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PETITIONER: G.C. KANUNGO

       Vs.

RESPONDENT: STATE OF ORISSA

DATE OF JUDGMENT12/05/1995

BENCH: VENKATACHALA N. (J) BENCH: VENKATACHALA N. (J) AHMADI A.M. (CJ)

CITATION:  1995 AIR 1655            1995 SCC  (5)  96  JT 1995 (4)   589        1995 SCALE  (3)658

ACT:

HEADNOTE:

JUDGMENT:                            A N D            WRIT PETITION (CIVIL) NO. 491 OF 1992 D.C. Routray                    ......Petitioner                              Vs. State of Orissa                 ......Respondent                       J U D G M E N T VENKATACHALA, J.      Question  of   constitutionality  of   the  Arbitration (Orissa Second  Amendment) Act,  1991,  to  be  referred  to hereinafter as  the 1991  Amendment Act’,  which has amended the Arbitration Act, 1940, to be referrred to hereinafter as the Principal  Act’, in  its application  to  the  State  of Orissa, arises  for our  consideration and  decision in  the present  writ  petitions  filed  under  Article  32  of  the Constitution.      Petitioner in  Writ  Petition  No.  1151  of  1991  had entered into two contracts with the Orissa Government in the years 1969 and 1970 for construction of high level bridges’- one  over   the  river  Daya  and  another  over  the  river Rushikulya. Any  dispute to  arise between the parties under the said  contracts, was  required to  be resolved by having recourse to  arbitration under  the Principal Act because of the arbitration  clause that  stood incorporated  in each of them, by  agreement of  parties. The Orissa Government which rescinded both  the contracts  - one  in the  year 1974  and another in the year 1975, it appears, did not concede to the petitioner’s claim,  exceeding  rupees  one  crore  made  in relation to each of them. This situation appears to have led the petitioner  to institute  two separate proceedings under the Principal Act in the Court of Sub - Judge, Bhuvaneshwar- -the Court  of Sub-Judge’ seeking appointment of arbitrators to decide  the disputes  relating  to  his  claims  made  in respect of  the said  two contracts.  The appointment  of  a separate arbitrator  for deciding each of the said disputes, it appears, was made by the Court of Sub - Judge in the year

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1981. But,  in the  year 1982  when the  Principal  Act,  as applicable to  the State  of  Orissa,  was  amended  by  the Arbitration  (Orissa   Amendment)  Act,  1982  --  the  1982 Amendment Act, providing a forum of Arbitration Tribunal for deciding arbitral  disputes arisen or arising from contracts as those  of the  petitioner, a  controversy appears to have cropped up,  as to  whether the arbitrators appointed by the Court of  Sub-Judge, in the proceedings before it, had to be replaced  by  an  Arbitration  Tribunal  to  be  constituted according  to   the  1982  Amendment  Act’.  When  the  said controversy  had  still  to  be  resolved,  the  Arbitration (Orissa   Amendment) Act,1984 -- the 1984 Amendment Act’, it is said,  came into force amending the Principal Act insofar as it became applicable to the Orissa State by providing for a Special  Arbitration Tribunal  to be  constituted  by  the State Government,  for deciding  arbitral disputes arisen or arising in  relation to  the  contracts,  as  those  of  the petitioner, where claim involved was, of rupees one crore or above. The  aforesaid controversy,  whether the  arbitrators earlier appointed  by the  Court  of  Sub-Judge,  should  be replaced by Special Arbitration Tribunals to be appointed by the State  Government as  required under  the 1984 Amendment Act, which  had cropped  up because of the coming into force of the said two Amendment Acts, it is said, ultimately ended in this  Court, with  the replacement of arbitrators who had been  appointed  by  the  Court  of  Sub-Judge,  by  Special Arbitration Tribunals  constituted by  the State  Government with power  conferred on those Special Arbitration Tribunals to decide  the arbitral disputes raised by the petitioner in respect of  his two  contracts which  had been  entered into with the  State Government  but rescinded by the latter. Two Special Arbitration      Tribunals which were so constituted by the  State Government,  it is  said, decided the arbitral disputes of  the petitioner  referred to them, by the making of awards  - one  in the  year 1988  and another in the year 1989. The  Court of Sub-Judge, before which those two awards had come  to be placed for making them ’Rules of Court’, are said to have been made ’Rules of Court’ by its judgments and decrees. The  ’Rule of  Court’ so  made in  relation to each award by  the Court  of Sub-Judge,  is  said  to  have  been affirmed by  the High  Court of  Orissa. When  the ’Rules of Court’ so  affirmed by  the High  Court in  both the matters were brought  up before  this Court by the Orissa Government in S.L.P’s,  one of  them has  been dismissed  while in  the other  leave   has  been   granted,  however,  allowing  the petitioner to  take Rs.  25 lakhs  out of the amount payable under the  concerned award  made in his favour by one of the Special Arbitration  Tribunals. It  appears,  one  of  those awards which was made a ’Rule of Court’ by the Sub-Judge and unsuccessfully challenged  upto this  Court  by  the  Orissa Government, is  under execution  in an  execution proceeding before the  Court  of  Sub-Judge.  Thus,  when,  the  amount payable under one award which was made a ’Rule of Court’ was pending realisation  before the  Executing Court and another arbitral award which was made a ’Rule of Court’ by the Court of Sub-Judge,  was pending  consideration by this Court in a Civil Appeal,  the State Government, it is said, promulgated the Arbitration (Orissa Amendment) Ordinance, 1991, amending the Principal  Act as amended by the earlier amendment Acts, in its  application to  the State  of Orissa.  However, that Ordinance came  to be replaced by the 1991 Amendment Act. As the 1991 Amendment Act has in effect nullified the aforesaid two awards  made in  favour of the petitioner by two Special Arbitration Tribunals  constituted by  the State  Government under the  1984 Amendment  Act, even  after each of them had

