State of Kerala & Ors. Vs. M/s. Mar Appraem Kuri Co. Ltd. & Anr. [May 08, 2012]
2012 Latest Caselaw 273 SC

State of Kerala & Ors. versus M/s. Mar Appraem Kuri Co. Ltd. & Anr.

[Civil Appeal No. 6660 of 2005]

Civil Appeal Nos. 6661/2005, 6662/2005, 6663/2005, 6664/2005, 6665/2005, 6666/2005, 6667/2005, 6668/2005, 6669/2005, 6670/2005, 6671/2005, 6672/2005, 6673/2005, 6674/2005, 6675/2005, 6676/2005, 6677/2005, 6678/2005, 6679/2005, 6680/2005, 6681/2005, 7204/2008, 7329/2008, 7330/2008, 7333/2008, 7334/2008, SLP(C) Nos. 25822 and 25823/2009, Civil Appeal Nos. 7008/2005, 7009/2005, 7010/2005, 7011/2005, 7012/2005, 7013/2005, 7014/2005, 7164/2005, 7165/2005, 7166/2005, 7167/2005, 7537/2005, 7538/2005, 494/2006, 495/2006, 5031/2006, 7332/2008, 7572/2008 and 5032/2006

J U D G M E N T

S. H. KAPADIA, CJI Introduction

1.     By order dated 18.02.2009 in Civil Appeal No. 6660 of 2005 in the case of State of Kerala v. M/s. Mar Appraem Kuri Co. Ltd., the referring Bench of 3-judges of this Court doubted the correctness of the view taken by a 3-judges Bench of this Court in Pt. Rishikesh and Another v. Salma Begum (Smt) [(1995) 4 SCC 718]. Accordingly, the matter has come to the Constitution Bench to decide with certitude the following core issues of constitutional importance under Article 254(1) of the Constitution. Scope of the Reference – when does repugnancy arise?

2.     In the present case, the question to be answered is - whether the Kerala Chitties Act 23 of 1975 became repugnant to the Central Chit Funds Act 40 of 1982 under Article 254(1) upon making of the Central Chit Funds Act 40 of 1982 (i.e. on 19.08.1982 when the President gave his assent) or whether the Kerala Chitties Act 23 of 1975 would become repugnant to the Central Chit Funds Act 40 of 1982 as and when notification under Section 1(3) of the Central Chit Funds Act 40 of 1982 bringing the Central Act into force in the State of Kerala is issued?

3.     The question arose before the Full Bench of the Allahabad High Court in the case of Smt. Chandra Rani and others v. Vikram Singh and others [1979 All. L.J. 401] in the following circumstances:- The U.P. Civil Laws (Reforms and Amendment) Act 57 of 1976 being the State Act stood enacted on 13.12.1976; it received the assent of the President on 30.12.1976; it was published in the Gazette on 31.12.1976 and brought into force w.e.f. 1.01.1977 whereas the Civil Procedure Code (Amendment) Act 104 of 1976, being the Central Act, was enacted on 9.09.1976; it received the assent of the President on the same day; it got published in the Central Gazette on 10.09.1976; and brought into force w.e.f. 1.02.1977 (i.e. after the State Act came into force). The Full Bench of the Allahabad High Court in Chandra Rani (supra) held that the U.P. Act No. 57 of 1976 was a later Act than the Central Act No. 104 of 1976. The crucial date in the case of the said two enactments would be the dates when they received the assent of the President, which in the case of the Central Act was 9.09.1976 while in the case of the U.P. Act was 30.12.1976. This decision of the Full Bench of the Allahabad High Court in the case of Chandra Rani (supra) came for consideration before this Court in Pt. Rishikesh (supra).

4.     The statement of law laid down in Pt. Rishikesh (supra) was as under: “17... As soon as assent is given by the President to the law passed by the Parliament it becomes law. Commencement of the Act may be expressed in the Act itself, namely, from the moment the assent was given by the President and published in the Gazette, it becomes operative. The operation may be postponed giving power to the executive or delegated legislation to bring the Act into force at a particular time unless otherwise provided. The Central Act came into operation on the date it received the assent of the president and shall be published in the Gazette and immediately on the expiration of the day preceding its commencement it became operative. Therefore, from the mid-night on the day on which the Central Act was published in the Gazette of India, it became the law. Admittedly, the Central Act was assented to by the President on 9-9-1976 and was published in the Gazette of India on 10-9-1976. This would be clear when we see the legislative procedure envisaged in Articles 107 to 109 and assent of the President under Article 111 which says that when a Bill has been passed by the House of the People, it shall be presented to the President and the President shall either give his assent to the Bill or withhold his assent there from. The proviso is not material for the purpose of this case. Once the President gives assent it becomes law and becomes effective when it is published in the Gazette. The making of the law is thus complete unless it is amended in accordance with the procedure prescribed in Articles 107 to 109 of the Constitution. Equally is the procedure of the State Legislature. Inconsistency or incompatibility in the law on concurrent subject, by operation of Article 254, clauses (1) and (2) does not depend upon the commencement of the respective Acts made by the Parliament and the State legislature. Therefore, the emphasis on commencement of the Act and inconsistency in the operation thereafter does not become relevant when its voidness is required to be decided on the anvil of Article 254(1). Moreover the legislative business of making law entailing with valuable public time and enormous expenditure would not be made to depend on the volition of the executive to notify the commencement of the Act. Incompatibility or repugnancy would be apparent when the effect of the operation is visualised by comparative study.”

