JAYANT VERMA & ORS. versus UNION OF INDIA & ORS.

[2018] 2 S.C.R. 679

JAYANT VERMA & ORS.

UNION OF INDIA & ORS.(Writ Petition (Civil) No. 134 of 2013)

FEBRUARY 16, 2018

[R. F. NARIMAN AND NAVIN SINHA, JJ.]

Banking Regulation Act, 1949 – s.21A – Constitutionalvalidity of – Held: s.21A is valid as it is part of an enactment which,in pith and substance, is relatable to Entry 45, List I of the SeventhSchedule to the Constitution – However, insofar as s.21A incidentallyencroaches upon the field of relief of agricultural indebtedness, setout in Entry 30, List II, it will not operate only in States where thereis State Debt Relief Act which deals with the subject matter ofrelief of agricultural indebtedness, where the State Debt Relief Actcovers debts due to “banks”, as defined in those Acts – In Stateswhere the State Debt Relief Act does not apply to banks at all, orapplies only to certain specified banks, s.21A will, in the formersituation, apply in such States, and, in the latter situation, applyonly in respect of loans made to agriculturists where such loans aregiven by banks other than the banks specified or covered by theconcerned State Debt Relief Act, as the case may be – Constitutionof India – Seventh Schedule List I Entry 45 – Judicial review –Usurious Loans Act, 1918 – State Debt Relief Legislations.

Banking Regulation Act, 1949 – s.21A – Non-obstante clause– Interpretation of – Whether s.21A can be said to prevail overState Debt Relief Act in the event of clash between the two – Held:So far as relief of agricultural indebtedness is concerned, wherethere is State legislation on the same subject matter which directlyclashes with s.21A, s.21A will have to give way to the State DebtRelief Act insofar as relief from agricultural indebtedness due tobanks is concerned – The non-obstante clause in s.21A cannotoverride State Debt Relief Act in this situation, as Parliament cannotgive itself supremacy over State legislation where none exists underthe Constitution – If this were not the case, the exclusive power ofthe States to make laws within List II would become illusory, and“Parliamentary paramountcy” would trap many beneficent Statelegislation made within its exclusive domain.

AConstitution of India – Seventh Schedule, List II, Entry 30 –Interpretation of Entry 30 – The expression “relief of agriculturalindebtedness” does not take colour from the expression “moneylending and money lenders” preceding it in Entry 30 List II – Thetwo expressions are separated by semicolon which shows thatthey are not inextricably connected – Thus, money lending is notBrestricted to the agricultural sector but includes within its scopemoney lent to all person including purely commercial transactions– Interpretation of Constitution.

Constitution of India – Seventh Schedule, List I, Entry 45 –Banking – Whether s.21A of Banking Regulation Act trenches uponCEntry 30, List II – Held: In pith and substance, the BankingRegulation Act fall within Entry 45, List I, but insofar as relief ofagricultural indebtedness is concerned, s.21A certainly trenchesupon Entry 30, List II – Banking Regulation Act, 1949 – s.21A –Doctrine of pith and substance.DConstitution of India – Seventh Schedule, List I, Entry 45;List II Entry 18 and 30 – Agricultural indebtedness, relief ofagricultural indebtedness and banking – How they all fall underdifferent Entries – Held: Qua the general entry “banking” underEntry 45, List I, which deals with banks of all kinds and the lendingEby banks as well as recovery of debts by banks generally, Entry 30,List II, which deals with relief of agricultural indebtedness, is special,for the reason that indebtedness itself is only one species of bankingand agricultural indebtedness is sub-species thereof – The speciesof indebtedness is within Entry 45, List I, whereas the sub-speciesof agricultural indebtedness is within Entry 18, List II – It is onlyFrelief of agricultural indebtedness, which is sub-sub-species ofindebtedness, which is relatable to Entry 30, List II.Constitution of India – Art.246 – Federal supremacy –Doctrine of pith and substance – Doctrine of incidental trenchingand unoccupied field – Once the spheres of both the entries i.e.GState List Entry and Union List Entry have been delineated, thedoctrine of pith and substance comes in to test whether particularlegislation is referable, as whole, to an entry in List I or to thecompeting entry in List II – Once it is found that the legislation as awhole is referable to an entry in List I, but it incidentally encroaches

upon an entry in List II, there is no reason for the doctrine ofunoccupied field not to apply to federal legislation – The expression“with respect to” appears in all the sub-articles of Art.246, whichexpression, so far as sub-articles (1) to (3) are concerned, importsthe twin doctrines of incidental trenching and unoccupied field,which applies, therefore, to legislation made under sub-articles (1)to (3) of Art.246, thus making it clear that incidental encroachmentby Parliament cannot be tolerated when the exclusive field allottedto the State legislature is not unoccupied –The paramountcyprinciple contained in Art.246, is only taken as last resort afterharmonious construction fails, and, that too, qua entries incompeting lists – Once legislation is referable to one list or theother, the doctrine of incidental trenching and unoccupied fieldwould apply equally to both Parliamentary and State legislations.

Interpretation of Constitution – Harmonious construction –How Entry 45 of List I and Entry 30 List II to be harmonized –Scope of Art.246 – Where two entries in Union List and State Listare irreconcilable – Held: Art.246 only states that where two entriesin the Union List and the State List, respectively, have head-oncollision and are irreconcilable, then, as last resort, the entry inthe State List is to give way to the entry in the Union List – But, thisis only as last resort – First, it is incumbent upon the Court toharmonize the entries, if possible, by giving effect to both and notrendering any one of them otiose – Constitution of India – Art.246– Banking Regulation Act, 1949 – s.21A.

Precedent – Binding effect – ratio decidendi – Where matteris not argued at all by the respondent, and the judgment is one ofreversal, it would be hazardous to state that the law can be declaredon an ex parte appraisal of the facts and the law, as demonstratedbefore the Court by the appellant’s counsel alone – That apart,where there is detailed judgment of the High Court dealing withseveral authorities, and it is reversed in cryptic fashion withoutdealing with any of them, the per incuriam doctrine kicks in, andthe judgment loses binding force, because of the manner in which itdeals with the proposition of law in question – Also, the ratiodecidendi of judgment is the principle of law adopted havingregard to the line of reasoning of the Judge which alone binds infuture cases – Such principle can only be laid down after

Adiscussion of the relevant provisions and the case law on the subject– If only one side is heard and judgment is reversed, without anyline of reasoning, and certain conclusions alone are arrived at,without any reference to any case law, such judgment would notbe binding upon apex court – Constitution of India – Art.141 –Doctrine of per incuriam.B

The Court

HELD: 1. There can be no doubt that the BankingRegulation Act deals with the subject “banking” insofar as itlicenses banking companies, as defined, and cooperative banks,Cand seeks to regulate them. Section 21A, though by way ofamendment, is undoubtedly an integral part of this Act relatingto the interdict on the reopening of loan transactions between abanking company and its debtor, on the ground that the rate ofinterest charged is excessive. There can be no doubt that lawrelating to indebtedness of debtor to banking company andDthe interdict against court reopening any such transaction, onthe ground that interest charged by the banking company isexcessive, would relate to the business of banking. Theexpression “banking” contained in Entry 45, List I is to be givena wide meaning. No doubt, the statute as whole and the saidESection does fall within Entry 45, List I. The effect of Section21A is to put out of harm’s way the Usurious Loans Act and allState Debt Relief Acts. The Usurious Loans Act was enacted in1918; its object being to confer on Courts in India an equitablejurisdiction in cases relating to unconscionable usurious contract[Paras 11, 12][708-G-H; 709-A-C]F

Rustom Cavasjee Cooper (Banks Nationalisation)v. Union of India (1970) 1 SCC 248 : [1970] 3 SCR530; Union of India v. Delhi High Court Bar Assn.,(2002) 4 SCC 275 : [2002] 2 SCR 450 ; Prafulla KumarMukherjee v. Bank of Commerce Ltd., Khulna,GAIR 1947 PC 60; Virendra Pal Singh v. Distt. Asstt.Registrar, Coop. Societies (1980) 4 SCC 109;Harish Tara Refractories (P) Ltd. v. Certificate Officer,Sader Ranchi, (1994) 5 SCC 324 – relied on.

2. The courts are given very wide powers inter alia, to scaledown rates of interest considering whole host of factors,including the financial condition of the debtor. State Debt ReliefActs, go even further and not only relate to scaling down ofexcessive rates of interest, but also, in certain cases, grant awaiver of the interest, either wholly or partially, and of the principalsum of the loan, either wholly or partially. The State Debt ReliefActs are validly made under Entry 30, List II of the SeventhSchedule to the Constitution. [Para 13][711-G-H; 712-A-B]

Fatehchand Himmatlal & Ors. v. State of Maharashtraetc. (1977) 2 SCC 670 : [1977] 2 SCR 828; Pathummaand Ors. v. State of Kerala and Ors. (1978) 2 SCC 1 :[1978] 2 SCR 537 – relied on.

3. The plea that the expression “relief of agriculturalindebtedness” must take colour from the expression “moneylending and money lenders” preceding it in Entry 30, List II ofthe Seventh Schedule is not accepted for several reasons. Firstly,purely grammatically, semicolon separates the two expressionsshowing that they are not inextricably connected. The widestand the most liberal possible meaning must be given to Entry 30,List II of the Seventh Schedule. The latter part of this entrycannot be narrowed down by any rule of noscitur sociis, or takingcolour from the former part of the entry. In fact, various StateActs were already in existence at the time of the Constitution,which dealt with the subject of relief of agricultural indebtednessfrom the point of view of the money lender. The addition of thesubject “relief of agricultural indebtedness”, for the first time,by the Constitution would refer to relief of agriculturalindebtedness not only from money lenders, but also from allpersons who give loans including banks. For otherwise, thesubject matter “relief of agricultural indebtedness” would havebeen subsumed within “money lending and money lenders” andwould have been wholly unnecessary to add as subject matterseparate and distinct from “money lending and money lenders”.That “money lending and money lenders” is separate and distinctfrom “relief of agricultural indebtedness” is also clear from thefact that money lending is not restricted to the agricultural sector,

Abut would include, within its scope, money lent to all persons,including purely commercial transactions. Also, there are manysubjects in the Seventh Schedule which are contained in one entry,but which deal with divergent matters. For example Entry 5, ListIII deals with seven completely different subjects, all bandedtogether under Entry 5 and separated by semicolons, making itBclear that each subject matter is separate and distinct from whatfollows each semicolon. Therefore, alternate plea that “relief ofagricultural indebtedness” would otherwise be in separate entryby itself must also, therefore, be rejected. Also, the object of therelief of agricultural indebtedness is to free the farmer from theCbonds of debts incurred, inter alia, due to adverse natural causes,and debt relief would be necessary in the case of adverse naturalcauses whatever be the source of the debt availed.[Para 15][713-C-F; 714-A-E]

Hoechst Pharmaceuticals Ltd. v. State of BiharD(1983) 3 SCR 130; Sudhir Chandra Nawn v. WTO(1969) 1 SCR 108 – relied on.

4. Article 246 only states that where two entries in theUnion List and the State List, respectively, have head-oncollision and are irreconcilable, then, as last resort, the entry inEthe State List is to give way to the entry in the Union List. But,this is only as last resort. First, it is incumbent upon the Courtto harmonise the entries, if possible, by giving effect to both andnot rendering any one of them otiose. [Para 16][717-F-G]

FCalcutta Gas Co. (Proprietary) Ltd. v. State of W.B.[1962] 3 Suppl. SCR 1 ; Central Bank of India v.Ravindra (2002) 1 SCC 367 : [2001] 4 Suppl. SCR323 ; Waverly Jute Mills Co. Ltd. v. Raymon & Co.(India) (P) Ltd., [1963] 3 SCR 209 – relied on.

G5. Qua the general entry “banking” under Entry 45, List I,which deals with banks of all kinds and the lending by banks aswell as recovery of debts by banks generally, Entry 30, List II,which deals with relief of agricultural indebtedness, is special,for the reason that indebtedness itself is only one species ofbanking and agricultural indebtedness is sub-species thereof.H

The species of indebtedness is within Entry 45, List I, whereasthe sub-species of agricultural indebtedness is within Entry 18,List II. It is only relief of agricultural indebtedness, which is asub-sub-species of indebtedness, which is relatable to Entry 30,List II. The constitutional scheme, insofar as agriculture isconcerned, is that it is an exclusive State subject to one exception– that the custody, management and disposal of property, declaredby law to be evacuee property includes agricultural land, andmakes it concurrent subject. This being the case, the two entriesare best harmonised by giving effect to both. This can only bedone if the relief of agricultural indebtedness is to include banks,both cooperative and otherwise. Entry 18, List II gives the Statesexclusive power to legislate on “land improvement andagricultural loans.” Entry 45, List I will remain intact and willhave carved out of it the relief of agricultural indebtedness, which,is sub-sub-species of indebtedness, which itself is one of manyaspects of banking. In pith and substance, the BankingRegulation Act does fall within Entry 45, List I, but insofar asrelief of agricultural indebtedness is concerned, Section 21Acertainly trenches upon Entry 30, List II, read in the mannerindicated above. As is well settled, the doctrine of pith andsubstance is only to view legislation as whole and see whether,as whole, it falls within one or other entry of List I or List II ofthe Seventh Schedule. While thus falling as whole within oneList, certain provisions in particular Act enacted by onelegislature may incidentally trench upon forbidden fieldexclusively given to another legislature. [Paras 19, 20, 22][722-

B-D; 725-F-H; 726-C-D]

Subrahmanyan Chettiar v. Muttuswami GoundanAIR 1941 FC 47 ; Attorney General for Canada v.Attorney General for British Columbia 1930 A.C. 111– referred to.

Federation of Hotels and Restaurants v. Union of India–(1989) 3 SCC 634 : [1989] 2 SCR 918 held inapplicable.

6. Once the spheres of both the entries i.e. State List Entryand Union List Entry have been delineated, the doctrine of pith

CDE

Aand substance comes in to test whether particular legislation isreferable, as whole, to an entry in List I or to the competingentry in List II. Once it is found that the legislation as whole isreferable to an entry in List I, but it incidentally encroaches uponan entry in List II, there is no reason for the doctrine ofunoccupied field not to apply to federal legislation. The expressionB“with respect to” appears in all the sub-articles of Article 246,which expression, so far as sub-articles (1) to (3) are concerned,imports the twin doctrines of incidental trenching and unoccupiedfield, which applies, therefore, to legislation made under sub-articles (1) to (3) of Article 246, thus making it clear that incidentalCencroachment by Parliament cannot be tolerated when theexclusive field allotted to the State legislature is not unoccupied.The paramountcy principle contained in Article 246, is only takenas last resort after harmonious construction fails, and, that too,qua entries in competing lists. Once legislation is referable to

one list or the other, the doctrine of incidental trenching andDunoccupied field would apply equally to both Parliamentary andState legislations. [Paras 28 and 29][730-D-H]

In Re CP & Berar Sales of Motor Spirit & LubricantsTaxation Act 1938 AIR 1939 FC 1; UCO Bank v. DipakEDebbarma (2017) 2 SCC 585 : [2016] 11 SCR 723;Special Reference No.1 of 2001 (2004) 4 SCC 489 :[2004] 3 SCR 534 – referred to.

