Summary
The Supreme Court upheld the 1998 Karnataka amendments denying interest on money-lender and pawnbroker licence security deposits prospectively, but invalidated their retrospective operation from 1985. The earlier judgment’s hypothetical criticism of a no-interest provision was obiter. Its binding mandamus requiring interest under the then law could not, however, be nullified retrospectively without removing its foundation. On the amendments’ own merits, the statutory no-interest condition was neither unreasonable nor unconstitutional in this regulatory context.
Issues
- Whether the earlier judgment conclusively invalidated every statutory no-interest provision.
- Whether retrospective amendments could nullify the earlier interest mandamus.
- Whether the no-interest condition was constitutionally valid prospectively.
Held
- The earlier Manakchand Motilal judgment addressed a statute silent on payment or prohibition of interest. Its observation that a hypothetical prohibition would violate Article 14 was unnecessary to that decision and obiter. The later statutory prohibition therefore required independent examination on its merits. (¶¶ 6, 13, 14, 15, 26)
- A competent legislature may enact validating legislation that removes a judgment’s legal foundation, including retrospectively. It cannot simply set aside a binding judgment or mandamus. Here the retrospective amendments did not correct an identified defect or alter the basis in the required manner, and impermissibly attempted to nullify the interest mandamus. Retrospective operation from 1985 was invalid. (¶¶ 17, 18, 19, 20, 21, 22, 23, 24, 25)
- Interest ordinarily compensates loss of use of money, but there is no universal entitlement overriding every lawful no-interest condition. Jagdamba Paper Industries reflected an agreed direction rather than a general rule requiring interest on all deposits. Ferro Alloys supported validity of a no-interest security arrangement in its context. (¶¶ 27, 28, 29, 30, 31, 32, 33, 34, 35, 36)
- The nature of the licensed money-lending and pawnbroking trades permitted onerous public-interest regulation. The known statutory no-interest condition was not unreasonable or so arbitrary as to violate Article 14. The impugned provisions were therefore valid from enactment while their retrospective operation remained invalid. The arbitration examples were supporting analogies, not a universal holding barring interest in every arbitration. (¶¶ 37, 38, 39, 40, 41, 42, 43, 44, 45, 46)
Result
Appeals partly allowed. No-interest amendments upheld from enactment; provisions giving them retrospective effect from 1985 held illegal and invalid. High Court judgment modified accordingly.