5.     The above statement of law in Pt. Rishikesh (supra) created a doubt in the minds of the referring judges and, accordingly, the said statement of law has come before the Constitution Bench of this Court for its authoritative decision. Facts in the present case

6.     The lis in the present case arose under the following circumstances. Many of the private chitty firms remained out of the regulatory mechanism prescribed in the Kerala Chitties Act, 1975 by registering themselves outside the State but continued to operate in Kerala. Because of this, investor protection became difficult. Consequently, Section 4 of the said 1975 Act was amended vide Finance Act 7 of 2002. By the said amendment, sub-section (1a) was inserted in Section 4. This amendment intended to bring in chitties registered outside the State having 20% or more of its subscribers normally residing in the State within the ambit of the said 1975 Act. Being aggrieved by the said Amendment, the private chitty firms challenged the vires of Section 4(1a) of the 1975 Act as repugnant under Article 254(1) to the Central Chit Funds Act, 1982. Questions to be answered

7.     Whether making of the law or its commencement brings about repugnancy or inconsistency as envisaged in Article 254(1) of the Constitution? (ii) The effect in law of a repeal. Inconsistencies in the provisions of the Kerala Chitties Act, 1975 vis-a-vis the Central Chit Funds Act, 1982

8.     The impugned judgment of the Division Bench has accepted the contention advanced on behalf of the private chitty firms that there are inconsistencies between the provisions of the two Acts. [see paras 13, 14 and 15 of the impugned judgment]. However, the Single Judge held that absent notification under Section 1(3) of the Central Chit Funds Act, 1982 bringing the said 1982 Act into force in the State and absent framing of the Rules under Section 89 of the said 1982 Act, it cannot be said that the Kerala Chitties Act, 1975 stood repealed on the enactment of the said 1982 Act, which is the Central Act; whereas the Division Bench declared Section 4(1a) of the 1975 Act as extra- territorial and, consequently, unconstitutional, hence, the State of Kerala came to this Court by way of appeal.

9.     For the sake of clarity some of the conflicting provisions indicated in the impugned judgment are set out herein below:

Kerala Chitties Act, 1975 (State Act)

The Chit Funds Act, 1982 (Central Act)

Section 1 – Short title, extent and commencement

(1) This Act may be called the Kerala Chitties Act, 1975

(2) It extends to the whole of the State of Kerala.

(3) It shall come into force on such date as the government may, by notification in the Gazette, appoint. Section 2 – Definitions

In this Act, unless the context otherwise requires,—

(4) "discount" means the amount of money or quantity of grain or other commodity, which a prize winner has, under the terms of the variola, to forego for the payment of veethapalisa, foreman's commission or such other expense; as may be prescribed;

Section 3 - Prohibition of chitty not sanctioned or registered under this Act

(1) No chitty shall, after the commencement of this Act, be started and conducted unless the previous sanction of the Government or of such officer as may be empowered by the Government in this behalf is obtained therefor and unless the chitty is registered in accordance with the provisions of this Act: Provided that the previous sanction under this sub-section shall lapse unless the chitty is registered before the expiry of six months from the date of such sanction: Provided further that such previous sanction shall not be necessary for starting and conducting any chitty by—

(i) a company owned by the Government of Kerala; or (ii) a co-operative society registered or deemed to be registered under the Co-operative Societies Act for the time being in force; or (iii) a scheduled bank as defined in the Reserve Bank of India Act, 1934 ; or (iv) a corresponding new bank constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (Central Act 5 of 1970).

Section 4 - Prohibition of invitation for subscription except under certain conditions (1) Where previous sanction is required by section 3 for starting and conducting a chitty, no person shall issue or publish any notice, circular, prospectus, proposal or other document inviting the public to subscribe for tickets in any such chitty or containing the terms and conditions of any such chitty unless such notice, circular, prospectus, proposal or other document contains a statement that the previous sanction required by section 3 has been obtained, together with the particulars of such sanction. (1a)* Where a chitty is registered outside the State and twenty per cent more of the subscribers are persons normally residing in the State, the foreman of the chitty shall open a branch in the State and obtain sanction and registration under the provisions of this Act. (*) As Amended by Finance Act, 2002 (2) Whoever contravenes the provisions of sub-section (1) shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to three hundred rupees, or with both.

Section 15 - Security to be given by foreman (1) Every foreman shall, before the first drawing of the chitty,— (a) execute a bond in favour of or in trust for the other subscribers for the proper conduct of the chitty, charging immovable property sufficient to the satisfaction of the Registrar for the realization of twice the chitty amount; or (b) deposit in an approved bank an amount equal to the chitty amount or invest in Government securities of the face value of

note less than one and a half times the chitty amount and transfer the amount so deposited or the Government securities in favour of the Registrar to be held in trust by him as security for the due conduct of the chitty.

(2) If any foreman makes default in complying with the requirements of sub-section (1), he shall be punishable with fine which may extend to five hundred rupees.

(3) The security given by the foreman under sub-section (1) or any security substituted under sub-section (6) shall not be liable to be attached in execution of a decree or otherwise until the chitty is terminated and the claims of all are fully satisfied.