7. Where Section 21A of the Banking Regulation Actincidentally trenches upon the State Debt Relief Acts, enactedFunder Entry 30, List II, so far as relief of agricultural indebtednessis concerned, where there is State legislation on the same subjectmatter which directly clashes with Section 21A, Section 21A willhave to give way to the State Debt Relief Acts insofar as relieffrom agricultural indebtedness due to banks is concerned. Thenon-obstante clause in Section 21A cannot override State DebtGRelief Act in this situation, as Parliament cannot give itselfsupremacy over State legislation where none exists under theConstitution. [Para 32][734-E-F; 735-A-B]

8. In Yasangi Venkateswara Rao series of conclusions wereput together without any clear reasoning in support. This wasH

probably because only appellant appeared before the Court andargued the case. The respondent though served did not appearand consequently was not heard. The law is clear that where amatter is not argued at all by the respondent, and the judgmentis one of reversal, it would be hazardous to state that the law canbe declared on an ex parte appraisal of the facts and the law, asdemonstrated before the Court by the appellant’s counsel alone.That apart, where there is detailed judgment of the High Courtdealing with several authorities, and it is reversed in crypticfashion without dealing with any of them, the per incuriam doctrinekicks in, and the judgment loses binding force, because of themanner in which it deals with the proposition of law in question.In the circumstances, the judgment in Yasangi Venkateswara Raocannot deter from laying down the law on the subject. [Para43][742-G-H; 743-A]

Dalbir Singh v. State of Punjab [1979] 3 SCR 1059 ;Som Prakash Rekhi v. Union of IndiaD[1981] 2 SCR 111 ; Subhajit Tewary v. Union of India[1975] 3 SCR 616 ; Municipal Corpn. of Delhi v.Gurnam Kaur (1989) 1 SCC 101 : [1988] 2 Suppl.SCR 929 ; State of M.P. v. Narmada Bachao Andolan(2011) 7 SCC 639 : [2011] 6 SCR 443 – relied on.

State Bank of India, In re, AIR 1986 AP 291 ;State Bank of India v. Yasangi Venkateswara Rao(1999) 2 SCC 375 : [1999] 1 SCR 213 – referred to.

Case Law Reference

FCIVIL ORIGINAL JURISDICTION: Writ Petition (Civil)No. 134 of 2013.

Under Article 32 of the Constitution of India.

Sanjay Parikh, Abhimanue Shrestha, Parmanand Pandey, Advs.for the Appellants.G

Jayant Bhushan, Sr. Adv, Ms. Shirin Khajuria, Amit Sharma,Ms. Asha G. Nair, Raj Bahaadur, Ms. Sanskriti Bhardwaj, Ms. AyushiGaur, S. A. Haseeb, Vikas Bansal, Ms. Anil Katiyar, Ms. Sushma Suri,H.S. Parihar, Kuldeep Parihar, Tushar Bhushan, Advs. for theRespondents.H

The Judgment of the Court was delivered by

R. F. NARIMAN, J. 1. writ petition, by way of PublicInterest Litigation, filed under Article 32 of the Constitution of India,assails the constitutional validity of Section 21A of the Banking RegulationAct, 1949. The aforesaid section was introduced into the BankingRegulation Act by the Banking Laws (Amendment) Act of 1983 witheffect from 15.2.1984. Section 21A of the Banking Regulation Act readsas under:

“21A. Rates of interest charged by banking companies notto be subject to scrutiny by courts

Notwithstanding anything contained in the Usurious Loans Act,1918 (10 of 1918), or any other law relating to indebtedness inforce in any State, transaction between banking company andits debtor shall not be re-opened by any court on the ground thatthe rate of interest charged by the banking company in respect ofsuch transaction is excessive.”

2. It will be seen that Section 21A interdicts the reopening bycourts of debt between banking company and its debtor, on the groundthat the rate of interest charged by the banking company, in respect of aloan transaction, is excessive. The section seeks to keep out of harm’sway the Usurious Loans Act, 1918 and/or any other State legislationrelating to indebtedness, and then declares that no such loan transactionshall be reopened by any court on the ground of charging of excessiverates of interest. The writ petition has been filed by certain public spiritedcitizens, who rely on the report of the Parliamentary Standing Committeeon Agriculture for the year 2006-2007 to say that Section 21A should beabolished, insofar as it applies to rural indebtedness. The StandingCommittee’s Report reads as follows:

“The Committee feels that the worst exploitation of farmers isthrough the adverse credit policies of the financial institutions whichcompel farmers to starve under the burden of loans and commitsuicides. The Committee finds that in 1918, the British passed theUsurious Loans Act which provided that no farmer could becharged rate of interest higher than the authorised rate- whichat that time was 5.5 per cent, and if charged, the case could bere-opened in court and the entire account re-settled. Moreover,

the total amount of interest could not be higher than the originalcapital. But in 1949, the Banking Regulation Act was passed whichmade special provision under Section 21 (A) saying that thesewill not apply to banking companies including cooperative banks.

In view of the plight of farmers due to heavy burden of credits,the Committee recommend that section 21 (A) of the BankingRegulation Act should be scrapped. All out concerted efforts shouldbe made to bring down the rate of interest on Farm Credit to thelevel of 5.5% simple interest, as it used to be in the early 20[th]century. In case of cooperatives, transaction cost/margin at eachlayer must be reduced as the length of chain, from RBI toNABARD to State-District and Cooperative Societies at villagelevel and Regional Rural Banks, is very big. Eventually, the farmerhas to take the burden of all these middlemen/lending agencies.The Committee, therefore, recommends to shorten this chain, sothat the eventual creditor is directly linked to the borrower. TheCommittee further desire the Government to ensure that in nocase, the interest should be higher than the original capital andcharging of compound rate of interest should be absolutelyprohibited so that exploitation of farmers by financial institutionsis minimized.

REPLY OF THE GOVERNMENT

1.23 The Government in their action taken reply have stated thatin order to bring down rate of interest on farm loans it has beenannounced in the Union Budget for the year 2006-07 that effectivefrom Kharif 2006-07, farmers would receive crop loans upto aprincipal amount of Rs. 3 lakh at 7% rate of interest and theGovernment of India would provide necessary interest subventionfor this purpose. Crop loans to farmers are generally made availablethrough Kisan Credit Cards (KCC) which are valid for 3 years.As incentive for good performance, credit limits under KCC couldbe enhanced to take care of increase in costs, change in croppingpattern etc. Banks have been advised by RBI that total interestdebited to an account should not exceed the principal amount inrespect of short term loans advanced to small and marginalfarmers. As per the extant RBI instructions, banks are not allowedto compound interest on current dues of crop loans and term loans

in respect of direct agricultural advances granted to farmers. Ifsuch loans become overdue banks have been advised that wherethe default is due to genuine reasons, they should extend the periodof loan or reschedule the installments under term loans. Oncesuch relief has been extended the over dues become currentdues and hence banks should not compound interest thereon. Incase of long duration crops, interest is recovered only annually.

COMMENTS OF THE COMMITTEE

1.24 The Committee are dismayed to know that the Departmenthas not paid any heed to the recommendation of the Committeeto scrap Section 21 (A) of Banking Regulation Act, 1949 whichhinders the provision of Usurious Loans Act, 1918 under which itwas, inter alia, provided that the total amount of interest on loantaken by farmer could not be higher than the original capital.The Committee, therefore, reiterate their earlier recommendationthat Section 21 (A) of the Banking Regulation Act, 1949 shouldbe deleted so as to ensure that no Bank charges interest morethan the original capital, irrespective of the fact, whether it is ashort term loan or long term loan, from small and marginal farmers.

Moreover, the issue of cutting the costs/margin at each layer ofcooperative has also not been addressed. The Committee,therefore, reiterates their earlier recommendation to shorten thechain of cooperative loan institutions and directly link the eventualcreditor to the borrowers.”

According to the petitioners, total number of 2,56,913 farmershave committed suicide in India between the years 1995 to 2010, andthis is because, and directly linked to, usurious rates of interest beingcharged from them by banks, which cannot be interfered with by courts,thanks to Section 21A.

3. Shri Sanjay Parikh, learned counsel appearing on behalf of thewrit petitioners, took us through the Usurious Loans Act to show that inBritish India, even foreign power was alive to the fact that courts needto interdict excessive rates of interest, and have been given completefreedom to do so, depending on the facts of each case, including takinginto account the plight of the farmer debtor. He also referred to andrelied upon various State Debt Relief Acts, by which every State has

Arecognized this, and has, thus, provided, by way of legislation, that loansand interest thereon either be waived totally or partially or that courtsmay come to the rescue of the farmer debtor by lowering the rate ofinterest. According to him, many States adopted the rule of Damdupatso that in no circumstance can interest charged, for any periodwhatsoever, exceed the principal amount of loan. He strongly reliedBupon this Court’s judgments in Fatehchand Himmatlal & Ors. v. Stateof Maharashtra etc., (1977) 2 SCC 670 and Pathumma and Ors. v.State of Kerala and Ors. (1978) 2 SCC 1, to show that State DebtRelief Acts have been unsuccessfully challenged in this Court, and arereferable to Entry 30, List II of the Seventh Schedule to the Constitution.CHe referred to the Constituent Assembly Debates to show that that partof Entry 30, List II, which speaks of relief of agricultural indebtedness,was introduced by the Constitution for the first time, not being in thepredecessor entry in the Government of India Act, 1935. He also referredto and relied upon proposed amendment by Shri Shibban Lal Saxena,

by which it was sought to place the aforesaid Entry 30 into the ConcurrentDList, so that Parliament may also have say in the relief of agriculturalindebtedness. However, this was turned down by the ConstituentAssembly, so that this subject is exclusively within the domain of theState legislature.

4. He next relied upon decision of single Judge of the AndhraEPradesh High Court reported as State Bank of India, In re, AIR 1986AP 291 and commended its acceptance by us. He then referred to thisCourt’s judgment reported as State Bank of India v. YasangiVenkateswara Rao (1999) 2 SCC 375. He fairly pointed out that theaforesaid single Judge judgment has been set aside by this Court, butFstated that no ratio decidendi was forthcoming from the Supreme Courtjudgment. This was because paragraph 7 of the aforesaid judgmentwas both laconic and contained only conclusions without any reasoning.He also argued that the said decision is per incuriam, not having referredto the number of judgments that were relied upon by the learned single

Judge. He also pointed out that arguments were made only by theGappellant, there being no arguments on behalf of the respondent, andthat, therefore, the aforesaid judgment would have no binding effect asa precedent. He took us through the aforestated report of theParliamentary Standing Committee on Agriculture for the year 2006-2007 to show that Parliament was alive to the fact that Section 21AH

ought to be abolished, as it was very harsh provision which led tofarmer suicides on mass scale. He also argued that the said provisionis violative of Article 14, both in its discriminatory aspect as well as thefact that Section 21A is an arbitrary piece of legislation which needs tobe struck down. He also argued that, in any case, as an alternativeargument, the said Section should be read down when applied to loansgiven by banks to the rural agricultural sector.

5. On the other hand, Shri Jayant Bhushan, learned senior counselappearing on behalf of the Reserve Bank of India, referred us to Article246 of the Constitution and to several judgments thereunder and statedthat Section 21A squarely falls within Entry 45, List I of the SeventhSchedule to the Constitution, which is “banking”. According to him,even if some part of the Section were to incidentally trench upon Entry30, List II, having regard to the federal paramountcy principle, Statelegislation under Entry 30, List II must give way to Section 21A and notthe other way around. He also argued that the best way of reconcilingEntry 30, List II with Entry 45, List I is to say that “relief of agriculturalindebtedness” will not include indebtedness to banks. He took us throughthe counter affidavit of the RBI to show that the RBI was fully alive tothe plight of poor farmers, and had taken several measures, includingissuance of guidelines, to assist them. While he agreed that this Court’sjudgment in Yasangi Venkateswara Rao (supra) could have been moreelaborate, he argued that paragraph 7 lays down clear ratio decidendi,and that this Court ought to follow the same. Insofar as the plea ofArticle 14 is concerned, he argued that there is no pleading in the writpetition stating how Article 14 had been breached, and this being thecase, there being presumption of constitutionality of Section 21A, suchpresumption had not been rebutted in this case.

6. Ms. Shirin Khajuria, learned counsel who appeared on behalfof the Union of India, painstakingly took us through the provisions of theBanking Regulation Act. According to her, “relief of agriculturalindebtedness”, that is in the latter part of Entry 30, List II of the SeventhSchedule to the Constitution, should be read along with “money lendingand money lenders” which is the first part of the said entry. This beingthe case, relief of agricultural indebtedness would apply only to moneylenders and money lending and not to banks at all. If the subject of reliefof agricultural indebtedness were not linked to money lending, it wouldhave found itself in separate entry in the State List, which is not the

Acase. She also relied upon number of judgments to buttress hersubmissions, and read copiously from the two counter affidavits filed bythe Union of India to show how the Central Government was fully aliveto the plight of poor farmers, and had set up expert groups to report onthe same.

B7. Having heard learned counsel for both parties, it is necessaryto first set out the relevant provisions of the Government of India Act,1935 and the Constitution.

“Government of India Act, 1935

List I- Federal Legislative ListC

38. Banking, that is to say, the conduct of banking business bycorporations other than corporations owned or controlled by aFederated State and carrying on business only within that State.

List II- Provincial Legislative ListD

27. Trade and commerce within the Province; markets and fairs;money lending and money lenders.

xxx xxx xxx

Constitution of IndiaE

List I- Union List

45. Banking.

List II- State List

F30. Money-lending and money-lenders; relief of agriculturalindebtedness.

xxx xxx xxx

Article 246. Subject-matter of laws made by Parliament andby the Legislatures of States.

(1) Notwithstanding anything in clauses (2) and (3), Parliamenthas exclusive power to make laws with respect to any of thematters enumerated in List I in the Seventh Schedule (in thisConstitution referred to as the “Union List”).

(2) Notwithstanding anything in clause (3), Parliament, and, subjectto clause (1), the Legislature of any State also, have power tomake laws with respect to any of the matters enumerated in ListIII in the Seventh Schedule (in this Constitution referred to as the“Concurrent List”).

(3) Subject to clauses (1) and (2), the Legislature of any State hasexclusive power to make laws for such State or any part thereofwith respect to any of the matters enumerated in List II in theSeventh Schedule (in this Constitution referred to as the “StateList”).

(4) Parliament has power to make laws with respect to any matterfor any part of the territory of India not included in Statenotwithstanding that such matter is matter enumerated in theState List.”