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been made  a ’Rule  of Court’ and directed the petitioner to get the  arbitral disputes raised by him, resolved afresh by the Arbitration Tribunal constituted under the Principal Act as  stood   amended  by   the  1982   Amendment   Act,   the constitutionality  of  the  1991  Amendment  Act,  has  been challenged by the petitioner by filing the Writ Petition.      Coming to  the petitioner  in Writ  Petition No. 491 of 1992, he  is a contractor who had entered into two contracts in the  year 1972  with the  Orissa Government for improving two sections of the National Highway No. 5. In the year 1974 certain  disputes  having  arisen  between  the  parties  in relation  to  execution  of  works  concerned  in  the  said contracts,  the   petitioner  who   was  a   party  to  such contractrs, appears  to have  instituted a proceeding before the Court of Sub-Judge, seeking reference of the disputes to an arbitrator to be appointed by it under the Principal Act, since  the   arbitration  clause  found  in  each  of  those contracts required reference of such arbitral disputes to an Arbitrator. Thereafter,  the Court  of Sub-Judge  appears to have appointed a retired District Judge as an arbitrator and referred the  arbitral disputes  to him for being decided by him. That  arbitrator, appears to have, accordingly, decided the arbitral  disputes by  his awards made in the year 1981, itself. Though  the  Court  of  Sub-Judge  appears  to  have refused to  make each  of the said awards a ’Rule of Court’, the High  Court is said to have made each of them a ’Rule of Court’  in   the  year  1990.  The  S.L.P’s  of  the  Orissa Government filed  before this  Court against the judgment of the High Court, it is said, came to be dismissed in the year 1991. When  the amounts  payable under  the awards which had been made  "Rules of  Court’ were  sought to  be realised in execution of  "Rules of  Court’, directions  appear to  have been given to the State Government by the Executing Court to pay all  the amounts  payable under  the said  awards to the petitioner. Some  proceedings taken by the Orissa Government before the  Court of  Sub-Judge under section 47 of the Code of Civil  Procedure, 1908  questioning the  orders  made  in execution proceedings  appear to  have  proved  futile,  all through.  The   1991  Amendment   Act,  according   to   the petitioner, has  the effect of nullifying the awards made in his favour  by the  arbitrator, even  though each of them is made a  ’Rule of  Court’ by  the High  Court and affirmed by this Court and making him have his arbitral dispute resolved by the  Arbitration Tribunal constituted under the Principal Act as amended by the Amendment Acts. That is the reason, it is said,  as to  why  the  petitioner  has  filed  the  writ petition to  challenge the  constitutionality  of  the  1991 Amendment Act.      The petitioners  in the  present  Writ  Petitions  have since challenged the constitutionality of the 1991 Amendment Act, which  is found  in the  notification published  in the Orissa Gazette  Extra-Ordinary on  22nd January  1991,  that Notification  itself,   for  the  sake  of  convenience,  is reproduced:           "No.1117-Legis.- The  following Act      of  the   Orissa  Legislative   Assembly      having been assented to by the President      on the  22nd  January,  1992  is  hereby      published for general information.           ORISSA ACT 3 OF 1992      THE    ARBITRATION     (ORISSA    SECOND      AMENDMENT) ACT, 1991      An Act  to amend  the  Arbitration  Act,      1940 in  its application to the State of      Orissa.

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    Be it  enacted by the Legislature of the      State of Orissa in the Forty-second Year      of the Republic of India as follows:-      1.  (i)  This  Act  may  be  called  the      Arbitration  (Orissa  Second  Amendment)      Act, 1991.           (2). It  shall be  deemed  to  have      come into  force  on  the  24th  day  of      September, 1991.      2. In  the Arbitration  Act, 1940 in its      application  to   the  State  of  Orissa      (hereinafter   referred    to   as   the      principal Act),  in section  41-A, after      sub-section  (1),   the  following  sub-      section shall  be deemed  to  have  been      inserted with  effect from  the 26th day      of March,  1983 and  in force during the      period between  the said  date  and  the      24th day of January, 1990 (both the days      inclusive), namely:-      (1-a) No reference to arbitration of any      dispute  specified  in  sub-section  (1)      involving a claim of rupees one crore or      above shall  be made under the said sub-      section   to   a   Special   Arbitration      Tribunal, unless the amount agreed to by      the parties in the contract out of which      such dispute  has arisen  is  more  than      half the amount of such claim".           3. Notwithstanding  anything to the      contrary in the principal Act, or in any      award  made   by   Special   Arbitration      Tribunal in  relation to any dispute, or      in any  Judgment, decree or order passed      by any  Court in  relation to  any  such      dispute or award,-           (i) the amendment made by section 2      shall apply  to and in relation to every      dispute in  respect of  which award  has      been   made   by   Special   Arbitration      Tribunal, whether  such award  has been,      or is  pending to  be, made  the rule of      the  Court   under  section  17  of  the      principal Act;           (ii) any  reference made to Special      Arbitration Tribunal  in  respect  of  a      dispute  referred   to  in   clause  (i)      inconsistently  with  the  provision  of      sub-section (1-a) of section 41-A of the      principal Act  as inserted  by section 2      of  this  Act  shall  be  deemed  to  be      invalid as if the said sub-section (1-a)      of section 41-A was in force at the time      when such reference was made; and           (iii) in the case of every dispute,      the reference  in respect of which is so      deemed to  be invalid under clause (ii),      a fresh  reference to  arbitration shall      be  made  to  the  Arbitration  Tribunal      within ninety  days  from  the  date  of      publication of  the Arbitration  (Orissa      Amendment)  Ordinance,   1991   in   the      official Gazette.      Explanation -  For the  purposes of this      section,   the    expression    ’Special

