State debt relief laws prevails over the sec.21A of Banking Regulations Act- Section 21A incidentally encroaches upon the field of relief of agricultural indebtedness, set out in Entry 30, List II, it will not operate only in States where there is a State Debt Relief Act which deals with the subject matter of relief of agricultural indebtedness, where the State Debt Relief Act covers debts due to “banks”, as defined in those Acts. = “21A. Rates of interest charged by banking companies not to 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 in force in any State, a transaction between a banking company and its debtor shall not be reopened by any court on the ground that the rate of interest charged by the banking company in respect of such transaction is excessive.” – We declare Section 21A of the Banking Regulation Act to be valid as it is part of an enactment which, in pith and substance, is relatable to Entry 45, List I of the Seventh Schedule to the Constitution. However, insofar as Section 21A incidentally encroaches upon the field of relief of agricultural indebtedness, set out in Entry 30, List II, it will not operate only in States where there is a State Debt Relief Act which deals with the subject matter of relief of agricultural indebtedness, where the State Debt 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 former situation, apply in such States, and, in the latter situation, apply only in respect of loans made to agriculturists where such loans are given by banks other than the banks specified or covered by the concerned State Debt Relief Act, as the case may be.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

WRIT PETITION (CIVIL) NO. 134 OF 2013

JAYANT VERMA & ORS. … PETITIONERS

VERSUS

UNION OF INDIA & ORS. … RESPONDENTS

J U D G M E N T

R.F. NARIMAN, J.

1. A writ petition, by way of a Public Interest Litigation,

filed under Article 32 of the Constitution of India, assails

the constitutional validity of Section 21A of the Banking

Regulation Act, 1949. The aforesaid section was

introduced into the Banking Regulation Act by the

Banking Laws (Amendment) Act of 1983 with effect from

1

15.2.1984. Section 21A of the Banking Regulation Act

reads as under:

“21A. Rates of interest charged by banking

companies not to 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 in force in

any State, a transaction between a banking

company and its debtor shall not be reopened

by any court on the ground that the

rate of interest charged by the banking

company in respect of such transaction is

excessive.”

2. It will be seen that Section 21A interdicts the

reopening by courts of a debt between a banking

company and its debtor, on the ground that the rate of

interest charged by the banking company, in respect of a

loan transaction, is excessive. The section seeks to keep

out of harm’s way the Usurious Loans Act, 1918 and/or

any other State legislation relating to indebtedness, and

then declares that no such loan transaction shall be

reopened by any court on the ground of charging of

excessive rates of interest. The writ petition has been filed

2

by certain public spirited citizens, who rely on the report of

the Parliamentary Standing Committee on Agriculture for

the year 2006-2007 to say that Section 21A should be

abolished, insofar as it applies to rural indebtedness. The

Standing Committee’s Report reads as follows:

“The Committee feels that the worst

exploitation of farmers is through the adverse

credit policies of the financial institutions

which compel farmers to starve under the

burden of loans and commit suicides. The

Committee finds that in 1918, the British

passed the Usurious Loans Act which

provided that no farmer could be charged a

rate of interest higher than the authorised

rate- which at that time was 5.5 per cent, and

if charged, the case could be re-opened in

court and the entire account re-settled.

Moreover, the total amount of interest could

not be higher than the original capital. But in

1949, the Banking Regulation Act was passed

which made a special provision under Section

21 (A) saying that these will 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 Banking Regulation

Act should be scrapped. All out concerted

efforts should be made to bring down the rate

of interest on Farm Credit to the level of 5.5%

simple interest, as it used to be in the early

3

20th century. In case of cooperatives,

transaction cost/margin at each layer must be

reduced as the length of chain, from RBI to

NABARD to State-District and Cooperative

Societies at village level and Regional Rural

Banks, is very big. Eventually, the farmer has

to take the burden of all these

middlemen/lending agencies. The Committee,

therefore, recommends to shorten this chain,

so that the eventual creditor is directly linked

to the borrower. The Committee further desire

the Government to ensure that in no case, the

interest should be higher than the original

capital and charging of compound rate of

interest should be absolutely prohibited so

that exploitation of farmers by financial

institutions is minimized.

REPLY OF THE GOVERNMENT

1.23 The Government in their action taken

reply have stated that in order to bring down

rate of interest on farm loans it has been

announced in the Union Budget for the year

2006-07 that effective from Kharif 2006-07,

farmers would receive crop loans upto a

principal amount of Rs. 3 lakh at 7% rate of

interest and the Government of India would

provide necessary interest subvention for this

purpose. Crop loans to farmers are generally

made available through Kisan Credit Cards

(KCC) which are valid for 3 years. As incentive

for good performance, credit limits under KCC

could be enhanced to take care of increase in

costs, change in cropping pattern etc. Banks

have been advised by RBI that total interest

debited to an account should not exceed the

principal amount in respect of short term loans

4

advanced to small and marginal farmers. As

per the extant RBI instructions, banks are not

allowed to compound interest on current dues

of crop loans and term loans in respect of

direct agricultural advances granted to

farmers. If such loans become overdue banks

have been advised that where the default is

due to genuine reasons, they should extend

the period of loan or reschedule the

installments under term loans. Once such a

relief has been extended the over dues

become current dues and hence banks should

not compound interest thereon. In case of

long duration crops, interest is recovered only

annually.

COMMENTS OF THE COMMITTEE

1.24 The Committee are dismayed to know

that the Department has not paid any heed to

the recommendation of the Committee to

scrap Section 21 (A) of Banking Regulation

Act, 1949 which hinders the provision of

Usurious Loans Act, 1918 under which it was,

inter alia, provided that the total amount of

interest on a loan taken by a farmer could not

be higher than the original capital. The

Committee, therefore, reiterate their earlier

recommendation that Section 21 (A) of the

Banking Regulation Act, 1949 should be

deleted so as to ensure that no Bank charges

interest more than the original capital,

irrespective of the fact, whether it is a short

term loan or long term loan, from small and

marginal farmers.

Moreover, the issue of cutting the

costs/margin at each layer of cooperative has

5

also not been addressed. The Committee,

therefore, reiterates their earlier

recommendation to shorten the chain of

cooperative loan institutions and directly link

the eventual creditor to the borrowers.”

According to the petitioners, a total number of 2,56,913

farmers have committed suicide in India between the

years 1995 to 2010, and this is because, and directly

linked to, usurious rates of interest being charged 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 the writ petitioners, took us through the Usurious

Loans Act to show that in British India, even a foreign

power was alive to the fact that courts need to interdict

excessive rates of interest, and have been given

complete freedom to do so, depending on the facts of

each case, including taking into account the plight of the

farmer debtor. He also referred to and relied upon various

State Debt Relief Acts, by which every State has

6

recognized this, and has, thus, provided, by way of

legislation, that loans and interest thereon either be

waived totally or partially or that courts may come to the

rescue of the farmer debtor by lowering the rate of

interest. According to him, many States adopted the rule

of Damdupat so that in no circumstance can interest

charged, for any period whatsoever, exceed the principal

amount of loan. He strongly relied upon this Court’s

judgments in Fatehchand Himmatlal & Ors. v. State of

Maharashtra etc., (1977) 2 SCC 670 and Pathumma

and Ors. v. State of Kerala and Ors. (1978) 2 SCC 1, to

show that State Debt Relief Acts have been

unsuccessfully challenged in this Court, and are referable

to Entry 30, List II of the Seventh Schedule to the

Constitution. He referred to the Constituent Assembly

Debates to show that that part of Entry 30, List II, which

speaks of relief of agricultural indebtedness, was

introduced by the Constitution for the first time, not being

in the predecessor entry in the Government of India Act,

7

1935. He also referred to and relied upon a proposed

amendment by Shri Shibban Lal Saxena, by which it was

sought to place the aforesaid Entry 30 into the Concurrent

List, so that Parliament may also have a say in the relief

of agricultural indebtedness. However, this was turned

down by the Constituent Assembly, so that this subject is

exclusively within the domain of the State legislature.