8. In order to appreciate the scope of the subject “banking” inEntry 45, List I, we must see first the judicial dicta on the subject. InRustom Cavasjee Cooper (Banks Nationalisation) v. Union ofIndia, (1970) 1 SCC 248 at 279 and 281, this Court stated:

“31. The expression “banking” is not defined in any Indian statuteexcept in the Banking Regulation Act, 1949. It may be recalledthat by Section 5(b) of that Act “banking” means “the acceptingfor the purpose of lending or investment of deposits of moneyfrom the public repayable on demand or otherwise, andwithdrawable by cheque, draft or otherwise”. The definition didnot include other commercial activities which banking institutionmay engage in.

xxx xxx xxx

36. The legislative entry in List I of the Seventh Schedule is“Banking” and not “Banker” or “Banks”. To include within theconnotation of the expression “Banking” in Entry 45, List I, powerto legislate in respect of all commercial activities which bankerby the custom of bankers or authority of law engages in, wouldresult in re-writing the Constitution. Investment of power to legislateon designated topic covers all matters incidental to the topic. Alegislative entry being expressed in broad designation indicatingthe contour of plenary power must receive meaning conduciveto the widest amplitude, subject however to limitations inherent in

the federal scheme which distributes legislative power betweenthe Union and the constituent units. The field of “banking” cannotbe extended to include trading activities which not being incidentalto banking encroach upon the substance of the entry “trade andcommerce” in List II.”

In Union of India v. Delhi High Court Bar Assn., (2002) 4SCC 275 at 285-286, this Court was faced with the constitutional validityof the Recovery of Debts Due to Banks and Financial Institutions Act,1993. In repelling the contention that the said Act would not fall underEntry 45, List I, this Court held:

“14. The Delhi High Court and the Guwahati High Court haveheld that the source of the power of Parliament to enact lawrelating to the establishment of the Debts Recovery Tribunal isEntry 11-A of List III which pertains to “administration of justice;constitution and organisation of all courts, except the SupremeCourt and the High Courts”. In our opinion, Entry 45 of List Iwould cover the types of legislation now enacted. Entry 45 of ListI relates to “banking”. Banking operations would, inter alia, includeaccepting of loans and deposits, granting of loans and recovery ofthe debts due to the bank. There can be little doubt that underEntry 45 of List I, it is Parliament alone which can enact lawwith regard to the conduct of business by the banks. Recovery ofdues is an essential function of any banking institution. In exerciseof its legislative power relating to banking, Parliament can providethe mechanism by which monies due to the banks and financialinstitutions can be recovered. The Tribunals have been set up inregard to the debts due to the banks. The special machinery of aTribunal which has been constituted as per the preamble of theAct, “for expeditious adjudication and recovery of debts dueto banks and financial institutions and for matters connectedtherewith or incidental thereto” would squarely fall within theambit of Entry 45 of List I. As none of the items in the lists are tobe read in narrow or restricted sense, the term “banking” inEntry 45 would mean legislation regarding all aspects of bankingincluding ancillary or subsidiary matters relating to banking. Settingup of an adjudicatory body like the Banking Tribunal relating totransactions in which banks and financial institutions are concernedwould clearly fall under Entry 45 of List I giving Parliament specificpower to legislate in relation thereto.”

It can, thus, be seen that Entry 45, List I has been construedwidely as including not only banking, but all aspects incidental or ancillaryto banking, so long as the field of “banking” does not trench upon tradingactivities not incidental to banking, which would fall under Entry 26, ListII.

9. At this stage, it will be important to advert to certain otherjudgments of this Court dealing with the expression “banking” vis-à-visother entries in the State List. Thus, in Prafulla Kumar Mukherjee v.Bank of Commerce Ltd., Khulna, AIR 1947 PC 60 at 65, the PrivyCouncil expounded the doctrine of pith and substance, and ultimatelyfound that, on proper reading of the entries concerned, there would beno clash between the Bengal Money Lenders Act, 1940, which wasreferable to the State List, and the Federal entries dealing with promissorynotes and banking. Thus, the Court held:

“35. Moreover, the British Parliament when enacting the IndianConstitution Act had long experience of the working of the BritishNorth America Act and the Australian Commonwealth Act andmust have known that it is not in practice possible to ensure thatthe powers entrusted to the several legislatures will never overlap.As Sir Maurice Gwyer C.J. said in Subramanyan Chettiar v.Muttuswami Goundan, 1940 FCR 188 at 201:

“It must inevitably happen from time to time that legislation,though purporting to deal with subject in one list, touchesalso on subject in another list, and the different provisions ofthe enactment may be so closely intertwined that blindobservance to strictly verbal interpretation would result in alarge number of statutes being declared invalid because thelegislature enacting them may appear to have legislated in aforbidden sphere. Hence the rule which has been evolved bythe Judicial Committee, whereby the impugned statute isexamined to ascertain its pith and substance or its true natureand character for the purpose of determining whether it islegislation with respect to matters in this list or in that.”

36. Their Lordships agree that this passage correctly describesthe grounds on which the rule is founded, and that it applies toprovincial as well as to Dominion legislation. No doubt experienceof past difficulties has made the provisions of the Indian Act more

exact in some particulars, and the existence of the ConcurrentList has made it easier to distinguish between those matters whichare essential in determining to which list particular provisions shouldbe attributed and those which are merely incidental. But theoverlapping of subject-matter is not avoided by substituting threelists for two or even by arranging for hierarchy of jurisdictions.

37. Subjects must still overlap and where they do the questionmust be asked what in pith and substance is the effect of theenactment of which complaint is made and in what list is its truenature and character to be found. If these questions could not beasked, much beneficent legislation would be stifled at birth, andmany of the subjects entrusted to provincial legislation could nevereffectively be dealt with.

38. Thirdly, the extent of the invasion by the provinces into subjectsenumerated in the Federal List has to be considered. No doubt itis an important matter, not, as their Lordships think, because thevalidity of an Act can be determined by discriminating betweendegrees of invasion, but for the purpose of determining what isthe pith and substance of the impugned Act. Its provisions mayadvance so far into Federal territory as to show that its true natureis not concerned with provincial matters, but the question is not,has it trespassed more or less, but is the trespass, whatever it be,such as to show that the pith and substance of the impugned Actis not money lending but promissory notes or banking? Once thatquestion is determined the Act falls on one or the other side of theline and can be seen as valid or invalid according to its true content.

39. This view places the precedence accorded to the three lists inits proper perspective. No doubt where they come in conflict ListI has priority over Lists III and II and List III has priority overList II, but the question still remains, priority in what respect?Does the priority of the Federal legislature prevent the provinciallegislature from dealing with any matter which may incidentallyaffect any item in its list or in each case has one to consider whatthe substance of an Act is and, whatever its ancillary effect,attribute it to the appropriate list according to its true character?In their Lordships’ opinion the latter is the true view.40. If this be correct it is unnecessary to determine whether thejurisdiction as to promissory notes given to the Federal legislatureis or is not confined to negotiability. The Bengal Money LendersAct is valid because it deals in pith and substance with moneylending, not because legislation in respect of promissory notes bythe Federal legislature is confined to legislation affecting theirnegotiability—a matter as to which their Lordships express noopinion.

41. It will be observed that in considering the principles involvedtheir Lordships have dealt mainly with the alleged invalidity of theAct, based on its invasion of the Federal entry, “promissory notes”Item (28) in List I. They have taken this course, because the casewas so argued in the courts in India.

42. But the same considerations apply in the case of banking.Whether it be urged that the Act trenches on the Federal list bymaking regulations for banking or promissory notes, it is still ananswer that neither of those matters is its substance and this viewis supported by its provisions exempting scheduled and notifiedbanks from compliance with its requirements.”

(Emphasis Supplied)

In Virendra Pal Singh v. Distt. Asstt. Registrar, Coop.Societies, (1980) 4 SCC 109 at 113-114, the aforesaid judgment wasfollowed and the U.P. Cooperative Societies Act, 1965, insofar as itdealt with Cooperative banks, was held to be within the sphere of theState List. This Court held:

“9. It was strenuously contended by the learned Counsel for thepetitioners in some of the cases that the U.P. Cooperative SocietiesAct, 1965, insofar as it was sought to be made applicable tocooperative banks was beyond the competence of the StateLegislature. The argument was that while the subject “cooperativesocieties” was included in Entry 32 of List II, “banking” was adistinct entry by itself in List I of the 7th Schedule (Entry 45) andtherefore, the State Legislature was incompetent to legislate inregard to banking by “cooperative societies”. There is no substancewhatever in this submission. Entry 43 of List I is “incorporation,regulation and winding up of trading corporations, including banking,

insurance and financial corporations but not including cooperativesocieties”. Entry 44 is “incorporation, regulation and winding upof corporations whether trading or not, with objects not confinedto one State, but not including universities”. Entry 45 is “banking”.Entry 32 of List II is, “incorporation, regulation and winding up ofcorporations, other than those specified in List I, and universities;unincorporated trading, literary, scientific, religious and othersocieties and associations; cooperative societies”.

10. We do not think it necessary to refer to the abundance ofauthority on the question as to how to determine whether alegislation falls under an entry in one list or another entry in anotherlist. Long ago in Prafulla Kumar Mukherjee v. Bank ofCommerce Ltd. [74 IA 23] the Privy Council was confrontedwith the question whether the Bengal Money-Lenders Act fellwithin Entry 27 in List II of the Seventh Schedule to the Governmentof India Act, 1935, which was “money-lending”, in respect ofwhich the provincial legislature was competent to legislate, orwhether it fell within Entries 28 and 38 in List I which were“promissory notes” and “banking” which were within thecompetence of the Central Legislature. The argument was thatthe Bengal Money-Lenders Act was beyond the competence ofthe provincial legislature insofar as it dealt with promissory notesand the business of banking. The Privy Council upheld the viresof the whole of the Act because it dealt, in pith and substance,with money-lending. They observed:“Subjects must still overlap, and where they do the questionmust be asked what in pith and substance is the effect of theenactment of which complaint is made, and in what list is itstrue nature and character to be found. If these questions couldnot be asked, much beneficent legislation would be stifled atbirth, and many of the subjects entrusted to provincial legislationcould never effectively be dealt with.”

Examining the provisions of the U.P. Cooperative Societies Act inthe light of the observations of the Privy Council we do not havethe slightest doubt that in pith and substance the Act deals with“cooperative societies”. That it trenches upon banking incidentallydoes not take it beyond the competence of the State Legislature.It is obvious that for the proper financing and effective functioning

of cooperative societies there must also be cooperative societieswhich do banking business to facilitate the working of othercooperative societies. Merely because they do banking businesssuch cooperative societies do not cease to be cooperative societies,when otherwise they are registered under the CooperativeSocieties Act and are subject to the duties, liabilities and controlof the provisions of the Cooperative Societies Act. We do notthink that the question deserves any more consideration and, we,therefore, hold that the U.P. Cooperative Societies Act was withinthe competence of the State Legislature. This was also the viewtaken in Nagpur District Central Cooperative Bank Ltd. v.Divisional Joint Registrar, Cooperative Societies [AIR 1971Bom 365 : 1971 Mah LJ 932] and Sant Sadhu Singh v. State ofPunjab [AIR 1970 P&H 528].”

(Emphasis Supplied)

Similarly, in Harish Tara Refractories (P) Ltd. v. CertificateOfficer, Sader Ranchi, (1994) 5 SCC 324, this Court held that theBihar and Orissa Public Demands Recovery Act, 1914 was referable toEntries 11A and 13 of the Concurrent List and not to Entry 45, List I.

10. We now come to some of the judgments strongly referred toand relied upon by Shri Parikh. In Fatehchand (supra), several pleaswere taken to invalidate the Maharashtra Debt Relief Act of 1976. Insofaras legislative competence was concerned, this Court held:

“54. What then is the incompetence of the State Legislature? ShriB. Sen urged that the wiping out of private debts which formedthe capital assets of the moneylenders — one of the main thingsdone by the Debt Act — was not in any of the legislative Listsand even if Parliament had residuary power under Entry 97 ofList I, the State had none. Entry 30 in List II is “Money lendingand moneylenders; relief of agricultural indebtedness”. Ifcommonsense and common English are components ofconstitutional construction, relief against loans by scaling down,discharging, reducing interest and principal, and staying therealisation of debts will, among other things, fall squarely withinthe topic. And that, in country of hereditary indebtedness on acolossal scale! It is commonplace to state that legislative headsmust receive large and liberal meanings and the sweep of thesense of the rubrics must embrace the widest range. Even

Aincidental and cognate matters come within their purview. The-whole gamut of Money lending and debtliquidation is thus withinthe State’s legislative competence.The reference to theRajahmundry Electricity case [Rajamundry Electric SupplyCorporation v. State of Andhra, AIR 1954 SC 251 : 1954 SCR779] is of no relevance. Nor is the absence of the expressionB“relief” in Entry 30, List II, of any moment when relief frommoneylenders is eloquently implicit in the topic. Sometimes,arguments have only to be stated to be rejected.” (at page 693)

(Emphasis Supplied)

CSimilarly, in Pathumma (supra), this Court was concerned with achallenge to the constitutional validity of Section 20 of the Kerala DebtAgriculturists Relief Act, 1970, which entitled debtors to recoverproperties sold to purchasers in execution of decrees. This Court, afterreferring to Fatehchand (supra) in some detail, held:

D“36. The avowed object of the Act seems to give substantial reliefto the agriculturist debtors in order to get back their property andearn their livelihood. This is undoubtedly laudable object and theAct is piece of social legislation. As the decree-holder who hadpurchased the property is fully compensated by being paid theamount for which he had purchased the property, it cannot beEsaid that his right to hold the property has been completelydestroyed. The purchaser gets the property at distress sale andis fully aware of the pitiable conditions under which the debtorwas unable to pay the debt. In Constitution which is wedded toa social pattern of society the purchaser must be presumed toFhave the knowledge that any social legislation for the good of aparticular community or the people in general can be broughtforward by Parliament at any time. The Act, however, does nottake away the property of the purchaser without paying him duecompensation. It is true that Section 20(2)(b) provides for paymentof the purchase money by instalments, but no exception can beGtaken to this fact as in view of the poverty of the debtor it is notpossible for him to pay the debt in lump sum and as the legislationis for particular community the provision for payment byinstalments cannot be said to work serious injustice to the decree-holder purchaser. stranger auction purchaser has been treated

differently because he had nothing to do with the decree and isenjoined to return the property to the agriculturist debtor onpayment of entire amount in lump sum without insisting oninstalments. Thus, in short, the position is that the object of theAct is to protect the poor distressed agriculturist debtors from theclutches of greedy creditors who have grabbed the properties ofthe debtors and deprived the debtors of their main source ofsustenance.”

(at page 22)

In dealing with legislative competence, this Court upheld Section20 in the following terms:-

“56. It is Article 246 of the Constitution which deals with thesubject-matter of the laws to be made by the Parliament and theLegislatures of the States. Clause (3) of the Article provides thatsubject to clauses (1) and (2) of the Article with which we are notconcerned the Legislature of the State has “exclusive power tomake laws..... with respect to any of the matters enumerated inList II”. Entry 30 of the List specifically states the following mattersas being within the competence of the State Legislature,—

30 —Money-lending and money-lenders; relief of agriculturalindebtedness.