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    Arbitration  Tribunal’   shall  mean   a      Special Arbitration Tribunal constituted      under sub-section (1) of section 41-A of      the principal  Act as  it stood prior to      the 25th day of January, 1990.           4.  (1)   The  Arbitration  (Orissa      Amendment)  Ordinance,  1991  is  hereby      repealed.                (2)    Notwithstanding    such      repeal,  anything  done  or  any  action      taken under the principal Act as amended      by the said Ordinance shall be deemed to      have  been   done  or  taken  under  the      principal Act as amended by this Act.                      By order of the Governor                               Sd/-                          P.K.PANIGRAHI                     Secretary to Government."      The 1991  Amendment Act,  as seen  from its provisions, makes it  abundantly clear  that every  reference made  to a Special Arbitration  Tribunal between  26th March,  1983 and 24th January, 1990 in respect of a dispute involving a claim of rupees  one crore  or above,  if such claim was more than double the  amount agreed  to by the parties in the contract out of which such dispute arose, becomes invalid and a fresh reference of  such arbitral  dispute shall  be made  to  the Arbitration   Tribunal   within   the   stipulated   period, notwithstanding anything  to the  contrary in  the Principal Act or  in any  award made by a Special Arbitration Tribunal in relation  to any dispute or any judgment, decree or order passed by any court in relation to any such dispute or award and also  notwithstanding whether  such award of the Special Arbitration Tribunal  has been  or has to be, made the ‘Rule of Court’ under Section 17 of the Principal Act.      Arguments   addressed    before    us    against    the constitutionality of  the said  1991 Amendment  Act by  Shri Vinoo Bhagat  and Shri R.F. Nariman, learned counsel for the petitioners, briefly put, are these:      The  1991  Amendment  Act  is  unconstitutional  as  it relates to  the topic of arbitration, in the Concurrent List of Seventh  Schedule to  the Constitution, which was already covered by  parliamentary legislation,  the Principal  Act’. The 1991  Amendment  Act  being  the  result  of  mala  fide exercise of  power by the Orissa State Legislature, the same was unconstitutional.  The  awards  of  Special  Arbitration Tribunals constituted  according to  the provisions  of  the Principal Act as applicable to the State of Orissa, when are made ’Rules  of Court’  by judgments  and decrees of Courts, such awards  get merged  in judgments  and  decrees  of  the Courts. Therefore,  awards of Special Arbitration Tribunals, cease to  have any  independent existence when they are made by judgments  and decrees  of Courts  ’Rules of Court’. When that is  so, no legislature under our Constitution, of which Rule of  Law is a basic feature has the power to nullify the awards of the Special Arbitration Tribunals which had become ’Rules of  Court’ by  judgments and  decrees of  Courts, for such  nullification   would  amount   to  nullification   of judgments and  decrees of Courts. Therefore, when the Orissa State Legislature  by enacting  the 1991  Amendment Act  has nullified  the   awards  made  by  the  Special  Arbitration Tribunals, which  had merged in the judgments and decrees of Courts they having been made ’Rules of Court’, the depend on the answers  to be  given by  us on  the points  which  have emerged from  the  arguments  of  learned  counsel  for  the opposing parties,  those points  could  be  formulated,  for