4. He next relied upon a decision of a single Judge of

the Andhra Pradesh High Court reported as State Bank

of India, In re, AIR 1986 AP 291 and commended its

acceptance by us. He then referred to this Court’s

judgment reported as State Bank of India v. Yasangi

Venkateswara Rao (1999) 2 SCC 375. He fairly pointed

out that the aforesaid single Judge judgment has been set

aside by this Court, but stated that no ratio decidendi was

forthcoming from the Supreme Court judgment. This was

because paragraph 7 of the aforesaid judgment was both

laconic and contained only conclusions without any

8

reasoning. He also argued that the said decision is per

incuriam, not having referred to the number of judgments

that were relied upon by the learned single Judge. He

also pointed out that arguments were made only by the

appellant, there being no arguments on behalf of the

respondent, and that, therefore, the aforesaid judgment

would have no binding effect as a precedent. He took us

through the aforestated report of the Parliamentary

Standing Committee on Agriculture for the year 2006-

2007 to show that Parliament was alive to the fact that

Section 21A ought to be abolished, as it was a very harsh

provision which led to farmer suicides on a mass scale.

He also argued that the said provision is violative of

Article 14, both in its discriminatory aspect as well as the

fact that Section 21A is an arbitrary piece of legislation

which needs to be struck down. He also argued that, in

any case, as an alternative argument, the said Section

should be read down when applied to loans given by

banks to the rural agricultural sector.

9

5. On the other hand, Shri Jayant Bhushan, learned

senior counsel appearing on behalf of the Reserve Bank

of India, referred us to Article 246 of the Constitution and

to several judgments thereunder and stated that Section

21A squarely falls within Entry 45, List I of the Seventh

Schedule to the Constitution, which is “banking”.

According to him, even if some part of the Section were to

incidentally trench upon Entry 30, List II, having regard to

the federal paramountcy principle, State legislation under

Entry 30, List II must give way to Section 21A and not the

other way around. He also argued that the best way of

reconciling Entry 30, List II with Entry 45, List I is to say

that “relief of agricultural indebtedness” will not include

indebtedness to banks. He took us through the counter

affidavit of the RBI to show that the RBI was fully alive to

the plight of poor farmers, and had taken several

measures, including issuance of guidelines, to assist

them. While he agreed that this Court’s judgment in

Yasangi Venkateswara Rao (supra) could have been

10

more elaborate, he argued that paragraph 7 lays down a

clear ratio decidendi, and that this Court ought to follow

the same. Insofar as the plea of Article 14 is concerned,

he argued that there is no pleading in the writ petition

stating how Article 14 had been breached, and this being

the case, there being a presumption of constitutionality of

Section 21A, such presumption had not been rebutted in

this case.

6. Ms. Shirin Khajuria, learned counsel who appeared

on behalf of the Union of India, painstakingly took us

through the provisions of the Banking Regulation Act.

According to her, “relief of agricultural indebtedness”, that

is in the latter part of Entry 30, List II of the Seventh

Schedule to the Constitution, should be read along with

“money lending and money lenders” which is the first part

of the said entry. This being the case, relief of agricultural

indebtedness would apply only to money lenders and

money lending and not to banks at all. If the subject of

11

relief of agricultural indebtedness were not linked to

money lending, it would have found itself in a separate

entry in the State List, which is not the case. She also

relied upon a number of judgments to buttress her

submissions, and read copiously from the two counter

affidavits filed by the Union of India to show how the

Central Government was fully alive to the plight of poor

farmers, and had set up expert groups to report on the

same.

7. Having heard learned counsel for both parties, it is

necessary to 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 List

38. Banking, that is to say, the conduct of

banking business by corporations other than

corporations owned or controlled by a

Federated State and carrying on business

only within that State.

12

List II- Provincial Legislative List

27. Trade and commerce within the Province;

markets and fairs; money lending and money

lenders.

xxx xxx xxx

Constitution of India

List I- Union List

45. Banking.

List II- State List

30. Money-lending and money-lenders; relief

of agricultural indebtedness.

xxx xxx xxx

Article 246. Subject-matter of laws made

by Parliament and by the Legislatures of

States.

(1) Notwithstanding anything in clauses (2)

and (3), Parliament has exclusive power to

make laws with respect to any of the matters

enumerated in List I in the Seventh Schedule

(in this Constitution referred to as the “Union

List”).

(2) Notwithstanding anything in clause (3),

Parliament, and, subject to clause (1), the

Legislature of any State also, have power to

make laws with respect to any of the matters

enumerated in List III 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 has exclusive power

13

to make laws for such State or any part

thereof with respect to any of the matters

enumerated in List II in the Seventh Schedule

(in this Constitution referred to as the “State

List”).

(4) Parliament has power to make laws with

respect to any matter for any part of the

territory of India not included in a State

notwithstanding that such matter is a matter

enumerated in the State List.”

8. In order to appreciate the scope of the subject

“banking” in Entry 45, List I, we must see first the judicial

dicta on the subject. In Rustom Cavasjee Cooper

(Banks Nationalisation) v. Union of India, (1970) 1

SCC 248 at 279 and 281, this Court stated:

“31. The expression “banking” is not defined in

any Indian statute except in the Banking

Regulation Act, 1949. It may be recalled that

by Section 5(b) of that Act “banking” means

“the accepting for the purpose of lending or

investment of deposits of money from the

public repayable on demand or otherwise, and

withdrawable by cheque, draft or otherwise”.

The definition did not include other

commercial activities which a banking

institution may engage in.

xxx xxx xxx

14

36. The legislative entry in List I of the

Seventh Schedule is “Banking” and not

“Banker” or “Banks”. To include within the

connotation of the expression “Banking” in

Entry 45, List I, power to legislate in respect of

all commercial activities which a banker by the

custom of bankers or authority of law engages

in, would result in re-writing the Constitution.

Investment of power to legislate on a

designated topic covers all matters incidental

to the topic. A legislative entry being

expressed in a broad designation indicating

the contour of plenary power must receive a

meaning conducive to the widest amplitude,

subject however to limitations inherent in the

federal scheme which distributes legislative

power between the Union and the constituent

units. The field of “banking” cannot be

extended to include trading activities which

not being incidental to banking encroach upon

the substance of the entry “trade and

commerce” in List II.”

In Union of India v. Delhi High Court Bar Assn., (2002)

4 SCC 275 at 285-286, this Court was faced with the

constitutional validity of the Recovery of Debts Due to

Banks and Financial Institutions Act, 1993. In repelling

the contention that the said Act would not fall under Entry

45, List I, this Court held:

15

“14. The Delhi High Court and the Guwahati

High Court have held that the source of the

power of Parliament to enact a law relating to

the establishment of the Debts Recovery

Tribunal is Entry 11-A of List III which pertains

to “administration of justice; constitution and

organisation of all courts, except the Supreme

Court and the High Courts”. In our opinion,

Entry 45 of List I would cover the types of

legislation now enacted. Entry 45 of List I

relates to “banking”. Banking operations

would, inter alia, include accepting of loans

and deposits, granting of loans and recovery

of the debts due to the bank. There can be

little doubt that under Entry 45 of List I, it is

Parliament alone which can enact a law with

regard to the conduct of business by the

banks. Recovery of dues is an essential

function of any banking institution. In exercise

of its legislative power relating to banking,

Parliament can provide the mechanism by

which monies due to the banks and financial

institutions can be recovered. The Tribunals

have been set up in regard to the debts due to

the banks. The special machinery of a

Tribunal which has been constituted as per

the preamble of the Act, “for expeditious

adjudication and recovery of debts due to

banks and financial institutions and for

matters connected therewith or incidental

thereto” would squarely fall within the ambit of

Entry 45 of List I. As none of the items in the

lists are to be read in a narrow or restricted

sense, the term “banking” in Entry 45 would

mean legislation regarding all aspects of

banking including ancillary or subsidiary

matters relating to banking. Setting up of an

16

adjudicatory body like the Banking Tribunal

relating to transactions in which banks and

financial institutions are concerned would

clearly fall under Entry 45 of List I giving

Parliament specific power to legislate in

relation thereto.”

It can, thus, be seen that Entry 45, List I has been

construed widely as including not only banking, but all

aspects incidental or ancillary to banking, so long as the

field of “banking” does not trench upon trading activities

not incidental to banking, which would fall under Entry 26,

List II.