It is therefore quite clear, and is beyond controversy, that the Actwhich provides for “the relief of indebted agriculturists in the Stateof Kerala” is within the competence of the State Legislature.Clause (1) of Section 2 of the Act defines an “agriculturist”, clause(4) defines “debt”, clause (5) defines “debtor” and the twoExplanations to Section 20 define the expressions “court” and“judgment-debtor” and give an extended meaning to the expression“agriculturist” so as to include person who would have been anagriculturist but for the sale of his immovable property. The othersections provide for the settlement of the liabilities and paymentof the debt (along with the interest) of an agriculturist, includingthe setting aside of the sale in execution of decree and the barof suits. The subject-matter of the Act is therefore clearly withinthe purview of Entry 30 and Counsel for the appellants have notbeen able to advance any argument which could justify differentview. Reference in this connection may be made to this Court’s

decision in Fatehchand Himmatlal v. State of Maharashtra[(1977) 2 SCC 670 : (1977) 2 SCR 828]. It has however beenargued that the entry would not permit the making of law relatingto the debt of an agriculturist which has already been paid by saleof his property in execution of decree and is not subsistingdebt.

57. It is true that Section 20 of the Act provides for the settingaside of any sale of immovable property in which an agriculturisthad an interest, if the property had been sold, inter alia, in executionof any decree for the recovery of debt: (a) on or after November1, 1956, or (b) before November 1, 1956, but possession whereofhas not actually passed before November 20, 1957, from thejudgment-debtor to the purchaser, and the decree-holder is thepurchaser, on depositing one-half of the purchase money togetherwith the cost of the execution etc. The section therefore dealswith liability which had ceased and did not subsist on the datewhen the Act came into force. But there is nothing in Entry 30 ofList II to show that it will not be attracted and would not enablethe State Legislature to make law simply because the debt ofthe agriculturist had been paid off under distress sale. Thesubject-matter of the entry is “relief of agricultural indebtedness”and there is no justification for the contention that it is confinedonly to subsisting indebtedness and would not cover the necessityof providing relief to those agriculturists who had lost theirimmovable property by court sales in execution of the decreeagainst them and had been rendered destitute. Their problem wasin fact more acute and serious, for they had lost the wherewithalof their livelihood and were reduced to state of penury. Anagriculturist does not cease to be an agriculturist merely becausehe has lost his immovable property, and it cannot be said that theState is not interested in providing him necessary relief merelybecause he has lost his immovable property. On the other handhis helpless condition calls for early solution and it is only naturalthat the State Legislature should think of rehabilitating him byproviding the necessary relief under an Act of the nature underconsideration in these cases. There is in fact nothing in the wordingsof Entry 30 to show that the relief contemplated by it mustnecessarily relate to any subsisting indebtedness and would not

cover the question of relief to those who have lost the means oftheir livelihood because of the delay in providing them legislativerelief. It is well-settled, having been decided by this Court inNavinchandra Mafatlal v. CIT [AIR 1955 SC 58 : (1955) 1SCR 829 : (1954) 26 ITR 758] , that “in construing words in aconstitutional enactment conferring legislative power the mostliberal construction should be put upon the words so that the samemay have effect in their widest amplitude”. This has to be so lesta legislative measure may be lost for mere technicality.”

(at pages 31-32)

(Emphasis Supplied)

11. This brings us to the sweep of the Banking Regulation Act,and to whether the said Act, which includes by way of amendment Section21A, can be said to fall within Entry 45, List I of the Seventh Schedule tothe Constitution. The relevant provisions of the Banking Regulation Act,which are necessary for us to decide the present writ petition, are asfollows:

“3. Act to apply to co-operative societies in certain cases.-

Nothing in this Act shall apply to.-

(a) primary agricultural credit society;

(b) co-operative land mortgage bank; and

(c) any other co-operative society, except in the manner and tothe extent specified in Part V.

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5. Interpretation

In this Act, unless there is anything repugnant in the subject orcontext, -

(b) “banking” means the accepting, for the purpose of lending orinvestment, of deposits of money from the public, repayable ondemand or otherwise, and withdrawal by cheque, draft, order orotherwise;

(c) “banking company” means any company which transacts thebusiness of banking in India;

Explanation.—Any company which is engaged in the manufactureof goods or carries on any trade and which accepts deposits ofmoney from the public merely for the purpose of financing itsbusiness as such manufacturer or trader shall not be deemed totransact the business of banking within the meaning of this clause;

(d) “company” means any company as defined in section 3 of theCompanies Act, 1956 (1 of 1956); and includes foreign companywithin the meaning of section 591 of that Act;

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6. Forms of business in which banking companies mayengage

(1) In addition to the business of banking, banking companymay engage in any one or more of the following forms of business,namely:

(a) the borrowing, raising, or taking up of money; the lending oradvancing of money either upon or without security; the drawing,making, accepting, discounting, buying, selling, collecting and dealingin bills of exchange, hundies, promissory notes, coupons, drafts,bills of lading, railway receipts, warrants, debentures, certificates,scrips and other instruments and securities whether transferableor negotiable or not; the granting and issuing of letters of credit,traveller’s cheques and circular notes; the buying, selling anddealing in bullion and specie; the buying and selling of foreignexchange including foreign bank notes; the acquiring, holding,issuing on commission, underwriting and dealing in stock, funds,shares, debentures, debenture stock, bonds, obligations, securitiesand investments of all kinds; the purchasing and selling of bonds,scrips or other forms of securities on behalf of constituents orothers, the negotiating of loans and advances; the receiving of allkinds of bonds, scrips or valuables on deposit or for safe custodyor otherwise; the providing of safe deposit vaults; the collectingand transmitting of money and securities;

(b) acting as agents for any Government or local authority or anyother person or persons; the carrying on of agency business ofany description including the clearing and forwarding of goods,giving of receipts and discharges and otherwise acting as anattorney on behalf of customers, but excluding the business of aManaging Agent or Secretary and Treasurer of company;

(c) contracting for public and private loans and negotiating andissuing the same;

(d) the effecting, insuring, guaranteeing, underwriting, participatingin Managing and carrying out of any issue, public or private, ofState, municipal or other loans or of shares, stock, debentures, ordebenture stock of any company, corporation or association andthe lending of money for the purpose of any such issue;

(e) carrying on and transacting every kind of guarantee andindemnity business;

(f) Managing, selling and realising any property which may comeinto the possession of the company in satisfaction or partsatisfaction of any of its claims;

(g) acquiring and holding and generally dealing with any propertyor any right, title or interest in any such property which may formthe security or part of the security for any loans or advances orwhich may be connected with any such security;

(h) undertaking and executing trusts;

(i) undertaking the administration of estates as executor, trusteeor otherwise;

(j) establishing and supporting or aiding in the establishment andsupport of associations, institutions, funds, trusts and conveniencescalculated to benefit employees or ex-employees of the companyor the dependents or connections of such persons; grantingpensions and allowances and making payments towards insurance;subscribing to or guaranteeing moneys for charitable or benevolentobjects or for any exhibition or for any public, general or usefulobject;

(k) the acquisition, construction, maintenance and alteration ofany building or works necessary or convenient for the purposesof the company;

(l) selling, improving, managing, developing, exchanging, leasing,mortgaging, disposing of or turning into account or otherwisedealing with all or any part of the property and rights of thecompany;

(m) acquiring and undertaking the whole or any part of the businessof any person or company, when such business is of natureenumerated or described in this sub-section;

(n) doing all such other things as are incidental or conducive tothe promotion or advancement of the business of the company;

(o) any other form of business which the Central Governmentmay, by notification in the Official Gazette, specify as form ofbusiness in which it is lawful for banking company to engage.

(2) No banking company shall engage in any form of businessother than those referred to in sub-section (1).

xxx xxx xxx

22. Licensing of banking companies

(1) Save as hereinafter provided, no company shall carryon bankingbusiness in India unless it holds licence issued in that behalf bythe Reserve Bank and any such licence may be issued subject ofsuch conditions as the Reserve Bank may think fit to impose.

xxx xxx xxx

56. Act to apply to co-operative societies subject tomodifications.—

The provisions of this Act, as in force for the time being, shallapply to, or in relation to, co-operative societies as they apply to,or in relation to banking companies subject to the followingmodifications, namely:

(a) throughout this Act, unless the context otherwise requires,-

(i) references to “banking company” or “the company” or “suchcompany” shall be construed as references to co-operative bank;(ii) references to “commencement of this Act” shall be construedas references to commencement of the Banking Laws(Application to Co-operative Societies) Act, 1965 (23 of 1965);”

There can be no doubt that the Banking Regulation Act dealswith the subject “banking” insofar as it licenses banking companies, asdefined, and cooperative banks, and seeks to regulate them. Section21A, though by way of amendment, is undoubtedly an integral part ofthe aforesaid Act relating to the interdict on the reopening of loanHtransactions between banking company and its debtor, on the ground

that the rate of interest charged is excessive. There can be no doubtthat law relating to indebtedness of debtor to banking company andthe interdict against court reopening any such transaction, on the groundthat interest charged by the banking company is excessive, would relateto the business of banking. We must not forget that the entries in theLists to the Seventh Schedule have to be read in the widest possiblemanner, and we have seen from the judgments quoted by us above thatthe expression “banking” contained in Entry 45, List I is to be given awide meaning. There can be no doubt that the statute as whole andthe aforesaid Section does fall within Entry 45, List I.12. The effect of the aforesaid Section is to put out of harm’sway the Usurious Loans Act and all State Debt Relief Acts. The UsuriousLoans Act was enacted in 1918; its object being to confer on Courts inIndia an equitable jurisdiction in cases relating to unconscionable usuriouscontracts. Section 2(1) and 2(2) define “interest” and “loan” respectivelyin the widest terms as under:

“2. Definitions.

In this Act, unless there is anything repugnant in the subject orcontext,-

(1) “interest” means rate of interest and includes the return to bemade over and above what was actually lent, whether the sameis charged or sought to be recovered specifically by way of interestor otherwise.

(2) “loan” means loan whether of money or in kind and includesany transaction which is, in the opinion of the Court, in substancea loan.”

Section 3, which is the operative Section in the said Act, reads asfollows:-

“3. Reopening of transaction.

Notwithstanding anything in the Usury Laws Repeal Act, 1855(28 of 1855), where, in any suit to which this Act applies, whetherheard ex parte or otherwise, the Court has reason to believe,-

(a) that the interest is excessive; and

(b) that the transaction was, as between the parties theretosubstantially unfair, the Court may exercise all or any of thefollowing powers, namely may,-

(i) re-open the transaction, take an account between the partiesand relieve the debtor of all liability in respect of any excessiveinterest;

(ii) notwithstanding any agreement, purporting to close previousdealings and to create new obligation, re-open any accountalready taken between them and relieve the debtor of all liabilityin respect of any excessive interest, and if anything has been paidor allowed in account in respect of such liability, order the creditorto repay any sum which it considers to be repayable in respectthereof;

(iii) set aside either wholly or in part or revise or alter any securitygiven or agreement made in respect of any loan, and if the creditorhas parted with the security, order him to indemnify the debtor insuch manner and to such extent as it may deem just:

Provided that, in the exercise of these powers, the Court shallnot-

(i) re-open any agreement purporting to close previous dealingsand to create new obligation which has been entered into by theparties or any persons from whom they claim at date more thantwelve years from the date of the transaction;

(ii) do anything which affects any decree of Court.

Explanation.- In the case of suit brought on series of transactionsthe expression “the transaction” means, for the purposes of proviso(i), the first of such transactions.

(2) (a) In this section “excessive” means in excess of that whichthe Court deems to be reasonable having regard to the risk incurredas it appeared, or must be taken to have appeared, to the creditorat the date of the loan.

(b) In considering whether interest is excessive under this section,the Court shall take into account any amounts charged or paid,whether in money or in kind, for expenses, inquiries, fines, bonuses,premia, renewals or any other charges, and if compound interestis charged, the periods at which it is calculated, and the totaladvantage which may reasonably be taken to have been expectedfrom the transaction.

(c) In considering the question of risk, the Court shall take intoaccount the presence or absence of security and the value thereof,the financial condition of the debtor and the result of any previoustransactions of the debtor, by way of loan, so far as the samewere known, or must be taken to have been known, to the creditor.

(d) In considering whether transaction was substantially unfair,the Court shall take into account all circumstances materiallyaffecting the relations of the parties at the time of the loan ortending to show that the transaction was unfair, including thenecessities or supposed necessities of the debtor at the time ofthe loan so far as the same were known, or must be taken to havebeen known, to the creditor.

Explanation.- Interest may of itself be sufficient evidence that thetransaction was substantially unfair.

(3) This section shall apply to any suit, whatever its form may be,if such suit is substantially one for the recovery of loan or forthe enforcement of any agreement or security in respect of loanor for the redemption of any such security.

(4) Nothing in this section shall affect the rights of any transfereefor value who satisfies the Court that the transfer to him wasbona fide, and that he had at the time of such transfer no notice ofany fact which would have entitled the debtor as against the lenderto relief under this section.

For the purposes of this sub-section, the word “notice” shall havethe same meaning as is ascribed to it in section 4 of the Transferof Property Act, 1882 (4 of 1882).

(5) Nothing in this section shall be construed as derogating fromthe existing powers or jurisdiction of any Court.”

13. It can be seen that very wide powers are given to Courts,inter alia, to scale down rates of interest considering whole host offactors, including the financial condition of the debtor. State Debt ReliefActs, as has been stated hereinabove, go even further and not only relateto scaling down of excessive rates of interest, but also, in certain cases,

Agrant waiver of the interest, either wholly or partially, and of the principalsum of the loan, either wholly or partially. There can be no doubtwhatsoever that, as has been held in Fatehchand (supra) and Pathumma(supra), the State Debt Relief Acts are validly made under Entry 30, ListII of the Seventh Schedule to the Constitution.[1]

1Ms. Khajuria relied upon State Bank of Travancore v. Mohammed MohammedKhan, 1982 (1) SCR 338 at 348, for the proposition that banks were excluded from theKerala Agriculturists’ Debt Relief Act of 1970 because, unlike money lenders, they donot exploit needy agriculturists and impose upon them harsh and onerous terms, whilegranting loans to them. While this may have been the perception in the year 1982, theCperception in the years after 1982 has altered as several recent State Debt Relief Actsinclude relief against loans granted by banks. For instance, the Kerala Farmers’ DebtRelief Commission Act, 2006 defines “debt” as including liabilities, inter alia, due toinstitutional creditors and cooperative societies, and further defines “institutionalcreditors” to include the State Bank of India, its subsidiaries and “any scheduled bank”.The same is the position in the Telangana State Commission for Debt Relief (SmallFarmers, Agricultural Labourers and Rural Artisans) Act, 2016. Sections 11 and 12 ofDboth Acts read:

“11. Bar of suits, applications and other proceedings.