(4) The Registrar shall, after the termination of a chitty and after satisfying himself that the claims of all the subscribers have been fully satisfied, order the release of the security furnished by the foreman under sub-section (1) or the security substituted under sub-section (6), as the case may be, and in so doing he shall follow such procedure as may be, prescribed in that behalf. (5) The security furnished under sub-section (1) shall, subject to the provisions of sub-section (6), be kept intact during the currency of the chitty and the foreman shall not commit any such act with respect thereto as are calculated to impair materially the nature of the security or the value thereof. (6) The Registrar may:— (a) at any time during the currency of the chitty, permit the substitution of the security: Provided that such substituted security shall not be less than foreman under sub-section (1); or (b) on the termination of the chitty, release a part of the security: Provided that the security left after release of the part is sufficient to satisfy the outstanding claims of all subscribers.

Section 1 - Short title, extent and commencement (1) This Act may be called the Chit Funds Act, 1982. (2) It extends to the whole of India except the State of Jammu and Kashmir.

(3) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint and different dates may be appointed for different States.

Section 2 – Definitions

In this Act, unless the context otherwise requires,—

(g) "discount" means the sum of money or the quantity of grain which a prized subscriber is, under the terms of the chit agreement required to forego and which is set apart under the said agreement to meet the expenses of running the chit or for distribution among the subscribers or for both; Section 4 - Prohibition of chits not sanctioned or registered under the Act

(1) No chit shall be commenced or conducted without obtaining the previous sanction of the State Government within whose jurisdiction the chit is to be commenced or conducted or of such officer as may be empowered by that Government in this behalf, and unless the chit is registered in that State in accordance with the provisions of this Act: Provided that a sanction obtained under this sub-section shall lapse if the chit is not registered within twelve months from the date of such sanction or within such further period or periods not exceeding six months in the aggregate as the State Government may, on application made to it in this behalf, allow.

Section 20 - Security to be given by foreman (1) For the proper conduct of the chit, every foreman shall, before applying for a previous sanction under section 4,- (a) deposit in the name of the Registrar, an amount equal to,- (i) fifty per cent, of the chit amount in cash in an approved bank; and (ii) fifty per cent, of the chit amount in the form of bank guarantee from an approved bank; or

(b) transfer Government securities of the face value or market value (whichever is less) of not less than one and a half times the chit amount in favour of the Registrar; or

(c) transfer in favour of the Registrar such other securities, being securities in which a trustee may invest money under section 20 of the Indian Trusts Act, 1882 (2 of 1882), of such value, as may be prescribed by the State Government from time of time:

Provided that the value of the securities referred to in clause (c) shall not, in any case, be less than one and a half times the value of the chit amount. (2) Where a foreman conducts more than one chit, he shall furnish security in accordance with the provisions of sub-section (1) in respect of each chit. (3) The Registrar may, at any time during the currency of the chit, permit the substitution of the security: Provided that the face value or market value (whichever is less) of the substituted security shall not be less than the value of the security given by the foreman under sub-section (1). (4) The security given by the foreman under sub-section (1), or any security substituted under sub-section (3), shall not be liable to be attached in execution of a decree or otherwise until the chit is terminated and the claims of all the subscribers are fully satisfied. (5) Where the chit is terminated and the Registrar has satisfied himself that the claims of all the subscribers have been fully satisfied, he shall order the release of the security furnished by the foreman under sub-section (1), or the security substituted under sub-section (3), as the case may be, and in doing so, he shall follow such procedure as may be prescribed. (6) Notwithstanding anything to the contrary contained in any other law for the time being in force, the security furnished under this section shall not be dealt with by the foreman during the currency of the chit to which it relates and any dealing by the foreman with respect thereto by way of transfer or other encumbrances shall be null and void.”

10.  Apart from the conflicting provisions mentioned hereinabove, the impugned judgment has brought out various inconsistencies between the various provisions of the State Act and the Central Act in the following terms: “13. When we scan through the various provisions of both the legislations it is clear that there is repugnancy between some of the provisions of those legislations. The expression "discount" in Section 2(g) of the Chit Funds Act gives a different definition compared to Sub-section (4) of Section 2 of the Kerala Chitties Act, 1975. So also Section 4(1) of the Chit Funds Act deals with registration of chits, commencement and conduct of chit business. Provisions of the Kerala Chitties Act, Section 3(1) are also contextually different. Section 6(3) of the Central Act states that the amount of discount referred to in Clause (f) of Sub-section (1) shall not exceed thirty per cent of the chit amount.

As per Section 7(3) of the Chit Funds Act registration of a chit shall lapse if the declaration by the Foreman under Sub-section (1) of Section 9 is not filed within three months from the date of such endorsement or within such further period or periods not exceeding three months in the aggregate as the Registrar may, on an application made to him in that behalf. Section 8 of the Chit Funds Act deals with minimum capital requirement for the commencement etc. of a chit and creation of a reserve fund by a company and there is no corresponding provision in the Kerala Chitties Act. 14. Learned Single Judge has also found that once the requirement of furnishing security is satisfied under Section 20 of the Act, it would be arbitrary for the authorities in Kerala to insist for another security for the same chitty merely because 20% or more subscribers are residing in the State.

Learned Single Judge further held that the Registrar in Kerala is absolutely free to call for details of registration and security furnished by the Foreman in any other State under Section 20 of the Central Act and after confirmation with the Registrar in that State he will record the same and shall not call for further security being furnished under Section 15 of the Kerala Act from the same Foreman for the same chitty. Learned Single Judge also found if a Foreman is registered under the Central Act in any State outside Kerala and has subscribers in Kerala, the Central Act applies to the Foreman even in regard to the business he has in Kerala, no matter the Central Act is not notified in the State and in such cases the learned Single Judge opined that the provisions of the State Act will yield to the extent the same is inconsistent with the Central Act.

