A bench comprising Justices PC Ghose and Amitava Roy also made clear that it would deliberate upon Punjab's contention as to whether the judgement of a five-judge constitution bench, which held its law unconstitutional, was binding.
"The decree passed by this court has to be given effect to," the bench said.
A five-judge bench, while answering the Presidential Reference on November 11, 2016, had held that the Punjab Termination of Agreement Act, 2004 was unconstitutional as it negated the effect of apex court judgements of 2002 and 2004.
Senior advocate RS Suri, appearing for the Punjab government, said the five-judge bench verdict was not binding as it was given under its advisory jurisdiction and the Punjab law still stands.
He also said that the decrees passed by the apex court was not executable.
The Punjab government told the bench that the verdict which held Punjab Termination of Agreement Act, 2004 as unconstitutional did not render the law invalid, as the apex court had only given an opinion on the Presidential Reference.
The Parkash Singh Badal government told the court that the State Act took away the very basis of the 2002 decree that went in favour of construction of SYL canal.
Mr Suri said Punjab was forced to pass the 2004 Act because its water complaint filed in January 2003 was not acted upon and the Centre never set up a water tribunal to address its grievances.
The bench, however, clarified that it would not revisit the facts and asked both the states to argue whether the verdicts including the one delivered on the Presidential Reference were binding or not.
Senior advocate Shyam Divan, appearing for the Haryana government, opposed Punjab's submission and said if one state has to challenge the validity of a law passed by another, then it would pose serious consequences for India's integrity.
"If one state is forced to challenge the validity of a law passed by another state before the Supreme Court, then the Indian federation is not on a stable course," Mr Divan said.