced – Therefore, the impugned provisions
prohibiting payment of interest on the amount of security deposits
[2018] 10 S.C.R. 409
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SUPREME COURT REPORTS
[2018] 10 S.C.R.
cannot be said to be arbitrary or violative of Art.14 of the
Constitution – 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 the
security deposit to be furnished by the money lenders and pawn
brokers in relation to the extent of business carried on by the licensee
– Amendments challenged – High Court in case of Manakchand
Motilal 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 security
deposits – Writ petitions – Constitutional validity of the amendments
challenged – Single judge dismissed the writ petitions, however,
Division Bench allowed the writ petitions and held provisions
providing for non-payment of interest on security deposits
unconstitutional – Division Bench further held that the State could
not nullify the judgment of the High Court in Manakchand Motilal
by way of subsequent amendment – On appeal, held: High Court in
Manakchand Motilal itself observed, that there was no provision
prohibiting the payment of interest – Court had observed that even
if such a provision prohibiting payment of interest had been there
in the statute such provision would be illegal – Therefore, there was
no error pointed out by the Court which could have been corrected
by the State Legislature – State first tried to implement the judgment
by framing rules providing for payment of interest – Later, it
incorporated the contentious provisions prohibiting payment of
interest – These amendments did not in any way alter the basis of
the judgment – The State, insofar as it has made the amended
provisions retrospective, has attempted to nullify the writ of
mandamus issued by the Court in favour of the respondents – This
mandamus could not have been set at naught by making the
provisions retrospective – The State could not have nullifiedExcerpt shown. Read the full judgment & AI analysis in Lexace.