Learned Single Judge himself has therefore noticed inconsistencies between the various provisions of the State Act and the Central Act. 15. On a comparison of the various provisions in the Chit Funds Act and the Kerala Chitties Act we have come across several such inconsistent and hostile provisions which are (sic) repugnant to each other. Suffice to say that if Sub-section (1a) (sic) of Section 4 is given effect to, a Foreman who has already got the registration under the Central Act and governed by the provisions of that Act would also be subjected to various provisions of the Kerala Act which are inconsistent and repugnant to the Central Act. If Section 4(1a) (sic) is therefore given effect to it would have extra territorial operation.” i) Point Of Time For Determination Of Repugnance

11.  The key question that arises for determination is as to from when the repugnancy of the State Act will come into effect? Did repugnancy arise on the making of the Central 1982 Act or will it arise as and when the Central Act is brought into force in the State of Kerala?

12.  12. Before dealing with the respective submissions made by counsel before us, we need to quote Articles 245(1), 246(1), (2) and (3), 249(1) and (3), 250(1) and (2), 251 and 254 of the Constitution, which read as follows: “PART XI RELATIONS BETWEEN THE UNION AND THE STATES CHAPTER I.—LEGISLATIVE RELATIONS Distribution of Legislative Powers 245. Extent of laws made by Parliament and by the Legislatures of States - (1) Subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State. 246. Subject-matter of laws made by Parliament and by the Legislatures of States. - (1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the “Union List”). (2) Notwithstanding anything in clause (3), Parliament, and, subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the “Concurrent List”). (3) Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the “State List”). 249. Power of Parliament to legislate with respect to a matter in the State List in the national interest. –

(1) Notwithstanding anything in the foregoing provisions of this Chapter, if the Council of States has declared by resolution supported by not less than two-thirds of the members present and voting that it is necessary or expedient in the national interest that Parliament should make laws with respect to any matter enumerated in the State List specified in the resolution, it shall be lawful for Parliament to make laws for the whole or any part of the territory of India with respect to that matter while the resolution remains in force. (2) xxx xxx xxx (3) A law made by Parliament which Parliament would not but for the passing of a resolution under clause (1) have been competent to make shall, to the extent of the incompetency, cease to have effect on the expiration of a period of six months after the resolution has ceased to be in force, except as respects things done or omitted to be done before the expiration of the said period. 250. Power of Parliament to legislate with respect to any matter in the State List if a Proclamation of Emergency is in operation –

(1) Notwithstanding anything in this Chapter, Parliament shall, while a Proclamation of Emergency is in operation, have power to make laws for the whole or any part of the territory of India with respect to any of the matters enumerated in the State List. (2) A law made by Parliament which Parliament would not but for the issue of a Proclamation of Emergency have been competent to make shall, to the extent of the incompetency, cease to have effect on the expiration of a period of six months after the Proclamation has ceased to operate, except as respects things done or omitted to be done before the expiration of the said period. 251. Inconsistency between laws made by Parliament under Articles 249 and 250 and laws made by the Legislatures of States. –

Nothing in articles 249 and 250 shall restrict the power of the Legislature of a State to make any law which under this Constitution it has power to make, but if any provision of a law made by the Legislature of a State is repugnant to any provision of a law made by Parliament which Parliament has under either of the said articles power to make, the law made by Parliament, whether passed before or after the law made by the Legislature of the State, shall prevail, and the law made by the Legislature of the State shall to the extent of the repugnancy, but so long only as the law made by Parliament continues to have effect, be inoperative. 254. Inconsistency between laws made by Parliament and laws made by the Legislatures of States –

(1) If any provision of a law made by the Legislature of a State is repugnant to any provision of a law made by Parliament which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List, then, subject to the provisions of clause (2), the law made by Parliament, whether passed before or after the law made by the Legislature of such State, or, as the case may be, the existing law, shall prevail and the law made by the Legislature of the State shall, to the extent of the repugnancy, be void. (2) Where a law made by the Legislature of a State with respect to one of the matters enumerated in the concurrent List contains any provision repugnant to the provisions of an earlier law made by Parliament or an existing law with respect to that matter, then, the law so made by the Legislature of such State shall, if it has been reserved for the consideration of the President and has received his assent, prevail in that State: Provided that nothing in this clause shall prevent Parliament from enacting at any time any law with respect to the same matter including a law adding to, amending, varying or repealing the law so made by the Legislature of the State. “ (emphasis supplied) Submissions

13.  Shri K.K. Venugopal, learned senior counsel appearing for the State of Kerala and Shri V. Shekhar, learned senior counsel for Union of India submitted that the word “made” in Article 254 is relevant only to identify the law, i.e., the Parliamentary law or the State law and has nothing to do with the point of time for determination of repugnance. According to the learned counsel, a decision by a Court, on the question as to whether any State Act is repugnant to a Central Act, can be made only after both laws have been brought into force for the simple reason that the very object of determination of repugnance between two laws, by a Court, is to decide and declare as to which one of the two laws has to be obeyed or in the language of Article 254, which of the two laws “shall prevail”.