9. At this stage, it will be important to advert to certain

other judgments of this Court dealing with the expression

“banking” vis-à-vis other entries in the State List. Thus, in

Prafulla Kumar Mukherjee v. Bank of Commerce Ltd.,

Khulna, AIR 1947 PC 60 at 65, the Privy Council

expounded the doctrine of pith and substance, and

ultimately found that, on a proper reading of the entries

concerned, there would be no clash between the Bengal

Money Lenders Act, 1940, which was referable to the

17

State List, and the Federal entries dealing with

promissory notes and banking. Thus, the Court held:

“35. Moreover, the British Parliament when

enacting the Indian Constitution Act had a

long experience of the working of the British

North America Act and the Australian

Commonwealth Act and must have known that

it is not in practice possible to ensure that the

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 a

subject in one list, touches also on

a subject in another list, and the

different provisions of the

enactment may be so closely

intertwined that blind observance

to a strictly verbal interpretation

would result in a large number of

statutes being declared invalid

because the legislature enacting

them may appear to have

legislated in a forbidden sphere.

Hence the rule which has been

evolved by the Judicial

Committee, whereby the

impugned statute is examined to

ascertain its pith and substance or

its true nature and character for

the purpose of determining

whether it is legislation with

18

respect to matters in this list or in

that.”

36. Their Lordships agree that this passage

correctly describes the grounds on which the

rule is founded, and that it applies to provincial

as well as to Dominion legislation. No doubt

experience of past difficulties has made the

provisions of the Indian Act more exact in

some particulars, and the existence of the

Concurrent List has made it easier to

distinguish between those matters which are

essential in determining to which list particular

provisions should be attributed and those

which are merely incidental. But the

overlapping of subject-matter is not avoided

by substituting three lists for two or even by

arranging for a hierarchy of jurisdictions.

37. Subjects must still overlap and where they

do the question must be asked what in pith

and substance is the effect of the enactment

of which complaint is made and in what list is

its true nature and character to be found. If

these questions could not be asked, much

beneficent legislation would be stifled at birth,

and many of the subjects entrusted to

provincial legislation could never effectively be

dealt with.

38. Thirdly, the extent of the invasion by the

provinces into subjects enumerated in the

Federal List has to be considered. No doubt it

is an important matter, not, as their Lordships

think, because the validity of an Act can be

determined by discriminating between

degrees of invasion, but for the purpose of

determining what is the pith and substance of

19

the impugned Act. Its provisions may advance

so far into Federal territory as to show that its

true nature is 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 Act is not

money lending but promissory notes or

banking? Once that question is determined

the Act falls on one or the other side of the line

and can be seen as valid or invalid according

to its true content.

39. This view places the precedence accorded

to the three lists in its proper perspective. No

doubt where they come in conflict List I has

priority over Lists III and II and List III has

priority over List II, but the question still

remains, priority in what respect? Does the

priority of the Federal legislature prevent the

provincial legislature from dealing with any

matter which may incidentally affect any item

in its list or in each case has one to consider

what the 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 the jurisdiction as to

promissory notes given to the Federal

legislature is or is not confined to negotiability.

The Bengal Money Lenders Act is valid

because it deals in pith and substance with

money lending, not because legislation in

respect of promissory notes by the Federal

legislature is confined to legislation affecting

20

their negotiability—a matter as to which their

Lordships express no opinion.

41. It will be observed that in considering the

principles involved their Lordships have dealt

mainly with the alleged invalidity of the Act,

based on its invasion of the Federal entry,

“promissory notes” Item (28) in List I. They

have taken this course, because the case was

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 by making

regulations for banking or promissory notes, it

is still an answer that neither of those matters

is its substance and this view is supported by

its provisions exempting scheduled and

notified banks 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 was followed and the U.P. Cooperative

Societies Act, 1965, insofar as it dealt with Cooperative

banks, was held to be within the sphere of the State List.

This Court held:

“9. It was strenuously contended by the

learned Counsel for the petitioners in some of

the cases that the U.P. Cooperative Societies

Act, 1965, insofar as it was sought to be made

21

applicable to cooperative banks was beyond

the competence of the State Legislature. The

argument was that while the subject

“cooperative societies” was included in Entry

32 of List II, “banking” was a distinct entry by

itself in List I of the 7th Schedule (Entry 45)

and therefore, the State Legislature was

incompetent to legislate in regard to banking

by “cooperative societies”. There is no

substance whatever 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 cooperative societies”. Entry

44 is “incorporation, regulation and winding up

of corporations whether trading or not, with

objects not confined to one State, but not

including universities”. Entry 45 is “banking”.

Entry 32 of List II is, “incorporation, regulation

and winding up of corporations, other than

those specified in List I, and universities;

unincorporated trading, literary, scientific,

religious and other societies and associations;

cooperative societies”.

10. We do not think it necessary to refer to the

abundance of authority on the question as to

how to determine whether a legislation falls

under an entry in one list or another entry in

another list. Long ago in Prafulla Kumar

Mukherjee v. Bank of Commerce Ltd. [74 IA

23] the Privy Council was confronted with the

question whether the Bengal Money-Lenders

Act fell within Entry 27 in List II of the Seventh

Schedule to the Government of India Act,

1935, which was “money-lending”, in respect

of which the provincial legislature was

22

competent to legislate, or whether it fell within

Entries 28 and 38 in List I which were

“promissory notes” and “banking” which were

within the competence of the Central

Legislature. The argument was that the

Bengal Money-Lenders Act was beyond the

competence of the provincial legislature

insofar as it dealt with promissory notes and

the business of banking. The Privy Council

upheld the vires of 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 question must

be asked what in pith and

substance is the effect of the

enactment of which complaint is

made, and in what list is its true

nature and character to be found.

If these questions could not be

asked, much beneficent legislation

would be stifled at birth, and many

of the subjects entrusted to

provincial legislation could never

effectively be dealt with.”

Examining the provisions of the U.P.

Cooperative Societies Act in the light of the

observations of the Privy Council we do not

have the slightest doubt that in pith and

substance the Act deals with “cooperative

societies”. That it trenches upon banking

incidentally does 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 societies

23

which do banking business to facilitate the

working of other cooperative societies. Merely

because they do banking business such

cooperative societies do not cease to be

cooperative societies, when otherwise they

are registered under the Cooperative

Societies Act and are subject to the duties,

liabilities and control of the provisions of the

Cooperative Societies Act. We do not think

that the question deserves any more

consideration and, we, therefore, hold that the

U.P. Cooperative Societies Act was within the

competence of the State Legislature. This was

also the view taken in Nagpur District Central

Cooperative Bank Ltd. v. Divisional Joint

Registrar, Cooperative Societies [AIR 1971

Bom 365 : 1971 Mah LJ 932] and Sant Sadhu

Singh v. State of Punjab [AIR 1970 P&H 528].”

(Emphasis Supplied)

Similarly, in Harish Tara Refractories (P) Ltd. v.

Certificate Officer, Sader Ranchi, (1994) 5 SCC 324,

this Court held that the Bihar and Orissa Public Demands

Recovery Act, 1914 was referable to Entries 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 to and relied upon by Shri Parikh. In Fatehchand

(supra), several pleas were taken to invalidate the

24

Maharashtra Debt Relief Act of 1976. Insofar as

legislative competence was concerned, this Court held:

“54. What then is the incompetence of the

State Legislature? Shri B. Sen urged that the

wiping out of private debts which formed the

capital assets of the moneylenders — one of

the main things done by the Debt Act — was

not in any of the legislative Lists and even if

Parliament had residuary power under Entry

97 of List I, the State had none. Entry 30 in

List II is “Money lending and moneylenders;

relief of agricultural indebtedness”. If

commonsense and common English are

components of constitutional construction,

relief against loans by scaling down,

discharging, reducing interest and principal,

and staying the realisation of debts will,

among other things, fall squarely within the

topic. And that, in a country of hereditary

indebtedness on a colossal scale! It is

commonplace to state that legislative heads

must receive large and liberal meanings and

the sweep of the sense of the rubrics must

embrace the widest range. Even incidental

and cognate matters come within their

purview. The whole gamut of Money lending

and debt-liquidation is thus within the State’s

legislative competence. The reference to

the Rajahmundry Electricity case

[Rajamundry Electric Supply

Corporation v. State of Andhra, AIR 1954 SC

251 : 1954 SCR 779] is of no relevance. Nor

is the absence of the expression “relief” in

Entry 30, List II, of any moment when relief

from moneylenders is eloquently implicit in the

25

topic. Sometimes, arguments have only to be

stated to be rejected.” (at

page 693)

