The process of substitution consists of two steps. First, the old rule is made to cease to exist and, next, the new rule is brought into existence in its place. Even if the new rule is invalid, the first step of the old rule ceasing to exist comes into effect, and it was for this reason that the court held that, on declaration of the new rule as invalid, the old rule could not be held to be revived.
In ATB Mehtab Majid v. State of Madras, (1963) 14 STC 355; 1962 INSC 342, the case concerned a challenge to Rule 16 of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939. Rule 16 had been amended to include a proviso which resulted in the differential taxation of tanned hides based on whether they had been tanned within the state of Madras or outside the state. When the issue reached Supreme Court, it was observed that under the amended Rule 16, a dealer who both purchased the untanned hides and tanned them within the State, was only required to pay the duty on the purchase price but a dealer who purchased the untanned hides from outside the state and tanned them within the state, would be liable to pay sales tax on the sale price of the tanned hides, which was substantially higher.
Speaking for a Constitution Bench of Supreme Court, Justice Raghubar Dayal, struck down the amended Rule 16 as violative of Article 304(a) of the Constitution on the following terms:
“We are therefore of the opinion that the provisions of rule 16(2) discriminate against imported hides or skins which had been purchased or tanned outside the State and that therefore they contravene the provisions of Article 304(a) of the Constitution.
It has been urged for the respondent that if the impugned rule be held invalid, old rule 16 gets revived and that the tax assessed on the petitioner will be good. We do not agree. Once the old rule has been substituted by the new rule, it ceases to exist and it does not automatically get revived when the new rule is held to be invalid.”
The Court in ATB Mehtab Majid found that when an amendment to a rule is invalidated by a court , the old rule does not revive. It draws on the underlying rationale of the Shamarao Parulekar decision in that once a rule is substituted, it ceases to have any legal force and cannot be given legal effect.
Hence, the Court held that if the amendment is found to be unconstitutional, the unamended text does not revive and cannot be enforced.
Koteswar Vittal Kamath v. Rangappa Baliga, 1969 (1) SCC 255; 1968 INSC 335
Further elucidation on the view in ATB Mehtab Majid is found in Koteswar Vittal Kamath v. Rangappa Baliga, 1969 (1) SCC 255; 1968 INSC 335 The decisions has its roots in a contractual dispute where the appellants contended that the contracts in question were forward contracts and void considering the prohibition on forward contracts in the Travancore-Cochin Vegetable Oils and Oilcakes (Forward Contracts Prohibition) Order, 1950.
The respondents in the case alleged that the 1950 Prohibition Order was unenforceable as it was passed under a law that had since been repealed. After tracing the history of the relevant legislation, a three-judge bench of Supreme Court observed that the 1950 Prohibition Order was potentially still in force due to the Section 73(2) of the Travancore-Cochin Public Safety Measures Act, 1950 , which stipulated that orders passed under certain repealed legislations continued in force.
However, the respondents in the case raised a secondary contention that the state legislature of Travancore was not competent to enact the Public Safety Measures Act, 1950 because Parliament had the exclusive power to legislate on the issue of stock exchanges and forward contracts under Entry 48 of List I of the Seventh Schedule of the Constitution. Justice Bhargava, speaking for a three-Judge Bench of Supreme Court opined that this contention was not relevant for the following reasons:
“7. … if it be held that the State Government could not competently pass the Prohibition Order, 1950 , because it was a piece of legislation on Forward Contracts, that Order would be treated as void and non-est. Thereupon, the earlier Prohibition Order 1119, would continue in force right up to 30th March, 1950 . […] When the Prohibition Order of 1950 , was purported to be issued on 8th March, 1950 , it was not laid down that it was being issued so as to supersede the earlier Prohibition Order of 1119.
If it had been a valid Order, it would have covered the same field as the Prohibition Order of 1119, and, consequently, would have been the effective Order under which the rights and obligations of parties have to be governed. On the other hand, if it be held to be void, this Order will not have the effect of superseding the earlier Order of 1119.”
Justice Bhargava observed that even if the 1950 Prohibition Order was held to be void, the consequence would merely be that the parties would have been governed by the earlier Prohibition Order 1119. Justice Bhargava held that if the later Order was found to be void, it would “not have the effect of superseding the earlier Order.”
The learned Judge went on to distinguish the decision in ATB Mehtab Majid in the following manner:
“7. … Learned counsel for the respondent, however, urged that the Prohibition Order of 1119, cannot, in any case, be held to have continued after 8th March, 1950 , if the principle laid down by Supreme Court in Firm A.T.B. Mehtab Majid & Co. v. State of Madras is applied….