Therefore, according to the learned counsel, the very text of Article 254 makes it clear that a declaration of repugnance by a Court presupposes both laws actually being in operation. That, though the term employed in Article 254(2) is “a law made by the Legislature of a State”, it actually refers to a stage when the law is still a Bill passed by the State legislature which under Article 200 is given to the Governor for his assent. According to the learned counsel, the phrase “law made” would also include a law which is brought in force. In this connection, it was submitted that if a petition is filed before a Court to declare a State law void, as being repugnant to Parliamentary law which has not been brought in force, the court would reject the petition as premature as repugnancy cannot arise when the Parliamentary law has not even been brought in force. In this connection, learned counsel relied upon the judgment of this Court in Tika Ramji v. State of U.P. [1956 SCR 393] in which there is an observation to the effect that repugnance must exist in fact and not depend on a mere possibility.

According to the learned counsel there is no merit in the contention advanced on behalf of private chit firms that upon mere enactment by the Parliament of a law relating to a subject in List III, all State enactments on that subject become immediately void, as repugnant. Further, learned counsel emphasized on the words “to the extent of the repugnancy” in Article 254(1). He submitted that the said words have to be given a meaning. Learned counsel submitted that the said words indicate that the entire State Act is not rendered void under Article 254(1) merely by enactment of a Central law.

In this connection, it was submitted that the words “if any provision of a law” and the words “to the extent of repugnancy” used in Article 254(1) militate against an interpretation that the entire State Act is rendered void as repugnant merely upon enactment by Parliament of a law on the same subject. Lastly, learned counsel submitted that a purposive interpretation of Article 254 must be adopted which does not lead to a legislative vacuum. In this connection learned counsel submitted that the State law came into force w.e.f. 25.08.1975 as per notification published in Kerala Gazette No. 480 whereas the Chit Funds Act, 1982 came into force w.e.f. 19.08.1982.

Under Section 1(3) of that Act, the Central Government has been empowered to bring the said Act into force on such date as it may, by notification in the official gazette, appoint and different dates may be appointed for different States. Till date, the said 1982 Act has not been extended to the State of Kerala. According to the learned counsel, if one was to accept the contention advanced on behalf of the private chit firms that

“when a Central law is made as envisaged in Article 254 of the Constitution then all repugnant State laws would immediately stand impliedly repealed, even without the Central Act being brought into force by a notification under Section 1(3) of the 1982 Act”; then, in that event, there would be a total legislative vacuum particularly when transactions have taken place in the State of Kerala on and from 19.08.1982 till date and even up to the date of notification which has not been issued under Section 1(3) till today. According to the learned counsel, keeping in view the provisions of Sections 1(3), 4, 89 and 90 of the 1982 Act and absent framing of the Rules by the State Government in terms of Section 89, making of the central law cannot be the test for determining repugnancy.

14.  On behalf of the private chitty firms, it was submitted by Shri T.R. Andhyarujina, Shri Shyam Divan, Shri Mathai M. Paikeday and Shri C.U. Singh, that the bringing into force or commencement of the Central Act was irrelevant in considering repugnancy under Article 254(1), and that the repugnancy arose when the State law came into conflict with the enactment of the Central law, even when the Central law is not brought into force in the State of Kerala. That, under Article 254(1), the repugnancy of the State law to the law made by the Parliament is to be considered with reference to the law made.

The words “law made” have reference to the enactment of the law. In this connection, it was pointed out that the words “law made” have been used at seven places but there is no mention to the commencement of a law in Article 254. Thus, according to the learned counsel, repugnancy arose when the Central Chit Funds Act, 1982 received the assent of the President and on its publication in the Official Gazette and not on its commencement, which till date is not there in the State of Kerala. In consequence, the Kerala Chitties Act, 1975 became void on 19.08.1982 when the Central Chit Funds Act, 1982 was made after receiving the assent of the President.

On the question as to whether the Kerala Chitties Act, 1975 is repugnant to the Central Chit Funds Act, 1982 and whether Section 4(1a) inserted by Finance Act No. 7 of 2002 was void, the learned counsel submitted that the Central Act, 1982 intended to occupy the entire field of contracts in Entry 7 of the Concurrent List; that, both the legislations are made under Entry 7 of the Concurrent List and, therefore, in such a situation there would be repugnancy between the State legislation existing at the time of the enactment of the Central Act, 1982.

Applying these tests, it was submitted that the Kerala Chitties Act, 1975 became void under Article 254(1) on the enactment of the Central Chit Funds Act, 1982. That, in consequence of the said repugnancy, the Kerala Chitties Act, 1975 became void under Article 254(1) on 19.08.1982 and the Kerala Chitties Act, 1975 stood impliedly repealed. However, according to the learned counsel, the previous operation of the Kerala Chitties Act, 1975 is not affected nor any right, privilege, obligation or liability acquired under the Kerala Chitties Act shall stand affected in view of Article 367 of the Constitution. By reason of Article 367, the General Clauses Act, 1897 would apply to the said repeal. Thus, after 19.08.1982, the Kerala Chitties Act, 1975 stood repealed except for the limited purposes of Section 6 of the General Clauses Act, 1897. According to the learned counsel for the private chitties, to bring the Central Chit Funds Act, 1982 into operation in any State the Central Government has to issue a notification in the Official Gazette under Section 1(3).

