In Brief
Karnataka amended its Money Lenders Act and Pawn Brokers Act in 1998 to provide that security deposits held by the state would not earn interest, seeking to nullify a prior High Court judgment requiring interest be paid. The Supreme Court held that while legislatures can retrospectively amend laws to correct errors and remove their factual basis, they cannot directly overturn judicial pronouncements by introducing new provisions that were not previously the basis of the judgment. The Court found that observations in the earlier judgment about interest being constitutionally required were obiter dicta, and that a no-interest provision is not inherently arbitrary under Article 14, since interest is compensation for use of money. The amendments were valid prospectively but invalid insofar as they were applied retrospectively to nullify the prior mandamus order, violating separation of powers principles.
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