(Emphasis Supplied)

Similarly, in Pathumma (supra), this Court was concerned

with a challenge to the constitutional validity of Section 20

of the Kerala Debt Agriculturists Relief Act, 1970, which

entitled debtors to recover properties sold to purchasers

in execution of decrees. This Court, after referring to

Fatehchand (supra) in some detail, held:

“36. The avowed object of the Act seems to

give substantial relief to the agriculturist

debtors in order to get back their property and

earn their livelihood. This is undoubtedly a

laudable object and the Act is a piece of social

legislation. As the decree-holder who had

purchased the property is fully compensated

by being paid the amount for which he had

purchased the property, it cannot be said that

his right to hold the property has been

completely destroyed. The purchaser gets the

property at a distress sale and is fully aware of

the pitiable conditions under which the debtor

was unable to pay the debt. In a Constitution

which is wedded to a social pattern of society

the purchaser must be presumed to have the

knowledge that any social legislation for the

good of a particular community or the people

in general can be brought forward by

Parliament at any time. The Act, however,

26

does not take away the property of the

purchaser without paying him due

compensation. It is true that Section 20(2)(b)

provides for payment of the purchase money

by instalments, but no exception can be taken

to this fact as in view of the poverty of the

debtor it is not possible for him to pay the debt

in a lump sum and as the legislation is for a

particular community the provision for

payment by instalments cannot be said to

work serious injustice to the decree-holder

purchaser. A stranger auction purchaser has

been treated differently because he had

nothing to do with the decree and is enjoined

to return the property to the agriculturist

debtor on payment of entire amount in lump

sum without insisting on instalments. Thus, in

short, the position is that the object of the Act

is to protect the poor distressed agriculturist

debtors from the clutches of greedy creditors

who have grabbed the properties of the

debtors and deprived the debtors of their main

source of sustenance.”

(at page 22)

In dealing with legislative competence, this Court upheld

Section 20 in the following terms:-

“56. It is Article 246 of the Constitution which

deals with the subject-matter of the laws to be

made by the Parliament and the Legislatures

of the States. Clause (3) of the Article

provides that subject to clauses (1) and (2) of

the Article with which we are not concerned

the Legislature of the State has “exclusive

power to make laws….. with respect to any of

27

the matters enumerated in List II”. Entry 30 of

the List specifically states the following

matters as being within the competence of the

State Legislature,—

30 —Money-lending and money-lenders;

relief of agricultural indebtedness.

It is therefore quite clear, and is beyond

controversy, that the Act which provides for

“the relief of indebted agriculturists in the

State of Kerala” is within the competence of

the State Legislature. Clause (1) of Section 2

of the Act defines an “agriculturist”, clause (4)

defines a “debt”, clause (5) defines a “debtor”

and the two Explanations to Section 20 define

the expressions “court” and “judgment-debtor”

and give an extended meaning to the

expression “agriculturist” so as to include a

person who would have been an agriculturist

but for the sale of his immovable property. The

other sections provide for the settlement of the

liabilities and payment of the debt (along with

the interest) of an agriculturist, including the

setting aside of the sale in execution of a

decree and the bar of suits. The subjectmatter

of the Act is therefore clearly within the

purview of Entry 30 and Counsel for the

appellants have not been able to advance any

argument which could justify a different view.

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

been argued that the entry would not permit

the making of a law relating to the debt of an

agriculturist which has already been paid by

28

sale of his property in execution of a decree

and is not a subsisting debt.

57. It is true that Section 20 of the Act

provides for the setting aside of any sale of

immovable property in which an agriculturist

had an interest, if the property had been sold,

inter alia, in execution of any decree for the

recovery of a debt: (a) on or after November

1, 1956, or (b) before November 1, 1956, but

possession whereof has not actually passed

before November 20, 1957, from the

judgment-debtor to the purchaser, and the

decree-holder is the purchaser, on depositing

one-half of the purchase money together with

the cost of the execution etc. The section

therefore deals with a liability which had

ceased and did not subsist on the date when

the Act came into force. But there is nothing in

Entry 30 of List II to show that it will not be

attracted and would not enable the State

Legislature to make a law simply because the

debt of the agriculturist had been paid off

under a distress sale. The subject-matter of

the entry is “relief of agricultural indebtedness”

and there is no justification for the contention

that it is confined only to subsisting

indebtedness and would not cover the

necessity of providing relief to those

agriculturists who had lost their immovable

property by court sales in execution of the

decree against them and had been rendered

destitute. Their problem was in fact more

acute and serious, for they had lost the

wherewithal of their livelihood and were

reduced to a state of penury. An agriculturist

does not cease to be an agriculturist merely

29

because he has lost his immovable property,

and it cannot be said that the State is not

interested in providing him necessary relief

merely because he has lost his immovable

property. On the other hand his helpless

condition calls for early solution and it is only

natural that the State Legislature should think

of rehabilitating him by providing the

necessary relief under an Act of the nature

under consideration in these cases. There is

in fact nothing in the wordings of Entry 30 to

show that the relief contemplated by it must

necessarily relate to any subsisting

indebtedness and would not cover the

question of relief to those who have lost the

means of their livelihood because of the delay

in providing them legislative relief. It is wellsettled,

having been decided by this Court

in Navinchandra Mafatlal v. CIT [AIR 1955 SC

58 : (1955) 1 SCR 829 : (1954) 26 ITR 758] ,

that “in construing words in a constitutional

enactment conferring legislative power the

most liberal construction should be put upon

the words so that the same may have effect in

their widest amplitude”. This has to be so lest

a 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 Section 21A, can be said

30

to fall within Entry 45, List I of the Seventh Schedule to

the Constitution. The relevant provisions of the Banking

Regulation Act, which are necessary for us to decide the

present writ petition, are as follows:

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

certain cases.-

Nothing in this Act shall apply to.-

(a) a primary agricultural credit society;

(b) a co-operative land mortgage bank; and

(c) any other co-operative society, except in

the manner and to the extent specified in Part

V.

xxx xxx xxx

5. Interpretation

In this Act, unless there is anything repugnant

in the subject or context, –

(b) “banking” means the accepting, for the

purpose of lending or investment, of deposits

of money from the public, repayable on

demand or otherwise, and withdrawal by

cheque, draft, order or otherwise;

(c) “banking company” means any company

which transacts the business of banking in

India;

Explanation.–Any company which is engaged

in the manufacture of goods or carries on any

trade and which accepts deposits of money

from the public merely for the purpose of

31

financing its business as such manufacturer or

trader shall not be deemed to transact the

business of banking within the meaning of this

clause;

(d) “company” means any company as

defined in section 3 of the Companies Act,

1956 (1 of 1956); and includes a foreign

company within the meaning of section 591 of

that Act;

xxx xxx xxx

6. Forms of business in which banking

companies may engage

(1) In addition to the business of banking, a

banking company may engage in any one or

more of the following forms of business,

namely:

(a) the borrowing, raising, or taking up of

money; the lending or advancing of money

either upon or without security; the drawing,

making, accepting, discounting, buying,

selling, collecting and dealing in bills of

exchange, hundies, promissory notes,

coupons, drafts, bills of lading, railway

receipts, warrants, debentures, certificates,

scrips and other instruments and securities

whether transferable or negotiable or not; the

granting and issuing of letters of credit,

traveller’s cheques and circular notes; the

buying, selling and dealing in bullion and

specie; the buying and selling of foreign

exchange including foreign bank notes; the

acquiring, holding, issuing on commission,

underwriting and dealing in stock, funds,

shares, debentures, debenture stock, bonds,

32

obligations, securities and investments of all

kinds; the purchasing and selling of bonds,

scrips or other forms of securities on behalf of

constituents or others, the negotiating of loans

and advances; the receiving of all kinds of

bonds, scrips or valuables on deposit or for

safe custody or otherwise; the providing of

safe deposit vaults; the collecting and

transmitting of money and securities;