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their proper consideration and determination, thus:      1. Was  the Orissa  State Legislature  not competent to enact the  1991 Amendment  Act on the topic of ’arbitration’ in  the   Concurrent  List   of  Seventh   Schedule  to  the Constitution when Parliament had already enacted on the same topic, ’the  Arbitration Act,  1940’ -  ’the Principal Act’, extending its operation to the State of Orissa as well? 2. Was  the Orissa  State Legislature actuated by mala fides in enacting  the 1991  Amendment  Act  and  hence  the  1991 Amendment Act was unconstitutional? 3. Did  the awards  made by  Special  Arbitration  Tribunals merge in  judgments and  decrees of  Courts,  when  by  such judgments and  decrees, the  awards of  those Tribunals were made ’Rules of Court’? 4. If  the awards  of Special  Arbitration Tribunals did not merge in the judgments and decrees of Courts, when they were made ’Rules  of  Court’,  can  it  be  said  that  the  1991 Amendment Act  which nullifies  the judgments and decrees of Courts by  which  the  awards  of  the  Special  Arbitration Tribunals, were  made ’Rules  of Court’  is enacted  by  the Orissa State  Legislature by  encroaching upon  the judicial power of the State exclusively vested in Courts as sentinals of Rule  of Law,  a basic  feature of  our Constitution, and hence is unconstitutional? 5. If  the awards  of Special  Arbitration Tribunals did not merge in  the judgments and decrees of Courts, can it not be said that  the 1991 Amendment Act which nullifies the awards of the Special Arbitration Tribunals, even where such awards were made  ’Rules of  Court’, is enacted by the Orissa State Legislature by  encroaching upon  the judicial  power of the State exclusively  vested in  Courts as sentinals of Rule of Law, a  basic feature  of our  Constitution,  and  hence  is unconstitutional? 6. Is  the nullification brought about by the 1991 Amendment Act of  awards made  by  Special  Arbitration  Tribunals  on arbitral disputes  referred to  them as early as in the year 1983 was  arbitrary and  unreasonable, as  would attract the inhibition of  Article 14  of the Constitution and make that Act unconstitutional?      We shall now proceed to consider and answer each of the said points in their serial order. Point -1:           Want of  legislative competence on the part of the Orissa State legislature to enact the 1991 Amendment Act was indeed not  argued very seriously by learned counsel for the petitioners. Subject  of arbitration finds place in Entry 13 of List  III, i.e.,  the Concurrent  List of VII Schedule to the Constitution  on which  the legislation  could  be  made either by Parliament or the State legislature. When there is already the  legislation of Parliament made on this subject, it operates  in respect  of all  States  in  India,  if  not excepted. Since  it is  open to  a State legislature also to legislate on  the same  subject of  Arbitration, in that, it lies within  its field of legislation falling in an entry in the Concurrent  List and when a particular State Legislature has made  a law  or  Act  on  that  subject  for  making  it applicable to  its State,  all  that  becomes  necessary  to validate such  law is  to obtain the assent of the President by reserving  it for  his consideration. When such assent is obtained, the  provisions of the State Law or Act so enacted prevails  in   the  State   concerned,  notwithstanding  its repugnancy to an earlier Parliamentary enactment made on the subject. It  was not  disputed  that  insofar  as  the  1991 Amendment is  concerned, it  has been  assented  to  by  the President  of   India  after   it  was   reserved  for   his

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consideration.  Hence,   the  Orissa   State   legislature’s enactment, the  1991 Amendment Act is that made on a subject within  its   legislative  field  and  when  assent  of  the President is  obtained, for  it after  reserving it  for his consideration it  becomes applicable to the State of Orissa, notwithstanding anything contained therein repugnant to what is in  the principal Act of Parliament, it cannot be held to be  unconstitutional  as  that  made  by  the  Orissa  State legislature without the necessary legislative competence. Point -2:           The argument advanced on behalf of the petitioners that the  1991 Amendment Act was enacted by the Orissa State legislature which  was actuated  by mala fides and hence the same is  unconstitutional, is  difficult of acceptance. That mala  fides  or  ulterior  motives  attributed  to  a  State legislature in  making a law within its competence can never make such  law unconstitutional,  is  well  settled.  In  K. Nagaraj &  Ors. v.  State of Andhra Pradesh & Anr., (1985) 2 SCR 579,  while dealing  with the mala fides attributed to a legislature in which it had competence to make the law, this Court said thus:           "The legislature, as a body, cannot      be accused of having passed a law for an      extraneous purpose. If no reasons are so      stated as  appear  from  the  provisions      enacted by it. Its reasons for passing a      law or  those that  are  stated  in  the      Objects and  Reasons. Even assuming that      the executive,  in a  given case, has an      ulteriror    motive    in    moving    a      legislation, that  motive cannot  render      the passing  of the  law mala fide. This      kind of  ’transferred malice’ is unknown      in the field of legislation."      Hence, we  have no  hesitation in finding that the 1991 Amendment Act  cannot be held to be unconstitutional because of the  ulterior motive and the mala fides attributed to the Orissa State Legislature. Point -3:           This point  concerns merger  of awards  of Special Arbitration Tribunals in the judgments and decrees of Courts when such awards are made ’Rules of Court’.      Section 41-A  of the  Principal Act was inserted in the Principal Act  by the  1982 Amendment  Act so  as to make it applicable to  the State  of Orissa.  The provision  therein required the  reference of  arbitral disputes  in all  cases where the  State Government,  a  local  or  other  authority controlled by  the State Government, a statutory corporation or a  Government company  was a  party, to  be made  to  the Arbitration Tribunal comprised of three members-- one member chosen from  among the  officers  belonging  to  the  Orissa Superior Judicial Service (Senior Branch) and another member chosen  from   among  the   officers  of  the  Public  Works Department of  the State  Government not below the rank of a Superintending Engineer and a third member chosen from among the officers  belonging to  the Orissa  Finance Service  not below the  Superior Administrative Cadre in Class-I. But, by its provisions the 1984 Amendment Act required that arbitral disputes  referred   to  or  referable  to  the  Arbitration Tribunal, shall be referred to Special Arbitration Tribunals comprised of  one or  more retired  High Court  Judges to be constituted by  the State  Government from  time to time, if any of such disputes involved a claim of rupees one crore or above. When the arbitral dispute involving a claim of rupees one crore  or above,  was referred  to  Special  Arbitration

