THE STATE OF KARNATAKA & Ors. v. THE KARNATAKA PAWN BROKERS ASSN & Ors.

#5. Applying these principles to the present case it is apparent that when the decision was rendered in Manakchand Motilal’s case there was no provision providing for payment of interest or prohibiting payment of interest. The 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. As pointed out above, the State, in fact, 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. [Para 24] [426-D-E]

#6. Therefore, the State, in so far 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. This would be a direct breach of the doctrine of separation of powers as laid down in State of Tamil Nadu. The State Legislature could not have nullified the judgment passed in Manakchand Motilal’s case by retrospectively amending the Acts. Therefore, the validating Acts in so far as they are retrospective, are held to be illegal. [Para 25] [426-F-G] THE STATE OF KARNATAKA v. THE KARNATAKA PAWN BROKERS ASSN. 413

#7. The 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. [Para 39] [431-F]

#8. It is thus apparent that the courts have frowned upon the “trade” of money lending. The profession of money lending, may be a trade, but onerous restrictions may be placed on such trade which is definitely usurious. These onerous restrictions would be reasonable keeping in view the nature of the trade. The 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. [Para 40] [432-C]

#9. 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. He with open eyes accepts the condition which is part of the Acts. 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. [Para 41] [432-D]

10.1 Lastly, the submission to be considered is whether a provision providing that no interest is payable on the security deposit is so arbitrary, as to make it unconstitutional. In Independent Thought vs. Union of India and Anr. this Court held that arbitrariness must be writ large to make it un-constitutional. Whether the interest should be paid or not is a matter which parties decide amongst themselves. Supposing, there is a contract providing that no interest will be paid on the amount advanced; it cannot be said that such a clause in the contract is so arbitrary that the contract becomes void or becomes inoperative. [Paras 42 and 43] [432-E-F]

10.2 Supposing, a person’s money lies in the current account for 3-4 years he cannot claim interest only on the ground that the bank would have utilized this money for commercial purposes. There are various instances where schools, other educational institutions, clubs, societies ask for refundable deposits on which no interest is payable. These are accepted to be normal routine practices because these bodies are not A B C D E F G H 414 SUPREME COURT REPORTS [2018] 10 S.C.R. A B C D E F G H engaged in commercial activities. Even a pawn broker pays no interest on the value of the security pledged with him. [Para 43] [432-G-H; 433-A]

10.3 Contracts providing for non-payment of interest on earnest money and security deposits have been considered in the context of the Arbitration Acts. The Courts have held that in view of the agreement entered into between the parties, the arbitrator cannot award interest prior to the date of passing of the award. In fact, this Court has clearly held that the arbitrator cannot award pendente lite interest. Though these authorities do not directly deal with the issue in hand, it is obvious that in all these 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. However, under the Arbitration Act of 1940, this Court held that the arbitrator could award pendente lite interest but under the Arbitration and Conciliation Act, 1996 the arbitrator cannot award interest prior to the date of award. The clause for non-payment of interest has not been held void in any case. Therefore, the impugned provisions prohibiting payment of interest on the amount of security deposits cannot be said to be arbitrary or violative of Article 14 of the Constitution of India. [Para 44] [433-B-D]