No suit for recovery of debt shall be instituted, or application for executionof decree in respect of debt shall be made against farmer described inclause (b) of sub-section (1) of section 5 and no appeal, revision petition orEapplication for review against any decree or order in any such suit orapplication shall be presented or made against such farmer in any CivilCourt, or Tribunal or other authority, and such suits, applications, appealsand petitions instituted or made against such farmer before the date ofdeclaration of district or part thereof as distress affected area andpending on such date shall stand stayed, for such period as the Commissionmay recommend in that behalf.”F“12. Payment of debt in instalments

(1) Notwithstanding anything contained in any law or contract or in anydecree or order of any Court or Tribunal, farmer described in clause (b) ofsub- section (1) of section 5 may discharge his debts in suitable instalmentstogether with fair rate of interest as recommended by the Commission onthe principal amount outstanding at the time of each payment, in themanner as may be directed by the Commission and on payment of theGsame in the manner directed by the Commission, the whole debt shall bedeemed to be discharged.

(2) Where any instalment of debt is not paid on the due date as directedby the Commission, the creditor shall be entitled to recover the same in themanner as may be determined by the Commission:Provided that, before taking decision by the Commission under this section,the farmer shall be given an opportunity of being heard.”H

14. The questions, therefore, which arise before us are:

i. What is the scope of Entry 45, List I vis-à-vis Entry 30, List IIof the Seventh Schedule to the Constitution?

ii. Whether Section 21A can be said to prevail over State DebtReliefs Acts in the event of clash between the two?

In order to answer these questions, we have to consider thearguments of Ms. Shirin Khajuria and Mr. Bhushan.

15. According to Ms. Khajuria, the expression “relief ofagricultural indebtedness” must take colour from the expression “moneylending and money lenders” preceding it in Entry 30, List II of the SeventhSchedule. We are afraid we cannot agree for several reasons. Firstly,purely grammatically, semicolon separates the two expressions showingthat they are not inextricably connected. Also, we have already advertedto several judgments, including Pathumma (supra), which state that thewidest and the most liberal possible meaning must be given to Entry 30,List II of the Seventh Schedule. The latter part of this entry cannot benarrowed down by any rule of noscitur sociis, or taking colour fromthe former part of the entry.[2] In fact, various State Acts were already inexistence at the time of the Constitution, which dealt with the subject ofrelief of agricultural indebtedness from the point of view of the moneylender. See, for instance, Sections 8 and 9 of the Assam Money-LendersAct, 1934, Sections 9 and 10 of the Central Provinces Money-LendersAct, 1934, Sections 11 and 12 of the Bihar Money-Lenders Act, 1938,Sections 9, 10 and 11 of the Orissa Money-Lenders Act, 1939, Sections31 and 36 of the Bengal Money-Lenders Act, 1940 and Sections 23, 24and 29 of the Bombay Money-Lenders Act, 1946. Obviously, the additionof the subject “relief of agricultural indebtedness”, for the first time, bythe Constitution would refer to relief of agricultural indebtedness notonly from money lenders, but also from all persons who give loans includingbanks. For otherwise, the subject matter “relief of agricultural2 In Special Reference No.1 of 2001, (2004) 4 SCC 489, the expression “gas and gasworks” contained in Entry 25, List II was read in manner that “gas” must take colourfrom the expression “gas works”. It is clear that this was because natural gas wasexcluded from the said entry and was, in fact, part of Entry 53, List I, being within theexpression “petroleum”. It would not be possible to extend such an interpretation to asubject matter which is not directly linked with another subject matter contained in thesame entry

Aindebtedness” would have been subsumed within “money lending andmoney lenders” and would have been wholly unnecessary to add as asubject matter separate and distinct from “money lending and moneylenders”. That “money lending and money lenders” is separate anddistinct from “relief of agricultural indebtedness” is also clear from thefact that money lending is not restricted to the agricultural sector, butBwould include, within its scope, money lent to all persons, including purelycommercial transactions. Also, there are many subjects in the SeventhSchedule which are contained in one entry, but which deal with divergentmatters. For example Entry 5, List III deals with seven completelydifferent subjects, all banded together under Entry 5 and separated byCsemicolons, making it clear that each subject matter is separate anddistinct from what follows each semicolon.[3] Similarly, Entry 6, List IIIdeals with transfer of property other than agricultural land, separated bya semicolon from registration of deeds and documents.[4] Entry 12, ListIII deals with evidence and is, thus, separated by semicolon from

recognition of laws, public acts and records and judicial proceedings.[5]DObviously, there is no scientific method involved in placing subjects inthe various entries in the lists contained in the Seventh Schedule to theConstitution. Ms. Khajuria’s alternate plea that “relief of agriculturalindebtedness” would otherwise be in separate entry by itself mustalso, therefore, be rejected. Also, the object of the relief of agriculturalEindebtedness is to free the farmer from the bonds of debts incurred,inter alia, due to adverse natural causes, and debt relief would benecessary in the case of adverse natural causes whatever be the sourceof the debt availed. If Ms. Khajuria is right, farmer would then beprotected only against moneylenders, but not banks, which would denudethe entry of most of its content.F

3 Entry 5, List III: Marriage and divorce; infants and minors; adoption; wills, intestacyand succession; joint family and partition; all matters in respect of which parties injudicial proceedings were immediately before the commencement of this Constitutionsubject to their personal law.G4 Entry 6, List III: Transfer of property other than agricultural land; registration ofdeeds and documents.

5 Entry 12, List III: Evidence and oaths; recognition of laws, public acts and records,and judicial proceedings.

16. The real question that arises is how are Entry 45, List I andEntry, 30 List II to be harmonized. Shri Bhushan has relied strongly uponArticle 246 of the Constitution which, according to him, lays down thefederal supremacy principle. According to him, the said principle extendsto edging out State legislation altogether, where reconciliation is notpossible. The scope of Article 246 has been dealt with in many judgments.In Hoechst Pharmaceuticals Ltd. v. State of Bihar, (1983) 3 SCR130 at 162-63 and 165-66, this Court laid down the federal supremacyprinciple thus:

“It is obvious that Article 246 imposes limitations on the legislativepowers of the Union and State legislatures and its ultimate analysiswould reveal the following essentials:

1. Parliament has exclusive power to legislate with respect to anyof the matters enumerated in List I notwithstanding anythingcontained in clauses (2) and (3). The non obstante clause in Article246(1) provides for predominance or supremacy of Unionlegislature. This power is not encumbered by anything containedin clauses (2) and (3) for these clauses themselves are expresslylimited and made subject to the non obstante clause in Article 246(1). The combined effect of the different clauses contained inArticle 246 is no more and no less than this: that in respect of anymatter falling within List I, Parliament has exclusive power oflegislation.

2. The State legislature has exclusive power to make laws forsuch State or any part thereof with respect to any of the mattersenumerated in List II of the Seventh Schedule and it also has thepower to make laws with respect to any matters enumerated inList III. The exclusive power of the State legislature to legislatewith respect to any of the matters enumerated in List II has to beexercised subject to clause (1) i.e. the exclusive power ofParliament to legislate with respect to matters enumerated in ListI. As consequence, if there is conflict between an entry in ListI and an entry in List II which is not capable of reconciliation, thepower of Parliament to legislate with respect to matterenumerated in List II must supersede pro tanto the exercise ofpower of the State legislature.

3. Both Parliament and the State legislature have concurrentpowers of legislation with respect to any of the matters enumeratedin List III.

xxx xxx xxx

The words “notwithstanding anything contained in clauses (2) and(3)” in Article 246(1) and the words “subject to clauses (1) and(2)” in Article 246(3) lay down the principle of federal supremacyviz. that in case of inevitable conflict between Union and Statepowers, the Union power as enumerated in List I shall prevailover the State power as enumerated in Lists II and III, and incase of overlapping between Lists II and III, the former shallprevail. But the principle of federal supremacy laid down in Article246 of the Constitution cannot be resorted to unless there is an“irreconcilable” conflict between the entries in the Union and StateLists. In the case of seeming conflict between the entries in thetwo Lists, the entries should be read together without giving anarrow and restricted sense to either of them. Secondly, an attemptshould be made to see whether the two entries cannot bereconciled so as to avoid conflict of jurisdiction. It should beconsidered whether fair reconciliation can be achieved by givingto the language of the Union Legislative List meaning which, ifless wide than it might in another context bear, is yet one that canproperly be given to it and equally giving to the language of theState Legislative List meaning which it can properly bear. Thenon obstante clause in Article 246(1) must operate only if suchreconciliation should prove impossible.Thirdly, no question ofconflict between the two Lists will arise if the impugned legislation,by the application of the doctrine of “pith and substance” appearsto fall exclusively under one list, and the encroachment uponanother list is only incidental.

xxx xxx xxx

With regard to the interpretation of non obstante clause in Section100(1) of the Government of India Act, 1935 Gwyer, C.J. observed:

“It is fundamental assumption that the legislative powers of theCentre and Provinces could not have been intended to be in conflictwith one another and, therefore, we must read them together, and

interpret or modify the language in which one is expressed by thelanguage of the other.”

“In all cases of this kind the question before the Court”, accordingto the learned Chief Justice is not “how the two legislative powersare theoretically capable of being construed, but how they are tobe construed here and now”.

(Emphasis Supplied)

To similar effect is the judgment cited by Shri Bhushan, SudhirChandra Nawn v. WTO, (1969) 1 SCR 108 at 113, where the Courtheld:

“Exclusive power to legislate conferred upon Parliament isexercisable, notwithstanding anything contained in clauses (2) &(3), that is made more emphatic by providing in clause (3) that theLegislature of any State has exclusive power to make laws forsuch State or any part thereof with respect to any of the mattersenumerated in List II in the Seventh Schedule, but subject to clauses(1) and (2). Exclusive power of the State Legislature has thereforeto be exercised subject to clause (1) i.e. the exclusive power whichthe Parliament has in respect of the matters enumerated in List I.Assuming that there is conflict between Entry 86 List I andEntry 49 List II, which is not capable of reconciliation, the powerof Parliament to legislate in respect of matter which is exclusivelyentrusted to it must supersede pro tanto the exercise of power of”the State Legislature.

(Emphasis Supplied)

It can, thus, be seen that Article 246 only states that where twoentries in the Union List and the State List, respectively, have head-oncollision and are irreconcilable, then, as last resort, the entry in theState List is to give way to the entry in the Union List. But, this is only asa last resort. First, it is incumbent upon the Court to harmonise theentries, if possible, by giving effect to both and not rendering any one ofthem otiose. Thus, in Calcutta Gas Co. (Proprietary) Ltd. v. State ofW.B., 1962 Supp (3) SCR 1 at 13, 17-19, the Court, held:

“The power to legislate is given to the appropriate legislatures byArticle 246 of the Constitution. The entries in the three Lists are

only legislative heads or fields of legislation: they demarcate thearea over which the appropriate legislatures can operate. It isalso well settled that widest amplitude should be given to thelanguage of the entries. But some of the entries in the differentLists or in the same List may overlap and sometimes may alsoappear to be in direct conflict with each other. It is then the dutyof this Court to reconcile the entries and bring about harmonybetween them.

xxx xxx xxx

Entry 24 in List II in its widest amplitude takes in all industries,including that of gas and gas-works. So too, Entry 25 of the saidList comprehends gas industry. There is, therefore, an apparentconflict between the two entries and they overlap each other. Insuch contingency the doctrine of harmonious construction mustbe invoked.Both the learned counsel accept this principle. Whilethe learned Attorney-General seeks to harmonize both the entriesby giving the widest meaning to the word “industry” so as to includethe industrial aspect of gas and gas-works and leaving the otheraspects to be covered by Entry 25, learned counsel for thecontesting respondents seeks to reconcile them by carving outgas and gas-works in all its aspects from Entry 24. If industry inEntry 24 is interpreted to include gas and gas-works, Entry 25may become redundant, and in the context of the succeedingentries, namely, Entry 26, dealing with trade and commerce, andEntry 27, dealing with production, supply and distribution of goodsit will be deprived of all its contents and reduced to “uselesslumber”. If industrial, trade, production and supply aspects aretaken out of Entry 25, the substratum of the said entry woulddisappear: in that event we would be attributing to the authors ofthe Constitution ineptitude, want of precision and tautology. Onthe other hand, the alternative contention enables Entries 24 and25 to operate fully in their respective fields: while Entry 24 coversa very wide field, that is, the field of the entire industry in theState, Entry 25, dealing with gas and gas-works, can be confinedto specific industry, that is, the gas industry. There may be manygood reasons for the authors of the Constitution giving separatetreatment to gas and gas-works. If one can surmise, it may bethat, as the industry of gas and gas-works was confined to one ortwo States and was not of all-India importance, it was carved outof Entry 24 and given separate entry, as otherwise if declarationby law was made by Parliament within the meaning of Entry 7 orEntry 52 of List I, it would be taken out of the legislative power ofStates. Be it as it may, the express intention of the Constitution isto treat it, in normal times, as state subject and it is not in theprovince of this Court to ascertain and scrutinize the reasons fordoing so. It is suggested that this interpretation would preventParliament to make law in respect of gas and gas-works duringwar or other national emergency. Apart from the relevancy ofsuch consideration, the apprehension has no justification, forunder Article 249 Parliament is enabled to take up for legislationany matter which is specifically enumerated in List II wheneverthe Council of States resolves by two-thirds majority that such alegislation is necessary or expedient in the national interest. Sotoo, under Article 250 Parliament can make laws with respect toany of the matters enumerated in the State List, if proclamationof emergency is in operation. Article 252 authorizes the Parliamentto legislate for two or more States, if the Houses of the legislaturesof those States give their consent to the said course. Subject tosuch emergency or extraordinary powers, the entire industry ofgas and gas-works is within the exclusive legislative competenceof State. It is, therefore, clear that the scheme of harmoniousconstruction suggested on behalf of the State gives full andeffective scope of operation for both the entries in their respectivefields, while that suggested by learned counsel for the appellantdeprives Entry 25 of all its content and even makes it redundant.The former interpretation must, therefore, be accepted inpreference to the latter. In this view, gas and gas-works are withinthe exclusive field allotted to the States. On this interpretation theargument of the learned Attorney-General that, under Article 246of the Constitution, the legislative power of State is subject to thatof Parliament ceases to have any force, for the gas industry isoutside the legislative field of Parliament and is within the exclusivefield of the legislature of the State. We, therefore, hold that theimpugned Act was within the legislative competence of the WestBengal Legislature and was, therefore, validly made.”