This has been done for several States but not for States like Kerala, Gujarat, etc. That, until such notification neither the Kerala Chitties Act, 1975 prevails in the State of Kerala as it has become void and stands repealed under Article 254(1) nor the Central Chit Funds Act, 1982 as it is not notified. Thus, according to the learned counsel, as and when the Central Government brings into force the Chit Funds Act, 1982 by a notification in the State of Kerala under Section 1(3), Section 90(2) of the 1982 Act will come into play and thereby the Kerala Chitties Act, 1975 shall continue to apply only to the chits in operation in Kerala on the date of commencement of the Central Act, 1982 in the same manner as the Kerala Chitties Act, 1975 applied to such chits before such commencement. However, as the Kerala Act, 1975 stood repealed on 19.08.1982, on the enactment of the Central Chit Funds Act, 1982, there could be no Amendment of the Kerala Act, 1975 by Finance Act No. 7 of 2002. In the circumstances, it was submitted that Section 4(1a) inserted in Section 4 by the Kerala Finance Act No. 7 of 2002 was void and inoperative in law as the President’s assent under Article 254(2) has not been obtained.

15.  According to Shri V. Giri, learned counsel for one of the private chitty firms, the judgment of this Court in Pt. Rishikesh (supra) has been correctly decided. In this connection, it was submitted that the aspect of repugnancy primarily arises in the mind of the Legislature. That, in the case of Deep Chand v. State of U.P. (1959 Suppl. (2) SCR 8), three principles were laid down as indicative of repugnancy between a State law and a Central law, which have to be borne in mind by the State Legislature whenever it seeks to enact a law under any entry in the Concurrent List.

Thus, where there is a Central law which intends to override a State law or where there is a Central law intending to occupy the field hitherto occupied by the State law or where the Central law collides with the State law in actual terms, then the State Legislature would have to take into account the possibility of repugnancy within the meaning of Article 254 of the Constitution. In this connection, it was submitted that tests 1 and 2 enumerated in Deep Chand (supra) do not require the Central law to be actually brought into force for repugnancy between two competing legislations to arise, in the context of Article 254 of the Constitution.

It was submitted that in the present case an intention to override the State law is clearly manifest in the Central Law, especially Section 3 of the Central Act which makes it clear that the provisions of the 1982 Act shall have effect notwithstanding anything contrary contained in any other law for the time being in force. Similarly, Section 90 of the Central Act providing for repeal of State Legislations also manifests an intention on the part of the Parliament to occupy the entire field hitherto occupied by the State Legislature. Further, each and every aspect relating to the conduct of a Chit as sought to be covered by the State Act has been touched upon by the Central Act.

Thus, the Parliament in enacting the Central law has manifested its intention not only to override the existing State laws, but also to occupy the entire field relating to chits, which are special contracts, under Entry 7 of List III. Thus, the actual bringing into force of the Central Act is not a relevant circumstance insofar as the legislative business of the State Legislature is concerned. That, when the State of Kerala intended to amend the State Act in 2002 by insertion of Section 4(1a), it was bound to keep in mind the fact that there is already a Central law governing chits since 19.08.1982, though not in force in Kerala, whereby there is a pro tanto repeal of the State Act.

Therefore, the State Legislature ought to have followed the procedure in Article 254(2) by reserving the law for the consideration of the President and obtained Presidential assent. Therefore, according to the learned counsel, there is no merit in the contention of the State that there would be a legislative vacuum in the State of Kerala if the propositions advanced on behalf of the private chit firms are to be accepted. According to the learned counsel, Section 85(a) and Section 90(2) of the Central Chit Funds Act, 1982 inter alia provide for continuance of the application of the provisions of the Kerala Chitties Act, 1975 till the commencement of the Central Act by issuance of notification under Section 1(3) of the Central Chit Funds Act, 1982.

On commencement of that Act there is a pro tanto repeal of the State Act by Section 90 of the Central Act. However, according to the learned counsel, repugnancy arose between two competing legislations, the moment the Legislature took up the Kerala Chitties Act, 1975 for amendment by Finance Act No. 7 of 2002. Such repugnancy had to arise in the mind of the legislature and the State Legislature was bound to take note of the 1982 Central Act. In this view of the matter, there is no legislative vacuum at any point of time as urged on behalf of the State of Kerala. To hold otherwise would mean bypassing the legislative will of the Parliament expressed by passing the 1982 Act. Our Answer to Question No. (i):- Point of time for determination of repugnance:

16.  16. Article 254 deals with inconsistency between laws made by Parliament and laws made by the Legislatures of States. It finds place in Part XI of the Constitution. Part XI deals with relations between the Union and the States. Part XI consists of two Chapters. Chapter I deals with Distribution of Legislative Powers. Articles 245 to 255 find place in Chapter I of Part XI. Article 245 deals with extent of laws made by Parliament and by the Legislatures of States. The verb “made”, in past tense, finds place in the Head Note to Article 245. The verb “make”, in the present tense, exists in Article 245(1) whereas the verb “made”, in the past tense, finds place in Article 245

(2). While the legislative power is derived from Article 245, the entries in the Seventh Schedule of the Constitution only demarcate the legislative fields of the respective Legislatures and do not confer legislative power as such. While the Parliament has power to make laws for the whole or any part of the territory of India, the Legislature of a State can make laws only for the State or part thereof. Thus, Article 245, inter alia, indicates the extent of laws made by Parliament and by the State Legislatures. Article 246 deals with subject-matter of laws made by Parliament and by the Legislatures of States. The verb “made” once again finds place in the Head Note to Article 246. This Article deals with distribution of legislative powers as between the Union and the State Legislatures, with reference to the different Lists in the Seventh Schedule.