[…]
8. On that analogy, it was argued that, if we hold that the Prohibition Order of 1950 , was invalid, the previous Prohibition Order of 1119, cannot be held to be revived. This argument ignores the distinction between supersession of a rule, and substitution of a rule. In the case of Firm A.T.B. Mehtab Majid & Co., the new Rule 16 was substituted for the old Rule 16. The process of substitution consists of two steps. First, the old rule is made to cease to exist and, next, the new rule is brought into existence in its place. Even if the new rule is invalid, the first step of the old rule ceasing to exist comes into effect, and it was for this reason that the court held that, on declaration of the new rule as invalid, the old rule could not be held to be revived.
In the case before us, there was no substitution of the Prohibition Order of 1950 , for the Prohibition order of 1119. The Prohibition Order of 1950 , was promulgated independently of the Prohibition Order of 1119 and because of the provisions of law it would have had the effect of making the Prohibition Order of 1119 inoperative if it had been a valid Order. If the Prohibition Order of 1950 is found to be void ab initio, it could never make the Prohibition Order of 1119 inoperative.”
Justice Bhargava observed that unlike in ATB Mehtab Majid, in Koteswar Vittal Kamath, the later order did not substitute the earlier order but it merely superseded the earlier order. Thus, the earlier order was never expressly repealed and hence if the later order was struck down, the earlier order continued to be in force. However, beyond this distinction, Justice Bhargava went on to explain what in his view was the reason for the holding in ATB Mehtab Majid, namely that the process of substitution had two distinct steps, first, an omission and second, an insertion. According to Justice Bhargava, the reason for the outcome in ATB Mehtab Majid was that where an amending rule is struck down, only the second step of inserting new words is invalidated but the first step of omitting old words continues to have legal effect.
Laxmibai v. State of Madhya Pradesh, AIR 1951 Nag 94
In Laxmibai v. State of Madhya Pradesh, AIR 1951 Nag 94, the case concerned the Central Provinces & Berar Regulation of Letting Accommodation Act, 1946 which, when originally enacted, stipulated that the statute would expire at the end of one year . However, by an Ordinance, and later a validating legislation, the lifespan of the statute was extended till such date as the provincial government may specify. The Ordinance and validating legislation were challenged on the grounds of excessively delegating legislative functions (concerning the lifetime of a statute) to the executive.
A Full Bench of the Nagpur High Court upheld the Ordinance and the validating legislation extending the operation of the 1946 Act. Justice Hidayatullah, as the learned Chief Justice then was, speaking for the majority of the Full Bench went on to discuss the question of whether, if the amending Ordinance had been void, the original text would have been revived or not. The learned Judge observed:
“144. The original section read:
“It shall come into force on 1-10 -1947 & shall remain in operation for a period of one year .’
145. The underlined (here italicised) words alone were amended. If the amendment is unconstitutional we must leave it completely out. We cannot use the intention underlying that amendment to take the place of enactment. We cannot read the legislative act of the Governor as involving a repeal & a reenactment & give effect to the repeal though not the enactment. To do so would leave the original section truncated, & besides, there is no authority to give effect to a mere legislative intent or purpose…
[…]
146. … When the amendment comes later & is unconstitutional it has no effect whatever.”
The judgement in Laxmibai outlines a different approach to analysing the legal effect of a judicial decision invalidating an amendment. Justice Hidayatullah found that where an amendment is invalid, the legal effect of the amendment is nullified in its entirety.
The learned Judge relied on several decisions of the US Supreme Court , most notably, Frost v. Corporation Commissioner (278 U.S. 505.) where Justice Sutherland held:
“Here it was conceded that the statute, before the amendment, was entirely valid. When passed, it expressed the will of the Legislature which enacted it. Without an express repeal, a different Legislature undertook to create an exception, but, since that body sought to express its will by an amendment which, being unconstitutional, is a nullity and therefore, powerless to work any change in the existing statute, that statute must stand as the only valid expression of the legislative intent.”
According to Frost and Laxmibai, where an amendment is invalidated both the amendment’s omission of old words and its insertion of new words have no legal effect. Justice Hidayatullah noted that giving effect to the legislative intent of repeal while simultaneously striking down the new enactment could lead to a truncated statutory provision rendering the law unworkable. The effect of the judgement may be to inadvertently invalidate two provisions, both the new and the old, despite there being no constitutional fault with the old.
In terms of precedential value, Justice Hidayatullah’s observations are admittedly also obiter dictum given that the High Court had upheld the Ordinance. However, these observations were subsequently relied on by the High Court of Nagpur in Shriram Gulabdas v. Board of Revenue, Madhya Pradesh, 1952 (3) STC 343. and in the decisions of Supreme Court that we shall now advert to.
Reference
Property Owners’ Association v. State of Maharashtra (2024)