When Does The “Overriding Effect” Operate

1.   Introduction: Section 34 of the DRT Act, 1993 (short for ‘Recovery Of Debts Due To Banks and Financial Institutions Act, 1993’) provides that “the Act to have overriding effect”. Similarly, Section 35 of the Securitisation Act, 2002 (short for ‘The Securitisation and Reconstruction Of Financial Assets and Enforcement Of Security Interest Act, 2002’) provides that “the provisions of this Act to override other laws”. However, on the contrary, Section 37 of the Securitisation Act, 2002 provides that “the application of other laws not barred”. Now, let us consider in detail as to how and when does the “overriding effect” operate.

2. As per the rules of interpretation the provisions of an Act are to be interpreted keeping in view the object of enactment of that Act. The important aspect to notice is that the overriding effect of the provisions of the Act, scheme or rules made there under would be that only when there is anything inconsistent in the said Act or rules or scheme vis-a-vis the other laws or provisions. If the rules or schemes made under the Act are silent on any particular subject matter and the other law requires any particular action being taken in respect there of, such a law would have to be complied with.

 2.1 When there is anything inconsistent in the said Act : Hon’ble Supreme Court in the important decision rendered in Karunanidhi  vs. UOI (1979) 3 SCC 431; 1979 AIR  898; 1979 SCR  (3) 254 held, inter alia, as follows :

“Prima facie, there does not appear to us to be any inconsistency between  the State  Act  and the Central Acts. Before any repugnancy can arise, the following conditions must be satisfied:-

  1. That there is a clear and direct inconsistency between the Central Act and the State Act.

              2. That   such an inconsistency is absolutely irreconcilable.

              3. That the inconsistency between the provisions of the two Acts is of such a nature as to bring the two Acts into direct collision  with each other  and  a situation is reached where it is impossible to obey the one without disobeying the other.” 

 

2.2   When there is anything inconsistent  in the said Act : Further, Hon’ble Supreme Court in another important decision rendered in Hoechst Pharmaceuticals Ltd  vs. State of Bihar   AIR (1983) SC 1019; 1983 SCR  (3) 130; 1983 SCC  (4) 45; 1983 SCALE  (1) 723 held, inter alia, as follows :

“This Court has considered the question of repugnancy in several cases  and in  Deep Chand  v.  The  State  of  Uttar Pradesh &  Ors.(1) the result of  the authorities  was thus stated by Subba Rao, J.:

 "Nicholas in his Australian Constitution, 2nd edn, p.303,  refers to three tests  of inconsistency or repugnancy:

1.            There may be inconsistency in the actual terms of the competing statutes;

2.            Though  there may  be no  direct conflict, a State law  may  be  inoperative  because  the Commonwealth law, or the award of the Commonwealth Court, is  intended  to  be  a complete exhaustive Code; and

           3.             Even in the absence of intention, a conflict may arise  when both State and  Commonwealth seek to  exercise their  powers over the same subject-matter."

2.3  As held by Hon’ble Supreme Court in the aforesaid important decisions rendered in Karunanidhi  vs. UOI (1979) 3 SCC 431; Hoechst Pharmaceuticals Ltd  vs. State of Bihar   AIR (1983) SC 1019 and other cases, the material test of inconsistency is that both the provisions under consideration should not be able to stand together  i.e., if one is followed, the other, in the result,  would be violated. This may arise by reason of direct conflict or indirectly by the later law occupying the same field, as the earlier one. It is in this context that in several schemes of the BIFR where fresh issue of share capital in case of merger or other cases is envisaged, the approval of the Controller of Capital Issues earlier required under the Capital Issues (Control) Act, 1947  has been specifically put out of the way. 

2.4 Hon’ble Supreme Court in Maharashtra Tubes Ltd. Vs SICOM  (1993) 78 Comp Cas 803 (SC), held that the special legislation SICA, 1985 was to prevail over the provisions of the earlier special legislation State Financial Corporations Act, 1950. Therefore, it is submitted that, it would be a case of misdirecting oneself, if he assumes that the DRT Act, 1993 shall override, in all respects, every law for the time being in force in India. For example, the mandate of Section 22 (1) of the SICA, 1985 had always an overriding  effect on the initiation or continuance of  proceedings before DRT under the  DRT Act ,1993, whereas the DRT Act,1993 is a later special Act than the SICA,1985 and also has a non-obstante clause in section 34 of the DRT Act, 1993. It is pertinent to note that subsequently the SICA, 1985 has been included in section 34 (2) of the DRT Act, 1993 by the Amendment Act, 2000 with effect from 17.01.2000. 

2.5 Further, in a latest judgment Hon’ble Supreme Court in Gujarat Urja Vikas Nigam Ltd vs. Essar Power Ltd, (2008 4 SCC 755; date of judgment: 13/03/2008) observed and held (per Markandey Katju, J.), inter alia, as follows (in para 9,  28, 33 and 60 ) :

“9.        Mr. K.K. Venugopal, learned senior counsel for the appellant, has relied on Section 174 of  the Electricity Act, 2003 (hereinafter in short "the  Act of 2003")  which states :

            174. Act to have overriding effect : Save as otherwise provided in section 173, the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.

28.       Section 86(1)(f) of the Act of 2003  is a special provision and hence will override the general provision in Section 11 of the Arbitration and Conciliation Act, 1996 for arbitration of disputes between the licensee and generating companies.  It is well settled that the special law overrides the general law.  Hence, in our opinion, Section 11 of the Arbitration and Conciliation Act, 1996 has no application to the question who can adjudicate/arbitrate disputes between licensees and generating companies, and only Section 86(1)(f) shall apply in such a situation.