(b) acting as agents for any Government or

local authority or any other person or persons;

the carrying on of agency business of any

description including the clearing and

forwarding of goods, giving of receipts and

discharges and otherwise acting as an

attorney on behalf of customers, but excluding

the business of a Managing Agent or

Secretary and Treasurer of a company;

(c) contracting for public and private loans and

negotiating and issuing the same;

(d) the effecting, insuring, guaranteeing,

underwriting, participating in Managing and

carrying out of any issue, public or private, of

State, municipal or other loans or of shares,

stock, debentures, or debenture stock of any

company, corporation or association and the

lending of money for the purpose of any such

issue;

(e) carrying on and transacting every kind of

guarantee and indemnity business;

(f) Managing, selling and realising any

property which may come into the possession

of the company in satisfaction or part

satisfaction of any of its claims;

33

(g) acquiring and holding and generally

dealing with any property or any right, title or

interest in any such property which may form

the security or part of the security for any

loans or advances or which may be connected

with any such security;

(h) undertaking and executing trusts;

(i) undertaking the administration of estates as

executor, trustee or otherwise;

(j) establishing and supporting or aiding in the

establishment and support of associations,

institutions, funds, trusts and conveniences

calculated to benefit employees or exemployees

of the company or the dependents

or connections of such persons; granting

pensions and allowances and making

payments towards insurance; subscribing to

or guaranteeing moneys for charitable or

benevolent objects or for any exhibition or for

any public, general or useful object;

(k) the acquisition, construction, maintenance

and alteration of any building or works

necessary or convenient for the purposes of

the company;

(l) selling, improving, managing, developing,

exchanging, leasing, mortgaging, disposing of

or turning into account or otherwise dealing

with all or any part of the property and rights

of the company;

(m) acquiring and undertaking the whole or

any part of the business of any person or

company, when such business is of a nature

enumerated or described in this sub-section;

34

(n) doing all such other things as are

incidental or conducive to the promotion or

advancement of the business of the company;

(o) any other form of business which the

Central Government may, by notification in the

Official Gazette, specify as a form of business

in which it is lawful for a banking company to

engage.

(2) No banking company shall engage in any

form of business other 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 banking business in India unless

it holds a licence issued in that behalf by the

Reserve Bank and any such licence may be

issued subject of such conditions as the

Reserve Bank may think fit to impose.

xxx xxx xxx

56. Act to apply to co-operative societies

subject to modifications.—

The provisions of this Act, as in force for the

time being, shall apply to, or in relation to, cooperative

societies as they apply to, or in

relation to banking companies subject to the

following modifications, namely:

(a) throughout this Act, unless the context

otherwise requires,-

(i) references to a “banking company” or “the

company” or “such company” shall be

35

construed as references to a co-operative

bank;

(ii) references to “commencement of this Act”

shall be construed as 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

deals with the subject “banking” insofar as it licenses

banking companies, as defined, and cooperative banks,

and seeks to regulate them. Section 21A, though by way

of amendment, is undoubtedly an integral part of the

aforesaid Act relating to the interdict on the reopening of

loan transactions between a banking company and its

debtor, on the ground that the rate of interest charged is

excessive. There can be no doubt that a law relating to

indebtedness of a debtor to a banking company and the

interdict against a court reopening any such transaction,

on the ground that interest charged by the banking

company is excessive, would relate to the business of

banking. We must not forget that the entries in the Lists to

36

the Seventh Schedule have to be read in the widest

possible manner, and we have seen from the judgments

quoted by us above that the expression “banking”

contained in Entry 45, List I is to be given a wide

meaning. There can be no doubt that the statute as a

whole and the aforesaid Section does fall within Entry 45,

List I.

12. The effect of the aforesaid Section is to put out of

harm’s way the Usurious Loans Act and all State Debt

Relief Acts. The Usurious Loans Act was enacted in 1918;

its object being to confer on Courts in India an equitable

jurisdiction in cases relating to unconscionable usurious

contracts. Section 2(1) and 2(2) define “interest” and

“loan” respectively in the widest terms as under:

“2. Definitions.

In this Act, unless there is anything repugnant

in the subject or context,-

(1) “interest” means rate of interest and

includes the return to be made over and

above what was actually lent, whether the

37

same is charged or sought to be recovered

specifically by way of interest or otherwise.

(2) “loan” means a loan whether of money or

in kind and includes any transaction which is,

in the opinion of the Court, in substance a

loan.”

Section 3, which is the operative Section in the said Act,

reads as follows:-

“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, whether heard

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 thereto substantially unfair, the Court

may exercise all or any of the following

powers, namely may,-

(i) re-open the transaction, take an account

between the parties and relieve the debtor of

all liability in respect of any excessive interest;

(ii) notwithstanding any agreement, purporting

to close previous dealings and to create a new

obligation, re-open any account already taken

between them and relieve the debtor of all

liability in respect of any excessive interest,

and if anything has been paid or allowed in

account in respect of such liability, order the

creditor to repay any sum which it considers to

be repayable in respect thereof;

38

(iii) set aside either wholly or in part or revise

or alter any security given or agreement made

in respect of any loan, and if the creditor has

parted with the security, order him to

indemnify the debtor in such manner and to

such extent as it may deem just:

Provided that, in the exercise of these powers,

the Court shall not(i)

re-open any agreement purporting to close

previous dealings and to create a new

obligation which has been entered into by the

parties or any persons from whom they claim

at a date more than twelve years from the date

of the transaction;

(ii) do anything which affects any decree of a

Court.

Explanation.- In the case of a suit brought on

a series of transactions the 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 which the Court deems to be

reasonable having regard to the risk incurred

as it appeared, or must be taken to have

appeared, to the creditor at 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 interest is charged, the periods at

39

which it is calculated, and the total advantage

which may reasonably be taken to have been

expected from the transaction.

(c) In considering the question of risk, the

Court shall take into account the presence or

absence of security and the value thereof, the

financial condition of the debtor and the result

of any previous transactions of the debtor, by

way of loan, so far as the same were known,

or must be taken to have been known, to the

creditor.

(d) In considering whether a transaction was

substantially unfair, the Court shall take into

account all circumstances materially affecting

the relations of the parties at the time of the

loan or tending to show that the transaction

was unfair, including the necessities or

supposed necessities of the debtor at the time

of the loan so far as the same were known, or

must be taken to have been known, to the

creditor.

Explanation.- Interest may of itself be

sufficient evidence that the transaction 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 a loan or

for the enforcement of any agreement or

security in respect of a loan or for the

redemption of any such security.

(4) Nothing in this section shall affect the

rights of any transferee for value who satisfies

the Court that the transfer to him was bona

fide, and that he had at the time of such

40

transfer no notice of any fact which would

have entitled the debtor as against the lender

to relief under this section.

For the purposes of this sub-section, the word

“notice” shall have the same meaning as is

ascribed to it in section 4 of the Transfer of

Property Act, 1882 (4 of 1882).

(5) Nothing in this section shall be construed

as derogating from the 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 a whole host of factors, including the financial

condition of the debtor. State Debt Relief Acts, as has

been stated hereinabove, go even further and not only

relate to scaling down of excessive rates of interest, but

also, in certain cases, grant a waiver of the interest, either

wholly or partially, and of the principal sum of the loan,

either wholly or partially. There can be no doubt

whatsoever that, as has been held in Fatehchand (supra)

and Pathumma (supra), the State Debt Relief Acts are

41

validly made under Entry 30, List II of the Seventh

Schedule to the Constitution.1

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

1Ms. Khajuria relied upon State Bank of Travancore v. Mohammed Mohammed

Khan, 1982 (1) SCR 338 at 348, for the proposition that banks were excluded from

the Kerala Agriculturists’ Debt Relief Act of 1970 because, unlike money lenders, they

do not exploit needy agriculturists and impose upon them harsh and onerous terms,

while granting loans to them. While this may have been the perception in the year

1982, the perception in the years after 1982 has altered as several recent State Debt

Relief Acts include relief against loans granted by banks. For instance, the Kerala

Farmers’ Debt Relief Commission Act, 2006 defines “debt” as including liabilities,

inter alia, due to institutional creditors and cooperative societies, and further defines

“institutional creditors” 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 (Small Farmers, Agricultural Labourers and Rural Artisans) Act, 2016.