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Tribunal for  deciding it  by making  an award thereon, what was so  referred in  the form  of arbitral  dispute was  the claim or  cause which  one party  had against  the other  in respect of  the contract  entered into by them, admits of no controversy.  Again,   when  Special   Arbitration  Tribunal decided such  arbitral dispute by making an award in respect of it,  the claim  or cause  of a  party arisen  against the other party  in relation  to the  contracts entered  into by them and  which had  given scope  for  raising  an  arbitral dispute and  getting it  referred to the Special Arbitration Tribunal for its decision merges in the award so made by it, cannot also  admit of any controversy. If that be so, when a Special Arbitration Tribunal makes an award, it, as ought to be, binds the parties to the dispute and their privies. Such awards of the Special Arbitration Tribunals bind the parties and their privies cannot be controverted, in that, condition 7 of  the  implied  conditions  of  arbitration  agreements, contained in  the  First  Schedule  to  the  Principal  Act, recognises the  position by  declaring that the awards shall be final  and binding  on the  parties and  persons claiming under them, respectively. No doubt, it is open to any of the parties to  the award,  if so  chosen, to  cause the Special Arbitration Tribunal,  as provided  for under  section 14 of the Principal Act, to file such award in court for making it a ‘Rule of Court’, by its judgment and decree to be rendered or made under section 17 of the Principal Act. Such Court is a Civil  Court having  jurisdiction to  decide the questions forming the  subject-matter of the reference if the same had been the subject-matter of a suit, as becomes clear from the definition clause (c) of Section 2 of the Principal Act.      What is  of importance and requires our examination is, whether such  Court when  makes  an  award  of  the  Special Arbitration Tribunal  filed before  it, a ‘Rule of Court’ by its judgment and decree, as provided under Section 17 of the Principal Act,  does such  award of  the Special Arbitration Tribunal merge  in the  judgment and  decree, as  argued  on behalf of the petitioners. We find it difficult to accede to the argument.  What cannot  be overlooked is, that the award of a Special Arbitration Tribunal, as that of an award of an arbitrator, is,  as we  have already pointed out, a decision made by  it on  the claim or cause referred for its decision by way  of arbitral dispute. When the Court makes such award of a  Special Arbitration   Tribunal  a ‘Rule  of Court’  by means of  its judgment  and decree,  it is  not deciding the claim or  cause as it would have done, if it had come before it as  a suit  for its  judgment and decree in the course of exercise of  its ordinary  civil jurisdiction.  Indeed, when such award  is made to come by a party to the dispute before Court for  being made  a ‘Rule of Court’ by its judgment and decree, it  is to  obtain the  super added seal of the Court for such  award, as provided for under the Principal Act, to make it  enforceable against  the other  party  through  the machinery of  Court.  Therefore,  the  judgment  and  decree rendered by the Civil Court in respect of an award is merely to  super-add   its  seal  thereon  for  making  such  award enforceable through  the mechanism  available  with  it  for enforcement of  its own judgments and decrees. The mere fact that such judgments or decrees of Courts by which the awards of Special  Arbitration Tribunals  are made ‘Rules of Court’ or are  affirmed by judgments and decrees of superior Courts in appeals,  revisions or  the like,  cannot make the awards the decisions  of Courts.  Hence, when the awards of Special Arbitration Tribunals  are made by the judgments and decrees of Court,  ‘Rules of  Court’ for  enforcing them through its execution process,  they (the  awards) do  not merge  in the

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judgments and  decrees of  Courts, as  would make  them  the decisions of  Court. The  legal position as to non-merger of awards in  judgments and  decrees of  Courts, which  we have stated, receives  support from  certain observations  in the decision of  this Court  in Satish  Kumar & Ors. v. Surinder Kumar &  Ors., [(1969)  2 S.C.R. 244]. There, this Court was confronted with  the question,  whether an  award made by an arbitrator  which  had  become  unenforceable  for  want  of registration under  the Registration  Act, ceased  to  be  a decision of the arbitrator, which binds the parties or their privies. In  that context, this Court observed that an award is entitled to that respect which is due to the judgment and decree of  last resort.  And if  the award  which  had  been pronounced between  the parties  has become  final, a second reference of  the subject  of the award becomes incompetent. It further  observed that  if the award is final and binding on the  parties, it  can hardly  be said  that it is a waste paper unless  it is  made a  ‘Rule of  Court’. Hegde, J. who agreed with  the above  observations of  Sikri, J.  (as  His Lordship then  was) while  speaking for  Bachawat, J.  also, observed that  the arbitration  has the  first  stage  which commences with  arbitration  agreement  and  ends  with  the making of  the award,  and then a second stage which relates to the  enforcement of  the award.  He also observed that it was one  thing to  say that  a right  is not  created by the award but  it is an entirely different thing to say that the right created cannot be enforced without further steps.      Therefore, our  answer to  the point is that the awards of Special  Arbitration Tribunals did not merge in judgments and decrees  of the  Courts even  though the Courts by their judgments and  decrees made such awards ‘Rules of Court’ for their  enforceability  through  the  Courts  availing  their machinery used for execution of their decisions, that is, their own judgments and decrees. Point-4           It  is   true,  as   argued  on   behalf  of   the petitioners, that  a Legislature has no legislative power to render ineffective  the earlier judicial decisions by making a law  which simply  declares the earlier judicial decisions as invalid or not binding, for such power if exercised would not be  a legislative  power exercised  by it but a judicial power exercised by it encroaching upon the judicial power of the State  exclusively vested  in Courts.  The said argument advanced, since  represents  the  correct  and  well-settled position in  law, we have thought it unnecessary to refer to the decisions of this Court cited by learned counsel for the petitioners, in  that behalf  and hence have not referred to them.      For the  1991 Amendment  Act to become unconstitutional on the  ground that it has rendered judgments and decrees of Courts by  which the  Special Arbitration  Tribunals’ awards are made  ‘Rules of  Court’, invalid  or  ineffective,  such judgments and  decrees must  be decisions of Courts rendered by them  in exercise  of their  judicial power  of  decision making in respect of the subjects of dispute before them and not where  they render  judgments and  decrees to  make  the awards of the Special Arbitration Tribunals ‘Rules of Court’ so that they could be made enforceable through the machinery of Courts.  Thus, the  awards  of  the  Special  Arbitration Tribunals when  get the super-added seals of Courts for such awards, by  the Courts making them ‘Rules of Court’ by their judgments and  decrees, such  awards do  not get  merged  in judgments and  decrees of  Courts so  as to  make  them  the decisions  of   Courts,  rendered  in  exercise  of  State’s judicial power  of decision  making, as  it happens  in  the