(Emphasis Supplied)

ABCDEFG

A17. At this stage, it is important to advert to judgment of thisCourt in Central Bank of India v. Ravindra, (2002) 1 SCC 367 at402. This judgment states:

“55. During the course of hearing it was brought to our notice thatin view of several usury laws and debt relief laws in force inseveral States private moneylending has almost come to an endand needy borrowers by and large depend on banking institutionsfor financial facilities. Several unhealthy practices having slowlypenetrated into prevalence were pointed out. Banking is anorganised institution and most of the banks press into service long-running documents wherein the borrowers fill in the blanks, attimes without caring to read what has been provided therein, andbind themselves by the stipulations articulated by the best of legalbrains. Borrowers other than those belonging to the corporatesector, find themselves having unwittingly fallen into trap andrendered themselves liable and obliged to pay interest the quantumwhereof may at the end prove to be ruinous. At times the interestcharged and capitalised is manifold than the amount actuallyadvanced. Rule of damdupat does not apply. Penal interest, servicecharges and other overheads are debited in the account of theborrower and capitalised of which debits the borrower may noteven be aware. If the practice of charging interest on quarterlyrests is upheld and given judicial recognition, unscrupulous banksmay resort to charging interest even on monthly rests andcapitalising the same. Statements of accounts supplied by banksto borrowers many times do not contain particulars or details ofdebit entries and when written in hand are worse than medical

prescriptions putting to test the eyes and wits of the borrowers.Instances of unscrupulous, unfair and unhealthy dealings can bemultiplied though they cannot be generalised. Suffice it to observethat such issues shall have to be left open to be adjudicated uponin appropriate cases as and when actually arising for decision andwe cannot venture into laying down law on such issues as do notarise for determination before us. However, we propose to placeon record few incidental observations, without which, we feel,our answer will not be complete and that we do as under:

xxx xxx xxx

(6) Agricultural borrowings are to be treated on pedestal differentfrom others.Charging and capitalisation of interest on agriculturalloans cannot be permitted in India except on annual or six-monthlyrests depending on the rotation of crops in the area to which theagriculturist borrowers belong.”

(Emphasis Supplied)

Given the fact that, at present, agricultural loans are predominantlygiven by cooperative and other banks to farmers, the method suggestedby Shri Bhushan, which is to exclude banks from the entry “relief ofagricultural indebtedness”, would rob the aforesaid entry of most of itsforce and render it largely otiose.

18. Another method of reconciling conflicting entries was discussedin Waverly Jute Mills Co. Ltd. v. Raymon & Co. (India) (P) Ltd.,(1963) 3 SCR 209 at 219-220 as follows:

“The rule of construction is undoubtedly well established that theentries in the Lists should be construed broadly and not in narrowor pedantic sense. But there is no need for the appellants to callthis rule in aid of their contention, as trade and commerce would,in their ordinary and accepted sense, include forward contracts.That was the view which was adopted in Bhuwalka BrothersLtd. case [AIR (1952) Cal 740] and which commended itself tothis Court in Duni Chand Rateria case [(1955) 1 SCR 1071] .Therefore, if the question were simply whether law on ForwardContracts would be law with respect to Trade and commerce,there should be no difficulty in answering it in the affirmative. Butthe point which we have got to decide is as to the scope of theentry “Trade and commerce” read in juxtaposition with Entry 48of List I. As the two entries relate to the powers mutually exclusiveof two different legislatures, the question is how these two are tobe reconciled. Now it is rule of construction as well establishedas that on which the appellants rely, that the entries in the Listsshould be so construed as to give effect to all of them and that aconstruction which will result in any of them being rendered futileor otiose must be avoided. It follows from this that where thereare two entries, one general in its character and the other specific,the former must be construed as excluding the latter.This is onlyan application of the general maxim that Generalia specialibus

non derogant. It is obvious that if Entry 26 is to be construed ascomprehending Forward Contracts, then “Futures Markets” inEntry 48 will be rendered useless. We are therefore of opinionthat legislation on Forward Contracts must be held to fall withinthe exclusive competence of the Union under Entry 48 in List I.”

(Emphasis Supplied)

19. Qua the general entry “banking” under Entry 45, List I, whichdeals with banks of all kinds and the lending by banks as well as recoveryof debts by banks generally, Entry 30, List II, which deals with relief ofagricultural indebtedness, is special, for the reason that indebtednessCitself is only one species of banking and agricultural indebtedness is asub-species thereof. The species of indebtedness is within Entry 45, ListI, whereas the sub-species of agricultural indebtedness is within Entry18, List II. It is only relief of agricultural indebtedness, which is sub-sub-species of indebtedness, which is relatable to Entry 30, List II. Also,we must at this juncture keep in mind the amendment sought to be movedDby Shri Shibban Lal Saxena in the Constituent Assembly to move DraftEntry 34 (i.e. Entry 30), List II to the Concurrent List. This was done asfollows:

“Entry 34

EProf.Shibban Lal Saksena: Sir, I beg to move:

“That entry 34 of List II be transferred to List III.”

This is an important amendment. I would like the House to realisethe magnitude of the problem. We all want to wipe out ruralindebtedness. Sir, in this connection I would like to read anFextract from the People’s Plan for Economic Development ofIndia, which runs as follows:

“The other problem that will have to be tackled, along with thisproblem of the outmoded land tenure system, will be the problemof rural indebtedness. The total rural indebtedness was estimatedby the Central Banking Inquiry Committee, in the year 1929, atabout 900 crores of rupees. Subsequent estimates have however,put the figure at much higher level. The estimate according tothe report of the Agricultural Credit Department of the ReserveBank of India in the year 1937 is about 1800 crores of rupees. Itis not possible that this might have reduced to any significant

extent since the year 1937, nor can the so-called agricultural boomat present be said to have produced very substantial reductions.The money-lender in the country dominates more in that strata ofthe agricultural population which is relatively worse off.”

“The boom can hardly be said to have benefited that strata. Onthe other hand, the debt represents accumulations of decades.The debt legislation in the various provinces has not, admittedly,been able to touch even the fringe of the problem. We feel itnecessary, therefore, that the debt should be compulsorily scaleddown and then taken over by the State. Experiments made in thisdirection in the Province of Madras, for example, serve as auseful pointer. Under the working of the Madras Agriculturist’Relief Act of 1938, debts were scaled down by about 47 per centand the provisions of the Act can, by no logic be characterized asdrastic. In the Punjab, under the operations of the DebtConciliation Boards, debts amounting to 40 lakhs were settled forabout 14 lakhs. It should, therefore, be possible and just beconsidered as necessary to scale down the present debts to about25 per cent before they are taken over by the State. Assumingthe present indebtedness to amount to about Rs. 1,000 crores thedebt to be taken over by the State will come to about Rs. 250crores.”

The compensation to be paid to the rent-receivers as well as tothe usurers will thus amount to Rs. 1985 crores. This should bepaid in the form of self-liquidating bonds issued by the State. Theseshould be for period of 40 years at the rate of interest of 3 percent and should be compulsorily retained by the State in itspossession. The annual payments to be made by the State forthese bonds will come to about Rs. 60 crores.

On the carrying out of these initial measures will depend thesuccess of the planned economy for raising the productivity ofagriculture in the interests of the cultivators. Unless the statusquo is changed in this manner there can be no hope of improvingthe standard of living of the vast bulk of our peasantry, andtherefore, no hope of building up an industrial structure in thecountry on sound, stable and secure foundations. We are awareof the difficulties in the way of carrying out the above measuresbut we are unnamable to see any alternative to them whatsoever.”

AIt is thus obvious that if we really want to remove agriculturalindebtedness, the problem cannot be solved merely by action takenby individual States. Only comprehensive plan and its boldexecution with the fullest co-operation of the Union Governmentwith the Government of the states can solve these problems. It istherefore that I have suggested that this entry should beBtransferred to List III.

Sir, I have tabled my amendment only with this purpose in view.I feel and I am quite convinced that we cannot change the face ofour country and we cannot realise the ‘India’ of our dreamsunless we adopt comprehensive plan and have powers toCcoordinate the activities of the Centre and the Provinces. Itherefore commend my amendment for the earnest considerationof the House.

Mr. President: The question is:

D“That entry 34 of List II be transferred to List Ill.”

The amendment was negatived.

Mr. President: The question is:

“That entry No. 34 stand part of List II.”

The motion was adopted.

Entry 34, was added to the State List.”

(Emphasis Supplied)

The amendment was obviously rejected in keeping with the factthat agriculture and aspects of agriculture are exclusively given to theFStates. This will be clear from Entries 14, 18, 45 to 48 of List II, apartfrom Entry 30, List II, which read as under:

“14. Agriculture, including agricultural education and research,protection against pests and prevention of plant diseases.

18. Land, that is to say, rights in or over land, land tenures includingthe relation of landlord and tenant, and the collection of rents;transfer and alienation of agricultural land; land improvement andagricultural loans; colonization.

45. Land revenue, including the assessment and collection ofrevenue, the maintenance of land records, survey for revenueHpurposes and records of rights, and alienation of revenues.

46. Taxes on agricultural income.

47. Duties in respect of succession to agricultural land.

48. Estate duty in respect of agricultural land.”

Entries 82, 86, 87 and 88, List I and Entries 6 and 7, List III alsospecifically exclude agriculture as follows:

“82. Taxes on income other than agricultural income.

86. Taxes on the capital value of the assets, exclusive of agriculturalland, of individuals and companies; taxes on the capital ofcompanies.

87. Estate duty in respect of property other than agricultural land.

88. Duties in respect of succession to property other thanagricultural land.

xxx xxx xxx

6. Transfer of property other than agricultural land; registration ofdeeds and documents.

7. Contracts including partnership, agency, contracts of carriage,and other special forms of contracts, but not including contractsrelating to agricultural land.”

To complete the picture, it is also important to advert to Entry 41,List III, which states as follows:-

“41. Custody, management and disposal of property (includingagricultural land) declared by law to be evacuee property.”

The constitutional scheme, insofar as agriculture is concerned, isthat it is an exclusive State subject to one exception – that the custody,management and disposal of property, declared by law to be evacueeproperty includes agricultural land, and makes it concurrent subject.

20. This being the case, the two entries are best harmonised bygiving effect to both. This can only be done if the relief of agriculturalindebtedness is to include banks, both cooperative and otherwise. Asmentioned earlier, Entry 18, List II gives the States exclusive power tolegislate on “land improvement and agricultural loans.” Entry 45, List Iwill remain intact and will have carved out of it the relief of agriculturalindebtedness, which, as we have already seen, is sub-sub-species ofindebtedness, which itself is one of many aspects of banking.

21. We now come to the doctrine of pith and substance andincidental trenching. Having thus delineated the respective spheres of“banking” in Entry 45, List I and “relief of agricultural indebtedness” inEntry 30, List II, we have to view the pith and substance of the BankingRegulation Act as whole, inclusive of Section 21A.

B22. It has already been held by us that, in pith and substance, theBanking Regulation Act does fall within Entry 45, List I, but given ourinterpretation of Entry 45, List I and Entry 30, List II of the SeventhSchedule, it is clear that, insofar as relief of agricultural indebtedness isconcerned, Section 21A certainly trenches upon Entry 30, List II, read inthe manner indicated above. As is well settled, the doctrine of pith andCsubstance is only to view legislation as whole and see whether, as awhole, it falls within one or other entry of List I or List II of the SeventhSchedule. While thus falling as whole within one List, certain provisionsin particular Act enacted by one legislature may incidentally trenchupon forbidden field exclusively given to another legislature. What isDthe position in law with respect to such incidental trenching?

23. In Subrahmanyan Chettiar v. Muttuswami Goundan, AIR1941 FC 47, the Federal Court was faced with the constitutional validityof the Madras Agriculturists Relief Act, 1938. Gwyer, CJ, speaking forthe majority, found that the Madras Act is an attempt to deal, in veryEdrastic manner, with the problem of rural indebtedness “which has vexedlegislators since the days of Solon”. The precise question that arosebefore the Federal Court was whether the Madras Act trespassed intothe federal field covered by Entry 28, List I, where the Federal legislaturehas an exclusive power to legislate with respect, inter alia, to promissorynotes. Section 79 of the Negotiable Instruments Act, 1881, expresslyFclashed with the Madras Act in that, in promissory note where interestat specified rate is expressly made payable, interest is to be calculatedat that rate until payment or until such date after the institution of suitto recover the amount, as the Court directs. Inasmuch as the MadrasAct scales down such interest, direct clash between the provisions ofGMadras Act and the Negotiable Instruments Act became inevitable.

24. The majority answered the question by upholding the MadrasAct in its entirety as it was an Act, in pith and substance, relatable to“money lending and money lenders” inasmuch as the Madras Actoperated not on the promissory note, but on decree in which the

promissory note had merged, and had, thus, become judgment-debt. Itwas held that the Act neither affected nor purported to affect any liabilityon promissory note.

25. Having held this, the majority, however, speaking throughGwyer, C.J., said:

“But though, as I have said, I reserve my opinion upon all of them,I do not wish it to be assumed that I accept in its entirety the viewof the Madras High Court that the impugned Act does not reallyaffect the principles embodied in the Negotiable Instruments Act,for, that proposition seems to me much too broadly stated. I doubtwhether any provincial Act could, in the form of debtors’ reliefAct, fundamentally affect the principle of negotiability, or the rightsof bonafide transferee for value. Perhaps the position is differentwhere the promissory note has never changed hands and is suedupon by the original payee; and it may be (though I do not decidethe question) that an Act such as the Court is now consideringcan operate upon the original debt in such cases, even though thecreditor has taken promissory note in respect of his debt. If itwere otherwise, the power of Provincial Legislatures to enactremedial legislation in field peculiarly their own would be verygreatly hampered; so much so, indeed, that the Central Legislaturemight well find itself compelled to review the situation.But it wouldperhaps be inadvisable that I should say more on this occasion.”

(at page 52)

(Emphasis Supplied)

Sulaiman, J., however, dissented, and held that as there was aclash between the Madras Act and the Negotiable Instruments Act, thelatter would prevail. Despite the fact that the law thus laid down cannotbe said to be of persuasive value, being in dissenting judgment, yet, thelearned Judge dealt with the doctrine of incidental trenching in greatdetail, and followed Canadian cases, summarised by Lord Tomlin inAttorney General for Canada v. Attorney General for BritishColumbia (1930 A.C. 111 at 118) in four neat propositions on the subject,as follows:

“The doctrine which has been evolved with regard to the Canadiancases is that if the encroachment is merely incidental, then there

is no defect so long as the trespass is upon an unoccupied field.Engrafted upon the doctrine of incidental encroachment there isthe further doctrine of unoccupied field.

xxx xxx xxx

In Jai Gobind Singh v. Lachmi Narain Ram (1940) 3 F.L.J. 46p. 51, where the amount due on an earlier promissory note hadformed part of the mortgage money, I distinguished the case bypointing out that the suit being on mortgage the field wasapparently clear, and, therefore, the question of interfering withthe interest due on the promissory note did not directly arise. NoCanadian case has been cited before us in which although thesubject of legislation was substantially within S. 92, it not onlyincidentally encroached upon subject mentioned in S. 91, but atthe same time actually clashed with an existing Dominionlegislation.6 The principles laid down by their Lordships have goneonly so far as to permit an incidental encroachment, provided theDominion field is unoccupied. In no case so far decided havetheir Lordships tolerated trespass as well as clash.If clashwith the Dominion legislation were also allowed, then ProvincialLegislature would be in position, though indirectly, to nullify theDominion legislation, even inside the field exclusively open to theDominion, which would make the position intolerable.

xxx xxx xxx

The scheme of S. 100 of the Act is to exclude completely fromthe authority of the Provincial Legislature the power to legislatewith respect to subjects in List I. If in consequence of certaindifficulties that Provincial Legislatures would experience by rigidenforcement of such an exclusion we must in interpreting thewords “with respect to” import the Canadian doctrine ofpermissibility of incidental encroachment, we must then at thesame time import the other allied doctrine also that such anencroachment is permissible only when the field is actuallyunoccupied. It is only in this way that actual clash between the

6 Lord Tomlin’s fourth proposition, in Attorney General for Canada (supra), namely,”There can be domain in which provincial and Dominion legislation may overlap, inwhich case neither legislation will be ultra vires if the field is clear, but if the field is notclear and the two legislations meet the Dominion legislation must prevail”, must be readHsubject to this caveat.