In short, the Parliament has full and exclusive powers to legislate with respect to matters in List I and has also power to legislate with respect to matters in List III, whereas the State Legislatures, on the other hand, have exclusive power to legislate with respect to matters in List II, minus matters falling in List I and List III and have concurrent power with respect to matters in List III. [See: A.L.S.P.P.L. Subrahmanyan Chettiar v. Muttuswami Goundan – AIR 1941 F.C. 47]. Article 246, thus, provides for distribution, as between Union and the States, of the legislative powers which are conferred by Article 245. Article 245 begins with the expression “subject to the provisions of this Constitution”. Therefore, Article 246 must be read as “subject to other provisions of the Constitution”.

For the purposes of this decision, the point which needs to be emphasized is that Article 245 deals with conferment of legislative powers whereas Article 246 provides for distribution of the legislative powers. Article 245 deals with extent of laws whereas Article 246 deals with distribution of legislative powers. In these Articles, the Constitution framers have used the word “make” and not “commencement” which has a specific legal connotation. [See: Section 2(13) of the General Clauses Act, 1897]. One more aspect needs to be highlighted. Article 246(1) begins with a non-obstante clause “Notwithstanding anything in clauses (2) and (3)”. These words indicate the principle of federal supremacy, namely, in case of inevitable conflict between the Union and State powers, the Union powers, as enumerated in List I, shall prevail over the State powers, as enumerated in Lists II and III, and in case of overlapping between Lists III and II, the former shall prevail. [See: Indu Bhusan Bose versus Rama Sundari Devi & Anr. – (1970) 1 SCR 443 at 454]. However, the principle of federal supremacy in Article 246(1) cannot be resorted to unless there is an “irreconcilable” conflict between the entries in Union and State Lists. The said conflict has to be a “real” conflict.

The non- obstante clause in Article 246(1) operates only if reconciliation is impossible. As stated, Parliamentary Legislation has supremacy as provided in Article 246 (1) and (2). This is of relevance when the field of legislation is in the Concurrent List. The Union and the State Legislatures have concurrent power with respect to the subjects enumerated in List III. [See: Article 246(2)]. Hence, the State Legislature has full power to legislate regarding subjects in the Concurrent List, subject to Article 254(2), i.e., provided the provisions of the State Act do not come in conflict with those of the Central Act on the subject. [See: Amalgamated Electricity Co. (Belgaum) Ltd. versus Municipal Committee, Ajmer – (1969) 1 SCR 430]. Thus, the expression “subject to” in clauses (2) and (3) of Article 246 denotes supremacy of Parliament.

Further, in Article 246(1) the expression used is “with respect to”. There is a distinction between a law “with respect to”, and a law “affecting”, a subject matter. The opening words of Article 245 “Subject to the provisions of this Constitution” make the legislative power conferred by Article 245 and Article 246, as well as the legislative Lists, “subject to the provisions of the Constitution”. Consequently, laws made by a Legislature may be void not only for lack of legislative powers in respect of the subject-matter, but also for transgressing constitutional limitations. [See: Para 22.6 of Vol.3 at Page 2305 of the Constitutional Law of India by H.M. Seervai, Fourth Edition]. This aspect is important as the word “void” finds place in Article 254(1) of the Constitution.

Therefore, the Union and State Legislature have concurrent power with respect to subjects enumerated in List III. Hence, the State Legislature has full power to legislate regarding the subjects in List III, subject to the provision in Article 254(2), i.e., provided the provisions of the State Act do not conflict with those of the Central Act on the subject. Where the Parliament has made no law occupying the field in List III, the State Legislature is competent to legislate in that field. As stated, the expression “subject to” in clauses (2) and (3) of Article 246 denotes the supremacy of the Parliament. Thus, the Parliament and the State Legislature derive the power to legislate on a subject in List I and List II from Article 246 (1) and (3) respectively. Both derive their power from Article 246(2) to legislate upon a matter in List III subject to Article 254 of the Constitution.

The respective Lists merely demarcate the legislative fields or legislative heads. Further, Article 250 and Article 251 also use the word “make” and not “commencement”. If one reads the Head Note to Article 250 it refers to power of the Parliament to legislate with respect to any matter in the State List if a Proclamation of Emergency is in operation. The word “made” also finds place in Article 250(2). In other words, the verb “make” or the verb “made” is equivalent to the expression “to legislate”. Thus, making of the law is to legislate with respect to any matter in the State List if Proclamation of Emergency is in operation.

The importance of this discussion is to show that the Constitution framers have deliberately used the word “made” or “make” in the above Articles. Our Constitution gives supremacy to the Parliament in the matter of making of the laws or legislating with respect to matters delineated in the three Lists. The principle of supremacy of the Parliament, the distribution of legislative powers, the principle of exhaustive enumeration of matters in the three Lists are all to be seen in the context of making of laws and not in the context of commencement of the laws.

17.  17. Under clause (1) of Article 254, a general rule is laid down to say that the Union law shall prevail where the State law is repugnant to it. The question of repugnancy arises only with respect to the subjects enumerated in the Concurrent List as both the Parliament and the State Legislatures have concurrent powers to legislate over the subject-matter in that List. In such cases, at times, conflict arises. Clause (1) of Article 254 states that if a State law, relating to a concurrent subject, is “repugnant” to a Union law, relating to that subject, then, whether the Union law is prior or later in time, the Union law will prevail and the State law shall, to the extent of such repugnancy, be void.