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causes directly  brought before  them by  way of  suits  for their decisions. As we have already pointed out, question of claim or  cause of a party which gets merged in the award of a Special  Arbitration Tribunal,  in turn, getting merged in judgment and  decree made by Civil Court, for the purpose of making the  award a  ‘Rule of  Court’,  so  as  to  make  it enforceable, can  not arise. What needs to be noted is, that Courts even if render their judgments and decrees for making the awards  ‘Rules of  Court’, those  judgments and  decrees cannot substitute  their own  decisions for the decisions of Special Arbitration  Tribunals contained  in  their  awards. This situation  makes it  clear that  power exercised by the Civil Courts  in making  the awards  of Special  Arbitration Tribunals ‘Rules of Court’ by their judgments and decrees is not their  judicial power  exercised in  rendering judgments and decrees, as Civil Courts exercise their powers vested in them for  resolving disputes between parties. To be precise, judgments and  decrees made  by Civil  Courts in  making the awards of  the Special  Arbitration Tribunals  the ‘Rules of Court’ for  the sole purpose of their enforceability through the machinery  of Court,  cannot  make  such  judgments  and decrees of  Civil Court,  the decisions  rendered  by  Civil Courts  in   exercise  of   judicial  power   of  the  State exclusively invested  in them  under our Constitution. Thus, when the  judgments and  decrees made  by  Civil  Courts  in making the awards of Special Arbitration Tribunals ‘Rules of Court’ are not those judgments and decrees of Courts made in exercise of judicial power of State vested in them under our Constitution, the  1991 Amendment  Act  when  nullifies  the judgments and  decrees of  Courts by which awards of Special Arbitration Tribunals  are made  ‘Rules of Court’, cannot be regarded as  that enacted  by the  Orissa State  Legislature encroaching upon  the judicial  powers of  State exercisable under our  Constitution by  Courts as  sentinals of  Rule of Law, a  basic feature  of our  Constitution. Hence, the 1991 Amendment Act  in so  far  as  it  nullifies  judgments  and decrees of  Courts by  which awards  of Special  Arbitration Tribunals are  made ‘Rules  of Court’,  even where  they are affirmed by  higher Courts,  cannot be regarded as that made by the  Orissa  State  Legislature  transgressing  upon  the judicial power  of State  vested in  Courts as would make it unconstitutional. Point-5:           If  the   awards  made   by  Special   Arbitration Tribunals which  are sought  to be  nullified  by  the  1991 Amendment Act  enacted by  the Orissa State Legislature, are regarded as  those made by the Special Arbitration Tribunals in exercise  of judicial  power of  the State conferred upon them, by  an enactment  of the  State Legislature,  the 1984 Amendment Act, was it open to the State Legistature to enact the 1991 Amendment Act to simply nullify such awards without encroaching upon  the judicial power of the State especially conferred on  Special Arbitration Tribunals in the matter of adjudicating upon  arbitral disputes  not coming before them at the instance of parties, is the point.      When awards are made in disputes between the parties by the arbitrators  of their  choice or  arbitrators who may be appointed by  the Court  on their  behalf, as  provided  for under the  Principal Act, such awards, can never be regarded as those made by the arbitrators in exercise of the judicial power of the State conferred upon them. However, if reasoned awards are made by Special Arbitration Tribunals constituted under a  legislative enactment  in  exercise  of  the  power conferred upon  them under  such enactment  in the matter of adjudicating upon  disputes between the parties according to