Sections 11 and 12 of both Acts read:

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

No suit for recovery of debt shall be instituted, or application for

execution of a decree in respect of a debt shall be made against

a farmer described in clause (b) of sub-section (1) of section 5

and no appeal, revision petition or application for review against

any decree or order in any such suit or application shall be

presented or made against such a farmer in any Civil Court, or

Tribunal or other authority, and such suits, applications, appeals

and petitions instituted or made against such a farmer before

the date of declaration of a district or part thereof as a distress

affected area and pending on such date shall stand stayed, for

such period as the Commission may recommend in that behalf.”

“12. Payment of debt in instalments

(1) Notwithstanding anything contained in any law or contract

or in any decree or order of any Court or Tribunal, a farmer

described in clause (b) of sub- section (1) of section 5 may

discharge his debts in suitable instalments together with fair

rate of interest as recommended by the Commission on the

principal amount outstanding at the time of each payment, in

the manner as may be directed by the Commission and on

payment of the same in the manner directed by the

Commission, the whole debt shall be deemed to be discharged.

(2) Where any instalment of a debt is not paid on the due date

42

i. What is the scope of Entry 45, List I vis-à-vis Entry 30,

List II of the Seventh Schedule to the Constitution?

ii. Whether Section 21A can be said to prevail over State

Debt Reliefs Acts in the event of a clash between the

two?

In order to answer these questions, we have to consider

the arguments of Ms. Shirin Khajuria and Mr. Bhushan.

15. According to Ms. Khajuria, the expression “relief of

agricultural indebtedness” must take colour from the

expression “money lending and money lenders”

preceding it in Entry 30, List II of the Seventh Schedule.

We are afraid we cannot agree for several reasons.

Firstly, purely grammatically, a semicolon separates the

two expressions showing that they are not inextricably

connected. Also, we have already adverted to several

judgments, including Pathumma (supra), which state that

as directed by the Commission, the creditor shall be entitled to

recover the same in the manner 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.”

43

the widest 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 be narrowed down by any

rule of noscitur a sociis, or taking colour from the former

part of the entry.2

In fact, various State Acts were already

in existence at the time of the Constitution, which dealt

with the subject of relief of agricultural indebtedness from

the point of view of the money lender. See, for instance,

Sections 8 and 9 of the Assam Money-Lenders Act, 1934,

Sections 9 and 10 of the Central Provinces MoneyLenders

Act, 1934, Sections 11 and 12 of the Bihar

Money-Lenders Act, 1938, Sections 9, 10 and 11 of the

Orissa Money-Lenders Act, 1939, Sections 31 and 36 of

the Bengal Money-Lenders Act, 1940 and Sections 23, 24

and 29 of the Bombay Money-Lenders Act, 1946.

Obviously, the addition of the subject “relief of agricultural

2

In Special Reference No.1 of 2001, (2004) 4 SCC 489, the expression “gas and

gas works” contained in Entry 25, List II was read in a manner that “gas” must take

colour from the expression “gas works”. It is clear that this was because natural gas

was excluded from the said entry and was, in fact, part of Entry 53, List I, being

within the expression “petroleum”. It would not be possible to extend such an

interpretation to a subject matter which is not directly linked with another subject

matter contained in the same entry.

44

indebtedness”, for the first time, by the Constitution would

refer to relief of agricultural indebtedness not only from

money lenders, but also from all persons who give loans

including banks. For otherwise, the subject matter “relief

of agricultural indebtedness” would have been subsumed

within “money lending and money lenders” and would

have been wholly unnecessary to add as a subject matter

separate and distinct from “money lending and money

lenders”. That “money lending and money lenders” is

separate and distinct from “relief of agricultural

indebtedness” is also clear from the fact that money

lending is not restricted to the agricultural sector, but

would include, within its scope, money lent to all persons,

including purely commercial transactions. Also, there are

many subjects in the Seventh Schedule which are

contained in one entry, but which deal with divergent

matters. For example Entry 5, List III deals with seven

completely different subjects, all banded together under

Entry 5 and separated by semicolons, making it clear that

45

each subject matter is separate and distinct from what

follows each semicolon.3

Similarly, Entry 6, List III deals

with transfer of property other than agricultural land,

separated by a semicolon from registration of deeds and

documents.4

Entry 12, List III deals with evidence and is,

thus, separated by a semicolon from recognition of laws,

public acts and records and judicial proceedings.5

Obviously, there is no scientific method involved in placing

subjects in the various entries in the lists contained in the

Seventh Schedule to the Constitution. Ms. Khajuria’s

alternate plea that “relief of agricultural indebtedness”

would otherwise be in a separate entry by itself must also,

therefore, be rejected. Also, the object of the relief of

agricultural indebtedness is to free the farmer from the

bonds of debts incurred, inter alia, due to adverse natural

3 Entry 5, List III: Marriage and divorce; infants and minors; adoption; wills, intestacy

and succession; joint family and partition; all matters in respect of which parties in

judicial proceedings were immediately before the commencement of this Constitution

subject to their personal law.

4 Entry 6, List III: Transfer of property other than agricultural land; registration of

deeds and documents.

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

and judicial proceedings.

46

causes, and debt relief would be

necessary in the case of adverse natural causes

whatever be the source of the debt availed. If Ms.

Khajuria is right, a farmer would then be protected only

against moneylenders, but not banks, which would

denude the entry of most of its content.

16. The real question that arises is how are Entry 45,

List I and Entry, 30 List II to be harmonized. Shri Bhushan

has relied strongly upon Article 246 of the Constitution

which, according to him, lays down the federal supremacy

principle. According to him, the said principle extends to

edging out State legislation altogether, where

reconciliation is not possible. The scope of Article 246

has been dealt with in many judgments. In Hoechst

Pharmaceuticals Ltd. v. State of Bihar, (1983) 3 SCR

130 at 162-63 and 165-66, this Court laid down the

federal supremacy principle thus:

“It is obvious that Article 246 imposes

limitations on the legislative powers of the

47

Union and State legislatures and its ultimate

analysis would reveal the following essentials:

1. Parliament has exclusive power to legislate

with respect to any of the matters enumerated

in List I notwithstanding anything contained in

clauses (2) and (3). The non obstante clause

in Article 246(1) provides for predominance or

supremacy of Union legislature. This power is

not encumbered by anything contained in

clauses (2) and (3) for these clauses

themselves are expressly limited and made

subject to the non obstante clause in Article

246 (1). The combined effect of the different

clauses contained in Article 246 is no more

and no less than this: that in respect of any

matter falling within List I, Parliament has

exclusive power of legislation.

2. The State legislature has exclusive power

to make laws for such State or any part

thereof with respect to any of the matters

enumerated in List II of the Seventh Schedule

and it also has the power to make laws with

respect to any matters enumerated in List III.

The exclusive power of the State legislature to

legislate with respect to any of the matters

enumerated in List II has to be exercised

subject to clause (1) i.e. the exclusive power

of Parliament to legislate with respect to

matters enumerated in List I. As a

consequence, if there is a conflict between an

entry in List I and an entry in List II which is

not capable of reconciliation, the power of

Parliament to legislate with respect to a matter

enumerated in List II must supersede pro

tanto the exercise of power of the State

legislature.

48

3. Both Parliament and the State legislature

have concurrent powers of legislation with

respect to any of the matters enumerated in

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 supremacy viz. that in case

of inevitable conflict between Union and State

powers, the Union power as enumerated in

List I shall prevail over the State power as

enumerated in Lists II and III, and in case of

overlapping between Lists II and III, the former

shall prevail. But the principle of federal

supremacy laid down in Article 246 of the

Constitution cannot be resorted to unless

there is an “irreconcilable” conflict between

the entries in the Union and State Lists. In the

case of a seeming conflict between the entries

in the two Lists, the entries should be read

together without giving a narrow and restricted

sense to either of them. Secondly, an attempt

should be made to see whether the two

entries cannot be reconciled so as to avoid a

conflict of jurisdiction. It should be considered

whether a fair reconciliation can be achieved

by giving to the language of the Union

Legislative List a meaning which, if less wide

than it might in another context bear, is yet

one that can properly be given to it and

equally giving to the language of the State

Legislative List a meaning which it can

properly bear. The non obstante clause in

49

Article 246(1) must operate only if such

reconciliation should prove impossible.