Thus, Article 254(1) also gives supremacy to the law made by Parliament, which Parliament is competent to enact. In case of repugnancy, the State Legislation would be void only to the extent of repugnancy. If there is no repugnancy between the two laws, there is no question of application of Article 254(1) and both the Acts would prevail. Thus, Article 254 is attracted only when Legislations covering the same matter in List III made by the Centre and by the State operate on that subject; both of them (Parliament and the State Legislatures) being competent to enact laws with respect to the subject in List III. In the present case, Entry 7 of List III in the Seventh Schedule deals with the subject of “Contracts”. It also covers special contracts. Chitties are special contracts.

Thus, the Parliament and the State Legislatures are competent to enact a law with respect to such contracts. The question of repugnancy between the Parliamentary Legislation and State Legislation arises in two ways. First, where the Legislations, though enacted with respect to matters in their allotted spheres, overlap and conflict. Second, where the two Legislations are with respect to matters in the Concurrent List and there is a conflict. In both the situations, the Parliamentary Legislation will predominate, in the first, by virtue of non-obstante clause in Article 246(1); in the second, by reason of Article 254(1). Article 254(2) deals with a situation where the State Legislation having been reserved and having obtained President’s assent, prevails in that State; this again is subject to the proviso that Parliament can again bring a legislation to override even such State Legislation.

In clause (1) of Article 254 the significant words used are “provision of a law made by the Legislature of a State”, “any provision of a law made by Parliament which Parliament is competent to enact”, “the law made by Parliament, whether passed before or after the law made by the Legislature of such State”, and “the law made by the Legislature of the State shall, to the extent of repugnancy, be void”. Again, clause (2) of Article 254 speaks of “a law made by the Legislature of a State”, “an earlier law made by Parliament”, and “the law so made by the Legislature of such State”. Thus, it is noticeable that throughout Article 254 the emphasis is on law-making by the respective Legislatures. Broadly speaking, law-making is exclusively the function of the Legislatures (see Articles 79 and 168). The President and the Governor are a part of the Union or the Legislatures of the States.

As far as the Parliament is concerned, the legislative process is complete as soon as the procedure prescribed by Article 107 of the Constitution and connected provisions are followed and the Bill passed by both the Houses of Parliament has received the assent of the President under Article 111. Similarly, a State legislation becomes an Act as soon as a Bill has been passed by the State Legislature and it has received the assent of the Governor in accordance with Article 200. It is only in the situation contemplated by Article 254(2) that a State Legislation is required to be reserved for consideration and assent by the President.

Thus, irrespective of the date of enforcement of a Parliamentary or State enactment, a Bill becomes an Act and comes on the Statute Book immediately on receiving the assent of the President or the Governor, as the case may be, which assent has got to be published in the official gazette. The Legislature, in exercise of its legislative power, may either enforce an Act, which has been passed and which has received the assent of the President or the Governor, as the case may be, from a specified date or leave it to some designated authority to fix a date for its enforcement. Such legislations are conditional legislations as in such cases no part of the legislative function is left unexercised. In such legislations, merely because the Legislature has postponed the enforcement of the Act, it does not mean that the law has not been made. In the present case, the Central Chit Funds Act, 1982 is a law-made.

The Chit Funds Bill was passed by both Houses of Parliament and received the assent of the President on 19.08.1982. It came on the Statute Book as the Chit Funds Act, 1982 (40 of 1982). Section 1(2) of the said Act states that the Act extends to the whole of India, except the State of Jammu and Kashmir whereas Section 1(3) states that it shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint and different dates may be appointed for different States. The point to be noted is that the law-making process ended on 19.08.1982. Section 1(3) is a piece of conditional legislation. As stated, in legislations of such character, merely because the legislation has postponed the enforcement of the Act, it does not mean that the law has not been made. In the present case, after enactment of the Chit Funds Act, 1982 on 19.08.1982, the said Act has been applied to 17 States by notifications issued from time to time under Section 1(3).

How could Section 1(3) operate and make the said Act applicable to 17 States between 2.04.1984 and 15.09.2008 and/ or postpone the commencement of the Act for certain other States including State of Kerala, Gujarat, Haryana, etc. unless that Section itself is in force? To put the matter in another way, if the entire Act including Section 1(3) was not in operation on 19.08.1982, how could the Central Government issue any notification under that very Section in respect of 17 States?

There must be a law authorizing the Government to bring the Act into force. Thus, Section 1(3) came into force immediately on passing of the Act (see A. Thangal Kunju Musaliar v. M. Venkatachalam Potti AIR 1956 SC 246). Thus, the material dates, in our opinion, are the dates when the two enactments received the assent of the President which in the case of Central Act is 19.08.1982 while in the case of the Kerala Chitties Act, 1975, it is 18.07.1975.

There is one more way in which this problem can be approached. Both the courts below have proceeded on the basis that there are conflicting provisions in the Central Act, 1982 vis-à-vis the State Act, 1975 (see paragraphs 13, 14 & 15 of the impugned judgment). In our view, the intention of the Parliament was clearly to occupy the entire field falling in Entry 7 of List III. The 1982 Act was enacted as a Central Legislation to “ensure uniformity in the provisions applicable to chit fund institutions throughout the country as such a Central Legislation would prevent such institutions from taking advantage either of the absence of any law governing chit funds in a State or exploit the benefit of any lacuna or relaxation in any State law by extending their activities in such States”.

The background of the enactment of the Central Chit Funds Act, which refers to the