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accepted norms of judicial procedure, can such awards be not regarded as  those rendered  by the arbitration tribunals in exercise of  the judicial  power of the State conferred upon them under  the  legislative  enactment,  is  the  principal question.      As the  Objects and  Reasons annexed to the Bill on the basis of  which the  impugned 1991  Amendment Act  has  been enacted for  constituting Special  Arbitration Tribunals  by the State  and for conferring power of adjudicating disputes between parties  referred to  them, furnishes the historical background in  which the  Bill was  introduced in  the State Legislature, it would be useful to reproduce the same thus:                "Section    41-A     of    the      Arbitration Act,  1940 as  it applies to      the State  of Orissa  was  amended  with      effect from 26.3.1983 by the Arbitration      (Orissa Amendment)  Act 1984, whereby, a      proviso to  sub-section (1)  of the said      section was  inserted to the effect that      reference  to  arbitration  of  disputes      specified  in   the   said   sub-section      involving claims  of rupees one crore or      above  may   be  made   to   a   Special      Arbitration Tribunal  comprising one  or      more retired  High Court  Judges, as may      be constituted  by the  State Government      from time  to time.  In  the  course  of      operation  of   this  proviso   it   was      experienced   that    a   tendency   has      developed among  the Contractors to seek      constitution  of   Special   Arbitration      Tribunals by  inflating their  claims to      rupees one  crore and above, inter alia,      to avoid  depositing the  security money      required   for    reference    to    the      Arbitration  Tribunal.   Therefore,  the      said proviso  was  deleted  with  effect      from  25.1.1990   by   the   Arbitration      (Orissa Amendment)  Act 1989 (Orissa Act      1  of   1990).  While  so  deleting  the      proviso, the  cases which  were  pending      before the  Special Arbitration Tribunal      for disposal, whereas the cases in which      award  was   already  passed  were  left      unaffected  in   view   of   prospective      operation of the amendment.           Later it  came to the notice of the      Government that in some of the cases, in      which  award   was  made  by  a  Special      Arbitration  Tribunal,   not  only   the      Contractors   inflated    their   claims      abnormally but also the awards passed in      respect thereof  are  surprisingly  high      and unreasonable.  This is  a matter  of      serious concern for the Government since      the amounts  involved  in  such  awards,      besides being  unreasonable and assessed      improperly  and   inaccurately  for  the      reason  that   the   one   man   Special      Arbitration Tribunals  were not assisted      by any  Technical and Finance members as      in the case of the Arbitration Tribunal,      put a  heavy and  undesirable burden  on      the  public   exchequer  to   which  the      Government,  in   view  of  its  serious

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    responsibility to  the people as well as      the  obligation   to  the   Constitution      cannot close their eyes.           Accordingly,   it   is   considered      necessary in the public interest to make      the provision  relating to  reference of      disputes  to   the  Special  Arbitration      Tribunals during the period of operation      of the  proviso to  sub-section  (1)  of      section 41-A i.e., between 26.3.1983 and      24.1.1994, subject to one more condition      so that  any  reference  to  arbitration      made to  a Special  Arbitration Tribunal      during the  said  period  inconsistently      with the proposed new condition shall be      invalid and, in every such case, a fresh      reference   shall   be   made   to   the      Arbitration    Tribunal    within    the      stipulated period  for  adjudication  of      the dispute.           For   the    above   purpose,   the      Arbitration      (Orissa      Amendment)      Ordinance, 1991  (Orissa Ordinance  No.7      of  1991)   was  promulgated   to  amend      section 41-A  of  the  Arbitration  Act,      1940  as  applicable  to  the  State  of      Orissa   and   necessary   consequential      provision was  made in  such  Ordinance.      The said  Ordinance is  required  to  be      replaced  by   an  Act   of  the   State      Legislature.           The Bill seeks to achieve the above      object."      What are the Special Arbitration Tribunals, adverted to in the  above Objects and Reasons of the Bill, the awards of which are  sought to  be invalidated by the Amendment Act to be made  pursuant to  that Bill  requires mention  here  for understanding as to how they have come into existence, as to what is  the  power  exercised  by  them  in  resolving  the disputes referred to them and as to how they are resolved by making the  award. Under  the 1982  Amendment Act, a Special provision had  been made  empowering the State Government to constitute Arbitration Tribunals consisting of three members and  referring   certain  disputes  for  decision  by  those Arbitration Tribunals.  When 1984  Amendment Act was enacted by the  State Legislature, it provided for referring certain disputes involving  claims of  Rs.  1  crore  or  above,  to Special Arbitration Tribunals to be constituted by the State Government comprised  of one  or  more  retired  High  Court Judges, from  time to time. It also provided for transfer of disputes involving  claims of  Rs. 1  crore or above pending before the  Arbitration Tribunals constituted under the 1982 Amendment Act  to the  Special Arbitration  Tribunal  to  be constituted by  the State  Government under  1984  Amendment Act. One  of the  provisions in  the 1984 Amendment Act read thus:           "The business  of  the  Arbitration      Tribunal or Special Arbitration Tribunal      shall be conducted in such manner as the      Tribunal may  determine and  awards made      and  signed   shall  be   supported   by      reasons."      From what  we  have  stated  hereinbefore,  it  becomes obvious that  the Special  Arbitration  Tribunals  had  been constituted by  the State  Government in accordance with the