Thirdly, no question of conflict between the

two Lists will arise if the impugned legislation,

by the application of the doctrine of “pith and

substance” appears to fall exclusively under

one list, and the encroachment upon another

list is only incidental.

xxx xxx xxx

With regard to the interpretation of non

obstante clause in Section 100(1) of the

Government of India Act, 1935 Gwyer, C.J.

observed:

“It is a fundamental assumption that the

legislative powers of the Centre and Provinces

could not have been intended to be in conflict

with one another and, therefore, we must read

them together, and interpret or modify the

language in which one is expressed by the

language of the other.”

“In all cases of this kind the question before

the Court”, according to the learned Chief

Justice is not “how the two legislative powers

are theoretically capable of being construed,

but how they are to be construed here and

now”.

(Emphasis Supplied)

To similar effect is the judgment cited by Shri Bhushan,

Sudhir Chandra Nawn v. WTO, (1969) 1 SCR 108 at

113, where the Court held:

50

“Exclusive power to legislate conferred upon

Parliament is exercisable, notwithstanding

anything contained in clauses (2) & (3), that is

made more emphatic by providing in clause

(3) that the Legislature of any State has

exclusive power to make laws for such State

or any part thereof with respect to any of the

matters enumerated in List II in the Seventh

Schedule, but subject to clauses (1) and (2).

Exclusive power of the State Legislature has

therefore to be exercised subject to clause (1)

i.e. the exclusive power which the Parliament

has in respect of the matters enumerated in

List I. Assuming that there is a conflict

between Entry 86 List I and Entry 49 List II,

which is not capable of reconciliation, the

power of Parliament to legislate in respect of a

matter which is exclusively entrusted 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 two entries in the Union List and the State List,

respectively, have a head-on collision and are

irreconcilable, then, as a last resort, the entry in the State

List is to give way to the entry in the Union List. But, this

is only as a last resort. First, it is incumbent upon the

Court to harmonise the entries, if possible, by giving effect

to both and not rendering any one of them otiose. Thus, in

51

Calcutta Gas Co. (Proprietary) Ltd. v. State of W.B.,

1962 Supp (3) SCR 1 at 13, 17-19, the Court, held:

“The power to legislate is given to the

appropriate legislatures by Article 246 of the

Constitution. The entries in the three Lists are

only legislative heads or fields of legislation:

they demarcate the area over which the

appropriate legislatures can operate. It is also

well settled that widest amplitude should be

given to the language of the entries. But some

of the entries in the different Lists or in the

same List may overlap and sometimes may

also appear to be in direct conflict with each

other. It is then the duty of this Court to

reconcile the entries and bring about harmony

between them.

xxx xxx xxx

Entry 24 in List II in its widest amplitude takes

in all industries, including that of gas and gasworks.

So too, Entry 25 of the said List

comprehends gas industry. There is,

therefore, an apparent conflict between the

two entries and they overlap each other. In

such a contingency the doctrine of

harmonious construction must be invoked.

Both the learned counsel accept this principle.

While the learned Attorney-General seeks to

harmonize both the entries by giving the

widest meaning to the word “industry” so as to

include the industrial aspect of gas and gasworks

and leaving the other aspects to be

covered by Entry 25, learned counsel for the

contesting respondents seeks to reconcile

them by carving out gas and gas-works in all

52

its aspects from Entry 24. If industry in Entry

24 is interpreted to include gas and gasworks,

Entry 25 may become redundant, and

in the context of the succeeding entries,

namely, Entry 26, dealing with trade and

commerce, and Entry 27, dealing with

production, supply and distribution of goods it

will be deprived of all its contents and reduced

to “useless lumber”. If industrial, trade,

production and supply aspects are taken out

of Entry 25, the substratum of the said entry

would disappear: in that event we would be

attributing to the authors of the Constitution

ineptitude, want of precision and tautology. On

the other hand, the alternative contention

enables Entries 24 and 25 to operate fully in

their respective fields: while Entry 24 covers a

very wide field, that is, the field of the entire

industry in the State, Entry 25, dealing with

gas and gas-works, can be confined to a

specific industry, that is, the gas industry.

There may be many good reasons for the

authors of the Constitution giving separate

treatment to gas and gas-works. If one can

surmise, it may be that, as the industry of gas

and gas-works was confined to one or two

States and was not of all-India importance, it

was carved out of Entry 24 and given a

separate entry, as otherwise if a declaration

by law was made by Parliament within the

meaning of Entry 7 or Entry 52 of List I, it

would be taken out of the legislative power of

States. Be it as it may, the express intention of

the Constitution is to treat it, in normal times,

as a state subject and it is not in the province

of this Court to ascertain and scrutinize the

reasons for doing so. It is suggested that this

53

interpretation would prevent Parliament to

make law in respect of gas and gas-works

during war or other national emergency. Apart

from the relevancy of such a consideration,

the apprehension has no justification, for

under Article 249 Parliament is enabled to

take up for legislation any matter which is

specifically enumerated in List II whenever the

Council of States resolves by two-thirds

majority that such a legislation is necessary or

expedient in the national interest. So too,

under Article 250 Parliament can make laws

with respect to any of the matters enumerated

in the State List, if a proclamation of

emergency is in operation. Article 252

authorizes the Parliament to legislate for two

or more States, if the Houses of the

legislatures of those States give their consent

to the said course. Subject to such emergency

or extraordinary powers, the entire industry of

gas and gas-works is within the exclusive

legislative competence of a State. It is,

therefore, clear that the scheme of

harmonious construction suggested on behalf

of the State gives full and effective scope of

operation for both the entries in their

respective fields, while that suggested by

learned counsel for the appellant deprives

Entry 25 of all its content and even makes it

redundant. The former interpretation must,

therefore, be accepted in preference to the

latter. In this view, gas and gas-works are

within the exclusive field allotted to the States.

On this interpretation the argument of the

learned Attorney-General that, under Article

246 of the Constitution, the legislative power

of State is subject to that of Parliament ceases

54

to have any force, for the gas industry is

outside the legislative field of Parliament and

is within the exclusive field of the legislature of

the State. We, therefore, hold that the

impugned Act was within the legislative

competence of the West Bengal Legislature

and was, therefore, validly made.”

(Emphasis Supplied)

17. At this stage, it is important to advert to a judgment

of this Court in Central Bank of India v. Ravindra,

(2002) 1 SCC 367 at 402. This judgment states:

“55. During the course of hearing it was

brought to our notice that in view of several

usury laws and debt relief laws in force in

several States private moneylending has

almost come to an end and needy borrowers

by and large depend on banking institutions

for financial facilities. Several unhealthy

practices having slowly penetrated into

prevalence were pointed out. Banking is an

organised institution and most of the banks

press into service long-running documents

wherein the borrowers fill in the blanks, at

times without caring to read what has been

provided therein, and bind themselves by the

stipulations articulated by the best of legal

brains. Borrowers other than those belonging

to the corporate sector, find themselves

having unwittingly fallen into a trap and

rendered themselves liable and obliged to pay

interest the quantum whereof may at the end

prove to be ruinous. At times the interest

charged and capitalised is manifold than the

55

amount actually advanced. Rule of damdupat

does not apply. Penal interest, service

charges and other overheads are debited in

the account of the borrower and capitalised of

which debits the borrower may not even be

aware. If the practice of charging interest on

quarterly rests is upheld and given a judicial

recognition, unscrupulous banks may resort to

charging interest even on monthly rests and

capitalising the same. Statements of accounts

supplied by banks to borrowers many a times

do not contain particulars or details of debit

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 be multiplied though they cannot be

generalised. Suffice it to observe that such

issues shall have to be left open to be

adjudicated upon in appropriate cases as and

when actually arising for decision and we

cannot venture into laying down law on such

issues as do not arise for determination before

us. However, we propose to place on record a

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 a pedestal different from others. Charging

and capitalisation of interest on agricultural

loans cannot be permitted in India except on

annual or six-monthly rests depending on the

rotation of crops in the area to which the

agriculturist borrowers belong.”

(Emphasis Supplied)

56

Given the fact that, at present, agricultural loans are

predominantly given by cooperative and other banks to

farmers, the method suggested by Shri Bhushan, which is

to exclude banks from the entry “relief of agricultural

indebtedness”, would rob the aforesaid entry of most of its

force and render it largely otiose.