Centre and the Provinces can be avoided, which I think we must.This will also explain the apparent gap in S. 107(1) of the Act, thatgap being filled in by the provisions of S. 100.”

(at pages 62-64)

(Emphasis Supplied)

26. However, Shri Bhushan sought to impress upon us that certainobservations in Fatehchand (supra) make it clear that the doctrine ofincidental trenching and unoccupied field is one way street, as washeld in the dissenting judgment of Sulaiman, J. in SubrahmanyanChettiar (supra), i.e. that all State legislations have to give way to aCentral legislation, even if Central legislation incidentally trenches upona State subject, covered by State legislation. He relied upon paragraph56 in Fatehchand (supra) in particular. Paragraph 56 is part of longdiscussion, beginning from paragraph 55 and ending with paragraph 67,which deals with an argument made that that part of the MaharashtraDebt Relief Act, which deals with gold loans, is void because Parliamenthas occupied the field. This question was answered by referring to Entry52, List I and Entry 24, List II. It was held that the Industrial Developmentand Regulation Act, 1951 has occupied the field of the gold industryunder Entry 52, List I, as has the Gold Control Act, 1968, and that,therefore, Entry 24, List II, being subject to Entry 52, List I, has becomeinoperative. This does not however mean that Entry 30, List II, whichdeals with money lending, has been rendered inoperative and, therefore,the Maharashtra Debt Relief Act, made under Entry 30, List II, wouldremain intact. The learned Judge also went on to refer to Entries 6 and7 of List III and to Article 254(2) of the Constitution stating that if itwere to be held that the Debt Relief Act related to contracts, then, havingreceived Presidential assent, it would prevail over the aforesaid Centralenactments in the State of Maharashtra in light of Article 254(2). It is inthis context that the general observation as to Parliamentary paramountcy,in paragraph 56 of the judgment, is made. Obviously where an entry inList II is itself subject to the corresponding entry in List I and, by therequisite declaration, Parliament occupies the field, the State legislaturesare denuded of legislative competence only because the particular entry,namely Entry 24, List II, is expressly subject to Entry 52, List I. This isnot the case insofar as Entry 45, List I and Entry 30, List II is concerned.

27. Shri Bhushan then relied upon concurring judgment ofRanganathan, J. in Federation of Hotels and Restaurants v. Union

Aof India, (1989) 3 SCC 634. In paragraph 74, the learned Judge, whileupholding the Hotel Receipts Tax Act, 1980 held that, in pith andsubstance, it was referable to Entry 82, List I, being, in substance, taxon income. In particular, Shri Bhushan relied upon the statement of thelaw that since Parliament had exclusive power, under Article 246(1) and(3) of the Constitution, to make laws with respect to any of the mattersBenumerated in List I, if an Act of Parliament is squarely covered by anentry in the Union List, no restriction can be read into the power ofParliament to make laws in regard thereto. This was made in the contextof taxation entry, which as the aforesaid paragraph 74 itself states,refers to the Constitutional scheme which neatly divides the subject mattersCof tax between the Union and the States, so that there can be said to beno overlapping. There is no discussion in this paragraph of Parliamentaryparamountcy in the context of incidental trenching and unoccupied field.This judgment, therefore, does not take the matter very much further.28. Insofar as Article 246 is concerned, we have already seenDhow the said Article refers to federal supremacy insofar as the whittlingdown of State List entry is concerned, when compared with UnionList entry. Once the spheres of both the entries have been delineated,the doctrine of pith and substance comes in to test whether particularlegislation is referable, as whole, to an entry in List I or to the competingentry in List II. Once it is found that the legislation as whole is referableEto an entry in List I, but it incidentally encroaches upon an entry in ListII, there is no reason for the doctrine of unoccupied field not to apply tofederal legislation. The expression “with respect to” appears in all thesub-articles of Article 246, which expression, so far as sub-articles (1)to (3) are concerned, imports the twin doctrines of incidental trenchingFand unoccupied field, which applies, therefore, to legislation made undersub-articles (1) to (3) of Article 246, thus making it clear that incidentalencroachment by Parliament cannot be tolerated when the exclusivefield allotted to the State legislature is not unoccupied.

29. The paramountcy principle contained in Article 246, as we

Ghave seen, is only taken as last resort after harmonious constructionfails, and, that too, qua entries in competing lists. Once legislation isreferable to one list or the other, the doctrine of incidental trenching andunoccupied field would apply equally to both Parliamentary and Statelegislations. In the very first judgment of the Federal Court, In Re CP& Berar Sales of Motor Spirit & Lubricants Taxation Act, 1938H

AIR 1939 FC 1 at 31, Jayakar, J. set out principles that were evolved ona reading of the British North America Act by the Privy Council, whichwould prove to be useful guide to the construction of Section 100 ofthe Government of India Act, 1935, which was the precursor of Article246 of the Constitution. These principles were set out as follows:

“(1) That the provisions of an Act like the Government of IndiaAct, 1935, should not be cut down by narrow and technicalconstruction, but, considering the magnitude of the subjects withwhich it purports to deal in very few words, should be given alarge and liberal interpretation, so that the Central Government, toa great extent, but within certain fixed limits, may be mistress inher own house, as the Provinces, to great-extent, but again withincertain fixed limits, are mistresses in theirs. See Henrietta MuirEdwards v. Attorney-General for Canada (1930 AC 124 at 136and 137).

(2) In an enquiry like the one before us in this Reference, theCourt must ascertain the true nature and character of thechallenged enactment, its pith and substance; and not the formalone which it may have assumed under the hand of the draftsman.See Attorney-General for Ontario v. Reciprocal Insurers (1924AC 328 at 337).

(3) Where there is an absolute jurisdiction vested in Legislature,the laws promulgated by it must take effect according to the properconstruction of the language in which they are expressed. Butwhere the law-making authority is of limited or qualified character,obviously it may be necessary to examine, with some strictness,the substance of the legislation, for the purpose of determiningwhat it is that the Legislature is really doing. See Attorney-Generalfor Ontario v. Reciprocal Insurers (1924 AC 328 at 337).

(4) Even where there has been an endeavour to give pre-eminenceto the Central Legislature in cases of conflict of powers, it isobvious that, in some cases where this apparent conflict exists,the Legislature could not have intended that powers exclusivelyassigned to the Provincial Legislature should be absorbed in those”given to the Central Legislature.

(Emphasis Supplied)

Principle 4 is of particular relevance in these cases.

A30. Indeed, in recent judgment of this Court, this has, in fact,been held. In UCO Bank v. Dipak Debbarma, (2017) 2 SCC 585 at596, this Court held:

“13. The federal structure under the constitutional scheme canalso work to nullify an incidental encroachment made by theparliamentary legislation on subject of State legislation wherethe dominant legislation is the State legislation. An attempt to keepthe aforesaid constitutional balance intact and give limitedoperation to the doctrine of federal supremacy can be discernedin the concurring judgment of Ruma Pal, J. in ITC Ltd. v.Agricultural Produce Market Committee [ITC Ltd. v.Agricultural Produce Market Committee, (2002) 9 SCC 232],wherein after quoting the observations of this Court in S.R. Bommaiv. Union of India [S.R. Bommai v. Union of India, (1994) 3SCC 1], the learned Judge has gone to observe as follows: (ITCLtd. case [ITC Ltd. v. Agricultural Produce Market Committee,(2002) 9 SCC 232], SCC p. 282, paras 93-94)

“93. … ‘276. The fact that under the scheme of our Constitution,greater power is conferred upon the Centre vis-à-vis the Statesdoes not mean that States are mere appendages of the Centre.Within the sphere allotted to them, States are supreme. The Centrecannot tamper with their powers. More particularly, the courtsshould not adopt an approach, an interpretation, which has theeffect of or tends to have the effect of whittling down the powersreserved to the States.’ (S.R. Bommai case [S.R. Bommai v. Unionof India, (1994) 3 SCC 1], SCC pp. 216-17, para 276)

94. Although Parliament cannot legislate on any of the entries inthe State List, it may do so incidentally while essentially legislatingwithin the entries under the Union List. Conversely, the StateLegislatures may encroach on the Union List, when such anencroachment is merely ancillary to an exercise of powerintrinsically under the State List. The fact of encroachment doesnot affect the vires of the law even as regards the area ofencroachment. [A.S. Krishna v. State of Madras [A.S. Krishnav. State of Madras, AIR 1957 SC 297 : 1957 Cri LJ 409];Chaturbhai M. Patel v. Union of India [Chaturbhai M. Patelv. Union of India, (1960) 2 SCR 362 : AIR 1960 SC 424]; State

of Rajasthan v. G. Chawla [State of Rajasthan v. G. Chawla,AIR 1959 SC 544 : 1959 Cri LJ 660] and Ishwari Khetan SugarMills (P) Ltd. v. State of U.P. [Ishwari Khetan Sugar Mills (P)Ltd. v. State of U.P., (1980) 4 SCC 136] This principle commonlyknown as the doctrine of pith and substance, does not amount toan extension of the legislative fields. Therefore, such incidentalencroachment in either event does not deprive the State Legislaturein the first case or Parliament in the second, of their exclusivepowers under the entry so encroached upon. In the event theincidental encroachment conflicts with legislation actually enactedby the dominant power, the dominant legislation will prevail.”

(Emphasis Supplied)

14. The aforesaid view in the concurring judgment of Ruma Pal,J. in ITC Ltd. v. Agricultural Produce Market Committee [ITCLtd. v. Agricultural Produce Market Committee, (2002) 9 SCC232], seems to have been echoed in recent pronouncement ofthis Court in Vishal N. Kalsaria v. Bank of India [Vishal N.Kalsariav. Bank of India, (2016) 3 SCC 762 : (2016) 2 SCC(Civ) 452], wherein this Court had held that the provisions of the2002 Act will not have an overriding effect on the provisions ofthe State Rent Control Acts.”This Court then went on to hold that between the Securitisationand Reconstruction of Financial Assets and Enforcement of SecurityInterest Act, 2002 (SARFAESI), which was enacted under Entry 45,List I, and the Tripura Land Revenue and Reforms Act, 1960, referableto Entry 18 of List II, SARFAESI would prevail since Section 187 of theTripura Act (which prohibited banks from transferring property whichhas been mortgaged by member of Scheduled Tribe to any personother than member of Scheduled Tribe), is provision which is outsideEntry 18, List II and, therefore, incidentally trenches upon Entry 45, ListI. On the facts of the case, therefore, it was found that since legislationhad been made by Parliament under Entry 45, List I and the SARFAESIAct dealt exclusively with activities relating to sale of secured assets bybanks, Section 187 of the Tripura Act, to the extent it is inconsistent withthe SARFAESI Act, must give way.

31. It is also important to notice that paragraph 12 of the aforesaidjudgment sets out paragraphs 13 to 15 of the Constitution Bench judgment

Ain Special Reference No.1 of 2001, (2004) 4 SCC 489.[7] Shri Bhushanstrongly relied upon paragraph 15 of this judgment. It is clear that theentire discussion begins from paragraph 13, which makes it clear that anentry in one list cannot be so interpreted as to cancel or obliterate anotherentry made in another list and in the case of an apparent conflict, it is theprimary duty of the Court to harmonise the two entries. It is only whenBthere is an irreconcilable conflict between two legislations that the Centrallegislation shall prevail. It is after noticing this statement of the lawcontained in paragraph 15 of the Constitution Bench judgment in SpecialReference No.1 (supra), that the discussion on incidental encroachmentin paragraphs 13 and 14, referred to hereinabove, is then laid down byCthe Court in UCO Bank (supra). Shri Bhushan’s reliance on the latterpart of paragraph 15 in Special Reference No.1 (supra), to negatewhat has been stated in paragraphs 13 and 14 of UCO Bank (supra),therefore, holds no water.

32. It is clear from reading of this judgment that, from the pointDof view of State Debt Relief Act, as the legislation is referable to thespecial entry “relief of agricultural indebtedness” under Entry 30, List II,as opposed to the Banking Regulation Act, under the general entry of“banking” in Entry 45, List I, any incidental encroachment by theParliamentary statute on Entry 30, List II, read with the State DebtRelief Acts made thereunder, would make Section 21A yield to the StateEDebt Relief Acts, to the extent that they cover relief of agriculturistsfrom debts due to banks. It is clear that where Section 21A of the BankingRegulation Act incidentally trenches upon the State Debt Relief Acts,enacted under Entry 30, List II, so far as relief of agricultural indebtednessis concerned, where there is State legislation on the same subject matterF

7 In this case, Constitution Bench of this Court had to decide on whether Gujaratstatute, which defined “gas” as being predominantly methane gas, was ultra vires theState legislature. The competing entries were Entry 53, List I and Entry 25, List II.Entry 53, List I dealt, inter alia, with petroleum, whereas Entry 25, List II dealt withgas and gas works. The Constitution Bench went into great detail in consideringvarious Acts, judgments and other authorities, including dictionaries, and held thatGnatural gas fell within the definition of “petroleum”, and further that Entry 25, List IIreferred only to manufactured gas, as is evident from the expression “gas works”,which is defined as “a plant for manufacture of artificial gas”. The Constitution Benchwas careful to indicate, in paragraph 43 of the judgment, that Entry 25, List II wouldnot be reduced to “useless lumber” as feared by the States, because natural gas wasnever intended to be covered by that entry, which is given full effect by including gasHmanufactured and used in gas works.which directly clashes with Section 21A, Section 21A will have to giveway to the State Debt Relief Acts insofar as relief from agriculturalindebtedness due to banks is concerned. The non-obstante clause inSection 21A cannot override State Debt Relief Act in this situation, asParliament cannot give itself supremacy over State legislation wherenone exists under the Constitution. If this were not the case, the exclusivepower of the States to make laws within List II would become illusory,and “Parliamentary paramountcy” would trap many beneficent Statelegislation made within its exclusive domain, contrary to the statementof law laid down by the Privy Council in Prafulla Kumar (supra), andcontrary to principle (4) laid down by Jayakar, J. in In Re CP & BerarSales (supra), both of which have been consistently followed by severaljudgments of this Court.

33. In fact, reading of the entries in List II would demonstratethat certain entries in List II are subject to entries in Lists I and III.These are set out hereinbelow:-

“2. Police (including railway and village police) subject to theprovisions of Entry 2-A of List I.

13. Communications, that is to say, roads, bridges, ferries, andother means of communication not specified in List I; municipaltramways; ropeways; inland waterways and traffic thereon subjectto the provisions of List I and List III with regard to suchwaterways; vehicles other than mechanically propelled vehicles.

17. Water, that is to say, water supplies, irrigation and canals,drainage and embankments, water storage and water powersubject to the provisions of Entry 56 of List I.