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1984 Amendment Act to adjudicate upon or decide the disputes referred to  them under that Act, by making reasoned awards. The power  of deciding  the disputes  conferred  upon  those Special Tribunals was not conferred upon them by the parties to the  disputes. Instead such power had been conferred upon them by the State under the provisions of the 1984 Amendment Act. Such  Arbitration Tribunals  had to  make the  reasoned awards because  they were  enjoined  to  do  so  under  that Amendment  Act   itself.  Though   the  Special  Arbitration Tribunals themselves  are entitled  under the  provisions of the said  Amendment Act  to evolve  their own  procedure for conducting  its  proceedings,  ordinary  norms  of  judicial procedure had  to be adopted by them so as to conform to the principles of  natural justice  being Tribunals  constituted under a legislative enactment with power conferred upon them to adjudicate upon disputes between parties.      Thus, when  under the  1984 Amendment  Act, the Special Arbitration Tribunals  had been  constituted  by  the  State Government and were conferred by that enactment the power of adjudicating upon  the disputes  between parties referred to them, conforming  to the  normal judicial  procedure and  by making reasoned  awards,  the  awards  so  made  by  Special Arbitration Tribunals,  we cannot but hold are those made in exercise of State’s judicial power conferred upon them under the 1984 Amendment Act for deciding the disputes between the parties by having recourse to normal judicial process.      No doubt, by the 1989 Amendment Act, referred to in the Objects and  Reasons of  the Bill, the provision relating to constitution of  Special Arbitration Tribunals introduced in the Principal  Act by the 1984 Amendment Act was deleted and a provision was made therein for transfer of matters pending consideration before  such Special  Arbitration Tribunals to the  Arbitration   Tribunals  constituted   under  the  1982 Amendment Act  and decision  to be  made thereon.  But,  for getting rid of the awards which had already been made by the Special Arbitration  Tribunals referred  for their  decision under the  1984 Amendment Act, by the State Government, 1991 Ordinance was  promulgated by  the State  and  the  same  is subsequently replaced by the 1991 Amendment Act.      The 1991  Amendment  Act  which  is  reproduced  by  us earlier contains  hardly four Sections. Out of them Sections 2 and  3  alone  are  material.  Insofar  as  Section  2  is concerned by its deemed retrospective operation between 26th day of March 1983 and 24th day of February, 1990 forbids the making of reference under sub-section (1) of Section 42-A of the Principal  Act, involving  a claim of Rs.1 crore or more unless the  amount agreed  to by the parties in the Contract exceeds the amount of such claim.      Then, coming  to Section  3 it  declares that  all  the awards  made   by  the   Special  Arbitration  Tribunals  on references made  to it  under the  1984 Amendment Act during the period  adverted to  under Section  2 invalid even where those awards were made ‘Rules of Court’, i.e., judgments and decrees of Courts. Further, that Section requires the making of fresh  references to  arbitration of  such dispute to the Arbitration Tribunals  constituted under  the 1982 Amendment Act. Thus,  Sections 2  and 3 of the 1991 Amendment Act seek to nullify the awards of Special Arbitration Tribunals, made on disputes  referred to  them from  the 26th  day of March, 1983 to  24th day of February, 1990 under the 1984 Amendment Act becomes obvious.      Thus, the  impugned 1991 Amendment Act seeks to nullify the  awards   made  by  the  Special  Arbitration  Tribunals constituted under the 1984 Amendment Act, in exercise of the power conferred  upon them  by that  Act itself.  When,  the

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awards made  under the  1984 Amendment  Act by  the  Special Arbitration Tribunals  in exercise  of  the  State  judicial power conferred  upon them which cannot be regarded as those merged in Rules of Court or judgments and decrees of Courts, are sought  to be nullified by 1991 Amendment Act, it admits of no  doubt that legislative power of the State Legislature is used  by enacting  impugned 1991 Amendment Act to nullify or abrogate  the awards of the Special Arbitration Tribunals by arrogating  to itself, a judicial power. [See Re: Cauvery Water Disputes  Tribunal (1991) Supp. 2 SCR 497]. From this, it follows  that the  State Legislature by enacting the 1991 Amendment  Act   has  encroached  upon  the  judicial  power entrusted to judicial authority resulting in infringement of a basic  feature of  the Constitution the Rule of Law. Thus, when the  1991 Amendment  Act nullifies  the awards  of  the Special Arbitration  Tribunals,  made  in  exercise  of  the judicial power  conferred upon them under the 1984 Amendment Act, by encroaching upon the judicial power of the State, we have no  option but to declare it as unconstitutional having regard to  the well  settled and  undisputed legal  position that a  legislature  has  no  legislative  power  to  render ineffective the  earlier judicial  decisions by making a law which simply  declares the  earlier  judicial  decisions  as invalid and  not binding,  for such  powers,  if  exercised, would not be legislative power exercised by it, but judicial power exercised by it encroaching upon the judicial power of the State  vested in  a judicial  Tribunal  as  the  Special Arbitration Tribunals  under 1984  Amendment Act.  Moreover, where the  arbitral awards  sought to be nullified under the 1991 Amendment  Act are  those made  by Special  Arbitration Tribunals  constituted   by  the  State  itself  under  1984 Amendment Act to decide arbitral disputes to which State was a party, it cannot be permitted to undo such arbitral awards which have  gone against  it,  by  having  recourse  to  its legislative power  for grant  of such  permission  as  could result in  allowing the State, if nothing else, abuse of its power of legislation. Point-6:           The argument  on this point is that the provisions in the  1991 Amendment  Act are  arbitrary and  unreasonable being violative  of Article  14 of  the Constitution, and it is, therefore, unconstitutional.      Since, we have found the impugned 1991 Amendment Act as unconstitutional in  answering Point-5,  for the reason that it is made, encroaching upon the judicial power of the State invested in  Courts and  tribunals, we  have  considered  it unnecessary to decide on this point.      As the answer we have given on Point-5 goes against the constitutionality  of   the   Arbitration   (Orissa   Second Amendment) Act, 1991, the Rules issued in Writ Petitions are required to be made absolute.      In the  result, we  allow the  writ petitions, make the ‘Rules’  issued   in  them  absolute  and  strike  down  the Arbitration (Orissa  Second Amendment)  Act, 1991, in so far as it  nullifies the  arbitral awards  made by  the  Special Arbitration Tribunals  constituted by respondent-State under the  1984   Amendment  Act,  including  the  awards  of  the petitioners  which   are   made   ‘Rules   of   Court’,   as unconstitutional. No Costs.