33.       Section 174 provides that the Electricity Act, 2003 will prevail over anything inconsistent in any other law.  In our opinion the inconsistency may be express or implied.  Since Section 86(1)(f) is a special provision for adjudicating disputes between licensees and generating companies, in our opinion by implication Section 11 of the Arbitration and Conciliation Act, 1996 will not apply to such disputes i.e. disputes between licensees and generating companies.  This is because of the principle that the special law overrides the general law.  For adjudication of disputes between the licensees and generating companies there is a special law namely 86(1)(f) of the Electricity Act, 2003.  Hence the general law in Section 11 of the Arbitration and Conciliation Act, 1996 will not apply to such disputes.

60.       We make it clear that it is only with regard to the authority which can adjudicate or arbitrate disputes that the Electricity Act, 2003 will prevail over Section 11 of the Arbitration and Conciliation Act, 1996.  However, as regards, the procedure to be followed by the State Commission (or the arbitrator nominated by it) and other matters related to arbitration (other than appointment of the arbitrator) the Arbitration and Conciliation Act, 1996 will apply (except if there is a conflicting provision in the Act of 2003).  In other words, Section 86(1)(f) is only restricted to the authority which is to adjudicate or arbitrate between licensees and generating companies. Procedural and other matters relating to such proceedings will of course be governed by Arbitration and Conciliation Act, 1996, unless there is a conflicting provision in the Act of 2003.”                                                                           (emphasis supplied)

Inconsistency between Section 175 and Section 174 of the Electricity Act, 2003

3. The Hon’ble Supreme Court in Gujarat Urja Vikas Nigam Ltd vs. Essar Power Ltd (supra) further observed, and held (per Markandey Katju, J.) as follows (in para 19, 35, 36, 50, 51, 56 and 57):

“19.     Shri F.S. Nariman invited our attention to Section 175 of the Act of 2003 which states:

            175. Provisions of this Act to be in addition to and not in derogation of other laws : The provisions of this Act are in addition to and not in derogation of any other law for the time being in force.

35.       At first glance there is an apparent inconsistency between Section 175 and Section 174 of the Electricity Act, 2003.  While Section 174 says that the said Act will prevail over other laws, Section 175 says that the said Act is in addition and not in derogation of any other law (which would include Section 11 of the Arbitration and Conciliation Act, 1996).

36.       In our opinion to resolve this conflict the Mimansa principles of Interpretation would of great utility.

50.       In our opinion the gunapradhan axiom applies to this case.  Section 174 is the pradhan whereas Section 175 is the guna (or subordinate).   If we read Section 175 in isolation then of course we would have to agree to Mr. Nariman's submission that Section 11 of the Arbitration and Conciliation Act, 1996 applies.  But we cannot read Section 175 in isolation, we have to read it along with Section 174, and reading them together, we have to adjust Section 175 (the guna or subordinate) to make it in accordance with Section 174 (the pradhan or principal).  For doing so we will have to add the following words at the end of Section 175 "except where there is a conflict, express or implied, between a provision in this Act and any other law, in which case the former will prevail”. (emphasis supplied)

51.  No doubt ordinarily the literal rule of interpretation should be followed, and hence the Court should neither add nor delete words in a statute.  However, in exceptional cases this can be done where not doing so would deprive certain existing words in a statute of all meaning, or some part of the statute may become absurd.

56.  In our opinion the principle laid down in Section 174 of the Electricity Act, 2003 is the principal or primary whereas the principle laid down in Section 175 is the accessory or subordinate to the principal.  Hence Section 174 will prevail over Section 175 in matters where there is any conflict (but no further).

57.  In our opinion Section 174 and Section 175 of the Electricity Act, 2003 can be read harmoniously by utilizing the Samanjasya, Badha and Gunapradhana principles of Mimansa. This can be done by holding that when there is any express or implied conflict between the provisions of the Electricity Act, 2003 and any other Act then the provisions of the Electricity Act, 2003 will prevail, but when there is no conflict, express or implied, both the Acts are to be read together.”                     (emphasis supplied)

Similar Inconsistency Exists between Section 35 and Section 37 of the Securitisation Act, 2002

4.  It is pertinent to note here that a similar apparent inconsistency exists between Section 35 and Section 37 of the Securitisation Act, 2002. While Section 35 says that the said Act will prevail over other laws, Section 37 says that the said Act is in addition and not in derogation of any other law. Therefore, in view of the aforesaid discussion, by drawing analogy from the ratio decidendi of the judgment of Hon’ble Supreme Court in Gujarat Urja Vikas Nigam Ltd vs. Essar Power Ltd (supra) it stands concluded that the gunapradhan axiom applies to this situation also.  Section 35 is the pradhan whereas Section 37 is the guna (or subordinate).  We cannot read Section 37 in isolation, we have to read it along with Section 35, and reading them together, we have to adjust Section 37 (the guna or subordinate) to make it in accordance with Section 35 (the pradhan or principal).  For doing so we will have to add the following words at the end of Section 37 "except where there is a conflict, express or implied, between a provision in this Act and any other law, in which case the former will prevail”.

 

Conclusion

4.1 Accordingly, Section 35 and Section 37 of the Securitisation Act, 2002 can be read harmoniously by utilizing the Samanjasya, Badha and Gunapradhana principles of Mimansa.  This can be done by concluding that when there is any express or implied conflict between the provisions of the Securitisation Act, 2002 and any other Act then the provisions of the Securitisation Act, 2002 will prevail, but when there is no conflict, express or implied, both the Acts are to be read together. (END)

 

Note: the views expressed are my personal and a view point only.

 

Author:

Narendra Sharma, Consultant (Legal)

E-mail: nkdewas@yahoo.co.in

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