22. Courts of wards subject to the provisions of Entry 34 of List I;encumbered and attached estates.

23. Regulation of mines and mineral development subject to theprovisions of List I with respect to regulation and developmentunder the control of the Union.

24. Industries subject to the provisions of Entries 7 and 52 of ListI.

26. Trade and commerce within the State subject to the provisionsof Entry 33 of List III.

A27. Production, supply and distribution of goods subject to theprovisions of Entry 33 of List III.

33. Theatres and dramatic performances; cinemas subject to theprovisions of Entry 60 of List I; sports, entertainments andamusements.

B37. Elections to the Legislature of the State subject to the provisionsof any law made by Parliament.

50. Taxes on mineral rights subject to any limitations imposed byParliament by law relating to mineral development.

C57. Taxes on vehicles, whether mechanically propelled or not,suitable for use on roads, including tramcars subject to theprovisions of Entry 35 of List III.”

34. Numerically, this would amount to little over one-fifth of thetotal number of entries in List II – 12 out of 66.

D35. Certain entries such as Entry 12 exclude from the State Listancient, historical monuments and records declared by law made byParliament to be of national importance. Entry 12 of List II reads asunder:-

“12. Libraries, museums and other similar institutions controlledEor financed by the State; ancient and historical monuments andrecords other than those declared by or under law made byParliament to be of national importance.”

Yet another delineation of the legislative power of the States ismade by Entries 32 and 63 of List II, which speak of particular subjectFand then give residuary power qua the same subject over matters notspecified in List I.

“32. Incorporation, regulation and winding up of corporations, otherthan those specified in List I, and universities; unincorporatedtrading, literary, scientific, religious and other societies andGassociations; co-operative societies.

63. Rates of stamp duty in respect of documents other than thosespecified in the provisions of List I with regard to rates of stampduty.”[8]

8 Entry 32, List II is to be read with Entries 43 and 44 of List I; and Entry 63, List IIis to be read with Entry 91, ListH

36. All the other entries of the State List give exclusive power tothe States to legislate on the subject matters mentioned therein. If ShriJayant Bhushan’s submission is to be accepted, this threefold schemecontained within List II itself would be violated. If Parliamentarylegislation were to invade an exclusive sphere of the State, and were toprevail over State legislation made within the States’ exclusive powers,all the entries of List II would be subjected to entries of List I, which isnot the constitutional scheme. Further, only one entry, namely, Entry 12of List II, specifically excepts ancient and historical monuments andrecords, if Parliament declares them, by law, to be of national importance.The argument, therefore, that Section 21A is made by Parliament at thenational level and is of national importance and must, therefore, prevailover State legislation made within the exclusive subject matters of ListII, would again fall foul of the constitutional scheme, in that all the entriesof List II would then be subject to Parliamentary law, which is of nationalimportance. Also, Entry 30, List II cannot be read to refer to relief ofagricultural indebtedness other than what is specified in List I, as thatwould be reading into Entry 30 words that are conspicuous by theirabsence, but which are found in Entries 32 and 63, List II. All this wouldgo to show that where the States have exclusive legislative competenceunder certain entries of List II, legislation made thereunder cannot beeffaced by legislation made under List I, which incidentally trenchesupon State legislation made under an exclusive power.

37. We have already seen how agriculture as subject matter isentirely and exclusively left to the States in all its aspects, save andexcept evacuee property under Entry 41, List III, which is also left tothe States, but concurrently with Parliament, specifically includingagricultural land therein. Also, we must not forget that the amendmentsuggested by Shri Shri Shibban Lal Saxena to make draft Entry 34 (Entry30 of List II), concurrent subject, was turned down. Any argumentthat has the effect of making relief of agricultural indebtedness aconcurrent subject by which Parliamentary legislation ousts Statelegislation must, therefore, also be rejected.

38. This is not to say that Parliament is helpless insofar as relieffrom agricultural indebtedness to banks is concerned. Article 249 of theConstitution enables Parliament to legislate on the aforesaid subject inthe national interest if the Rajya Sabha declares, by resolution supportedby not less than 2/3[rd] of the members present and voting, that it is

ABC

Anecessary or expedient in national interest that Parliament should do so.Equally, under Article 252 of the Constitution, if the legislatures of twoor more States deem it desirable that Parliament should pass an Act forregulating matter exclusively in the State List, this can be done byresolutions to that effect passed by the legislatures of such States. Also,to implement treaty, agreement or convention with other countries,BParliament, under Article 253 of the Constitution, has the power tolegislate on an exclusive State subject. In an emergency, Parliamentcan, under Article 250, legislate on matters exclusively reserved for theStates under List II. This being the case, we need not be unduly weigheddown by Shri Bhushan’s argument that, unless we accept his submission,CParliament would be denuded of legislative competence altogether todeal with the subject matter of relief against debts due to banks from theagricultural sector.

39. The next important question is as to whether the judgment ofthis Court in Yasangi Venkateswara Rao (supra) is binding on thisDBench having been delivered by another earlier 2-Judge Bench of thisCourt.

40. In order to appreciate the answer to this question, it is necessaryto indicate what was held by the judgment of the learned Single Judge ofthe Andhra Pradesh High Court in State Bank of India, In re, (supra).EAfter setting out the Banking Regulation Act and the scope of Section21A, Section 21A was contrasted with the A.P. Agriculturists ReliefAct, 1938, and it was held that the purpose, operation and effect ofSection 21A of the Banking Regulation Act is not even remotelyconnected with the purpose, operation and effect of the A.P. AgriculturistsRelief Act, which was held to be special law enacted to relieveFagriculturist debtors. It was further held that charging excessive interestwas no longer part of the A.P. Agriculturists Relief Act, and, therefore,the spheres of the two provisions were completely different. Coming tolegislative competence, the learned Judge went into great detail inconsidering several judgments of the Federal Court, High Courts andGthis Court, and ultimately held that Section 21A is not law referable toEntry 45, List I. The learned Judge also went on to hold that Section 21Awas arbitrary and violative of Article 14 of the Constitution.

41. By short judgment in Yasangi Venkateswara Rao (supra),this Court upset the elaborate judgment of the High Court thus:

“7. We are unable to understand as to how the High Court couldcome to the conclusion that Parliament had no jurisdiction to enactSection 21-A. There can be no doubt that Section 21-A dealswith the question of the rate of interest which can be charged bya banking company. Entry 45 of List I of the Seventh Scheduleclearly empowers Parliament to legislate with regard to banking.The enactment of Section 21-A was clearly within the domain ofParliament. The said section applies to all types of loans whichare granted by banking company, whether to an agriculturist ora non-agriculturist, and, therefore, reference by the High Court toEntry 30 of List II was of no consequence. In our opinion, thesaid Section 21-A had been validly enacted.”

(at page 377)

At first blush, it appears that, though cryptic, the said paragraphdoes contain reasons for upsetting the High Court judgment. But, on acloser look, it becomes clear that there is no reasoning worth the namefor so doing. Paragraph 7 is series of conclusions put together withoutany clear reasoning in support. This is probably because only the learnedAdditional Solicitor General for the appellant appeared before the Courtand argued the case on behalf of the appellant. The respondent, thoughprobably served, did not appear and consequently was not heard. It willalso be noticed that, despite the fact that the judgment of the singleJudge referred to very large number of High Court, Federal Court,Privy Council and Supreme Court judgments, not single judgment isadverted to in the cryptic paragraph 7 set out hereinabove. Can it besaid that this judgment is declaration of the law under Article 141 ofthe Constitution, which as matter of practice we cannot differ frombeing bench of coordinate strength?

42. This question is answered by referring to authoritative worksand judgments of this Court. In Precedent in English Law by Cross andHarris (4[th] edn.), ‘ratio decidendi’ is described as follows:

“The ratio decidendi of case is any rule of law expressly orimpliedly treated by the judge as necessary step in reaching hisconclusion, having regard to the line of reasoning adopted by him,or necessary part of his direction to the jury.”

(at page 72)

43. In Dalbir Singh v. State of Punjab (1979) 3 SCR 1059 at1073-1074, dissenting judgment of A.P. Sen, J. sets out what is theratio decidendi of judgment:

“According to the well-settled theory of precedents every decisioncontains three basic ingredients:

(i) findings of material facts, direct and inferential. An inferentialfinding of facts is the inference which the Judge draws from thedirect or perceptible facts;

(ii) statements of the principles of law applicable to the legalproblems disclosed by the facts; and

(iii) judgment based on the combined effect of (i) and (ii) above.

For the purposes of the parties themselves and their privies,ingredient (iii) is the material element in the decision for itdetermines finally their rights and liabilities in relation to thesubject-matter of the action. It is the judgment that estops theparties from reopening the dispute. However, for the purpose ofthe doctrine of precedents, ingredient (ii) is the vital element inthe decision. This indeed is the ratio decidendi. [R.J. Walker &M.G. Walker: The English Legal System. Butterworths, 1972,3rd Edn., pp. 123-24] It is not everything said by judge whengiving judgment that constitutes precedent. The only thing in ajudge’s decision binding party is the principle upon which thecase is decided and for this reason it is important to analyse adecision and isolate from it the ratio decidendi. In the leading caseof Qualcast (Wolverhampton) Ltd. v. Haynes [LR 1959 AC 743 : (1959) 2 All ER 38] it was laid down that the ratio decidendimay be defined as statement of law applied to the legalproblems raised by the facts as found, upon which the decision isbased. The other two elements in the decision are notprecedents. The judgment is not binding (except directly on theparties themselves), nor are the findings of facts. This means thateven where the direct facts of an earlier case appear to be iden-tical to those of the case before the court, the judge is not boundto draw the same inference as drawn in the earlier case.”

Similarly, this Court in Som Prakash Rekhi v. Union of India(1981) 2 SCR 111 at 139 referred to the “laconic discussion and limitedratio” in Subhajit Tewary v. Union of India (1975) 3 SCR 616, ajudgment of Constitution Bench of this Court, and was not bound by it.Krishna Iyer, J. put it thus:

“We may first deal with Subhajit Tewary v. Union of India(1975) 3 SCR 616, where the question mooted was as to whetherthe C.S.I.R. (Council of Scientific and Industrial Research) was‘State’ under Art. 12. The C.S.I.R. is registered society withofficial and non-official members appointed by Government andsubject to some measure of control by Government in the Ministryof Science and Technology. The court held it was not ‘State’ asdefined in Art. 12. It is significant that the court implicitly assentedto the proposition that if the society were really an agency of theGovernment it would be ‘State’. But on the facts and featurespresent there the character of agency of Government wasnegatived. The rulings relied on are, unfortunately, in the provinceof Art. 311 and it is clear that body may be ‘State’ under Part IIIbut not under Part XIV. Ray, C.J., rejected the argument thatmerely because the Prime Minister was the President or that theother members were appointed and removed by Government didnot make the Society ‘State’. With great respect, we agree thatin the absence of the other features elaborated in AirportAuthority case (1979) 3 SCC 489, the composition of theGoverning Body alone may not be decisive. The laconic discussionand the limited ratio in Tewary (supra) hardly help either sidehere.”

Also, in Municipal Corpn. of Delhi v. Gurnam Kaur, (1989) 1SCC 101 at 110, this Court stated:

“11. Pronouncements of law, which are not part of the ratiodecidendi are classed as obiter dicta and are not authoritative.With all respect to the learned Judge who passed the order inJamna Das case [Writ Petitions Nos. 981-82 of 1984] and to thelearned Judge who agreed with him, we cannot concede that thisCourt is bound to follow it. It was delivered without argument,without reference to the relevant provisions of the Act conferringexpress power on the Municipal Corporation to direct removal of

encroachments from any public place like pavements or publicstreets, and without any citation of authority. Accordingly, we donot propose to uphold the decision of the High Court because, itseems to us that it is wrong in principle and cannot be justified bythe terms of the relevant provisions. decision should be treatedas given per incuriam when it is given in ignorance of the termsof statute or of rule having the force of statute. So far as theorder shows, no argument was addressed to the court on thequestion whether or not any direction could properly be madecompelling the Municipal Corporation to construct stall at thepitching site of pavement squatter.”

(Emphasis Supplied)

Further, in State of M.P. v. Narmada Bachao Andolan, (2011)7 SCC 639 at 679-680, it was stated:

“65. “Incuria” literally means “carelessness”. In practice perincuriam is taken to mean per ignoratium. The courts havedeveloped this principle in relaxation of the rule of stare decisis.Thus, the “quotable in law” is avoided and ignored if it is renderedin ignorance of statute or other binding authority.

xxx xxx xxx

67. Thus, “per incuriam” are those decisions given in ignoranceor forgetfulness of some statutory provision or authority bindingon the court concerned, or statement of law caused byinadvertence or conclusion that has been arrived at withoutapplication of mind or proceeded without any reason so that insuch case some part of the decision or some step in the reasoningon which it is based, is found, on that account to be demonstrablywrong.”

It is clear, therefore, that where matter is not argued at all bythe respondent, and the judgment is one of reversal, it would be hazardousto state that the law can be declared on an ex parte appraisal of theGfacts and the law, as demonstrated before the Court by the appellant’scounsel alone. That apart, where there is detailed judgment of theHigh Court dealing with several authorities, and it is reversed in crypticfashion without dealing with any of them, the per incuriam doctrinekicks in, and the judgment loses binding force, because of the manner in

which it deals with the proposition of law in question. Also, the ratiodecidendi of judgment is the principle of law adopted having regard tothe line of reasoning of the Judge which alone binds in future cases.Such principle can only be laid down after discussion of the relevantprovisions and the case law on the subject. If only one side is heard anda judgment is reversed, without any line of reasoning, and certainconclusions alone are arrived at, without any reference to any case law,it would be difficult to hold that such judgment would be binding uponus and that we would have to follow it. In the circumstances, we are ofthe opinion that the judgment in Yasangi Venkateswara Rao (supra)cannot deter us in our task of laying down the law on the subject.

44. In view of what has been held by us, it is not necessary for usto go into the arguments relating to Article 14, more so in view of thefact that counsel appearing for the Union of India and the Reserve Bankof India are correct in stating that there is no pleading worth the namewhich would rebut, on facts, the presumption of constitutionality thatattaches to Section 21A of the Banking Regulation Act. References toRBI circulars and the counter affidavits filed in the present writ petitionagain do not take us much further, as what has to be decided is purequestion of legislative competence.

Conclusion

45. We declare Section 21A of the Banking Regulation Act to bevalid as it is part of an enactment which, in pith and substance, is relatableto Entry 45, List I of the Seventh Schedule to the Constitution. However,insofar as Section 21A incidentally encroaches upon the field of relief ofagricultural indebtedness, set out in Entry 30, List II, it will not operateonly in States where there is State Debt Relief Act which deals withthe subject matter of relief of agricultural indebtedness, where the StateDebt Relief Act covers debts due to “banks”, as defined in those Acts.In States where the State Debt Relief Act does not apply to banks at all,or applies only to certain specified banks, Section 21A will, in the formersituation, apply in such States, and, in the latter situation, apply only inrespect of loans made to agriculturists where such loans are given bybanks other than the banks specified or covered by the concerned StateDebt Relief Act, as the case may be.

Devika Gujral

Issue answered.