The correct answer is Neither 1 nor 2.

Article 262: Inter-State Water Dispute:

1. Parliament may by law provide for the adjudication of any dispute or complaint concerning the use, distribution, or control of the waters of, or in any inter-state river or river valley. Hence statement 1 is not correct.
2. Notwithstanding anything in this Constitution, Parliament may by law provide that neither the Supreme Court nor any other court shall exercise jurisdiction in respect of any such dispute or complaint as is referred to in clause(1).

Inter-State Council: Article 263

• Constituted on the recommendations of the Sarkaria Commission. (for state coordination)
• President constitutes ISC on the ground of Public interest along with deciding the nature of duties to be performed by it and its organization and procedure and charges it with functions:- (Hence statement 2 is not correct.)

1. Inquiring into and advising upon disputes which may have arisen between states.
2. Investigating and discussing subjects in which some or all of the states, or the union and one or more of the States have a common interest.
3. Making recommendations upon any such subjects and in particular, recommendations for the better coordination of policy and action concerning those subjects.