18. Another method of reconciling conflicting entries

was discussed in 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 the entries in the Lists should

be construed broadly and not in a narrow or

pedantic sense. But there is no need for the

appellants to call this 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 Brothers Ltd.

case [AIR (1952) Cal 740] and which

commended itself to this Court in Duni Chand

Rateria case [(1955) 1 SCR 1071] . Therefore,

if the question were simply whether a law on

Forward Contracts would be a law with

respect to Trade and commerce, there should

57

be no difficulty in answering it in the

affirmative. But the point which we have got to

decide is as to the scope of the entry “Trade

and commerce” read in juxtaposition with

Entry 48 of List I. As the two entries relate to

the powers mutually exclusive of two different

legislatures, the question is how these two are

to be reconciled. Now it is a rule of

construction as well established as that on

which the appellants rely, that the entries in

the Lists should be so construed as to give

effect to all of them and that a construction

which will result in any of them being rendered

futile or otiose must be avoided. It follows from

this that where there are two entries, one

general in its character and the other specific,

the former must be construed as excluding the

latter. This is only an application of the general

maxim that Generalia specialibus non

derogant. It is obvious that if Entry 26 is to be

construed as comprehending Forward

Contracts, then “Futures Markets” in Entry 48

will be rendered useless. We are therefore of

opinion that legislation on Forward Contracts

must be held to fall within the exclusive

competence of the Union under Entry 48 in

List I.”

(Emphasis Supplied)

19. Qua the general entry “banking” under Entry 45, List

I, which deals with banks of all kinds and the lending by

banks as well as recovery of debts by banks generally,

Entry 30, List II, which deals with relief of agricultural

58

indebtedness, is special, for the reason that indebtedness

itself is only one species of banking and agricultural

indebtedness is a sub-species thereof. The species of

indebtedness is within Entry 45, List I, whereas the subspecies

of agricultural indebtedness is within Entry 18,

List II. It is only relief of agricultural indebtedness, which

is a 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 moved by Shri

Shibban Lal Saxena in the Constituent Assembly to move

Draft Entry 34 (i.e. Entry 30), List II to the Concurrent List.

This was done as follows:

“Entry 34

Prof.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 realise the magnitude of the

problem. We all want to wipe out rural

indebtedness. Sir, in this connection I would

like to read an extract from the People’s Plan

59

for Economic Development of India, which

runs as follows:

“The other problem that will have to be

tackled, along with this problem of the

outmoded land tenure system, will be the

problem of rural indebtedness. The total rural

indebtedness was estimated by the Central

Banking Inquiry Committee, in the year 1929,

at about 900 crores of rupees. Subsequent

estimates have however, put the figure at a

much higher level. The estimate according to

the report of the Agricultural Credit

Department of the Reserve Bank of India in

the year 1937 is about 1800 crores of rupees.

It is not possible that this might have reduced

to any significant extent since the year 1937,

nor can the so-called agricultural boom at

present be said to have produced very

substantial reductions. The money-lender in

the country dominates more in that strata of

the agricultural population which is relatively

worse off.”

“The boom can hardly be said to have

benefited that strata. On the 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 it

necessary, therefore, that the debt should be

compulsorily scaled down and then taken over

by the State. Experiments made in this

direction in the Province of Madras, for

example, serve as a useful pointer. Under the

working of the Madras Agriculturist’ Relief Act

of 1938, debts were scaled down by about 47

60

per cent and the provisions of the Act can, by

no logic be characterized as drastic. In the

Punjab, under the operations of the Debt

Conciliation Boards, debts amounting to 40

lakhs were settled for about 14 lakhs. It

should, therefore, be possible and just be

considered as necessary to scale down the

present debts to about 25 per cent before they

are taken over by the State. Assuming the

present indebtedness to amount to about Rs.

1,000 crores the debt to be taken over by the

State will come to about Rs. 250 crores.”

The compensation to be paid to the rentreceivers

as well as to the usurers will thus

amount to Rs. 1985 crores. This should be

paid in the form of self-liquidating bonds

issued by the State. These should be for a

period of 40 years at the rate of interest of 3

per cent and should be compulsorily retained

by the State in its possession. The annual

payments to be made by the State for these

bonds will come to about Rs. 60 crores.

On the carrying out of these initial measures

will depend the success of the planned

economy for raising the productivity of

agriculture in the interests of the cultivators.

Unless the status quo is changed in this

manner there can be no hope of improving the

standard of living of the vast bulk of our

peasantry, and therefore, no hope of building

up an industrial structure in the country on

sound, stable and secure foundations. We are

aware of the difficulties in the way of carrying

out the above measures but we are

61

unnamable to see any alternative to them

whatsoever.”

It is thus obvious that if we really want to

remove agricultural indebtedness, the problem

cannot be solved merely by action taken by

individual States. Only a comprehensive plan

and its bold execution with the fullest cooperation

of the Union Government with the

Government of the states can solve these

problems. It is therefore that I have suggested

that this entry should be transferred 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 of

our country and we cannot realise the ‘India’

of our dreams unless we adopt a

comprehensive plan and have powers to

coordinate the activities of the Centre and the

Provinces. I therefore commend my

amendment for the earnest consideration of

the House.

Mr. President: The question is:

“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.”

62

(Emphasis Supplied)

The amendment was obviously rejected in keeping with

the fact that agriculture and aspects of agriculture are

exclusively given to the States. This will be clear from

Entries 14, 18, 45 to 48 of List II, apart from 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 including the relation of landlord

and tenant, and the collection of rents;

transfer and alienation of agricultural land;

land improvement and agricultural loans;

colonization.

45. Land revenue, including the assessment

and collection of revenue, the maintenance of

land records, survey for revenue purposes

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 also specifically exclude agriculture as follows:

63

“82. Taxes on income other than agricultural

income.

86. Taxes on the capital value of the assets,

exclusive of agricultural land, of individuals

and companies; taxes on the capital of

companies.

87. Estate duty in respect of property other

than agricultural land.

88. Duties in respect of succession to property

other than agricultural land.

xxx xxx xxx

6. Transfer of property other than agricultural

land; registration of deeds and documents.

7. Contracts including partnership, agency,

contracts of carriage, and other special forms

of contracts, but not including contracts

relating 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 (including agricultural land) declared

by law to be evacuee property.”

The constitutional scheme, insofar as agriculture is

concerned, is that it is an exclusive State subject to one

exception – that the custody, management and disposal

of property, declared by law to be evacuee property

64

includes agricultural land, and makes it a concurrent

subject.

20. This being the case, the two entries are best

harmonised by giving effect to both. This can only be

done if the relief of agricultural indebtedness is to include

banks, both cooperative and otherwise. As mentioned

earlier, Entry 18, List II gives the States exclusive power

to legislate on “land improvement and agricultural loans.”

Entry 45, List I will remain intact and will have carved out

of it the relief of agricultural indebtedness, which, as we

have already seen, is a sub-sub-species of indebtedness,

which itself is one of many aspects of banking.

21. We now come to the doctrine of pith and substance

and incidental trenching. Having thus delineated the

respective spheres of “banking” in Entry 45, List I and

“relief of agricultural indebtedness” in Entry 30, List II, we

have to view the pith and substance of the Banking

Regulation Act as a whole, inclusive of Section 21A.

65

22. It has already been held by us that, in pith and

substance, the Banking Regulation Act does fall within

Entry 45, List I, but given our interpretation of Entry 45,

List I and Entry 30, List II of the Seventh Schedule, it is

clear that, insofar as relief of agricultural indebtedness is

concerned, Section 21A certainly trenches upon Entry 30,

List II, read in the manner indicated above. As is well

settled, the doctrine of pith and substance is only to view

a legislation as a whole and see whether, as a whole, it

falls within one or other entry of List I or List II of the

Seventh Schedule. While thus falling as a whole within

one List, certain provisions in a particular Act enacted by

one legislature may incidentally trench upon a forbidden

field exclusively given to another legislature. What is the

position in law with respect to such incidental trenching?

23. In Subrahmanyan Chettiar v. Muttuswami

Goundan, AIR 1941 FC 47, the Federal Court was faced

with the constitutional validity of the Madras Agriculturists

66

Relief Act, 1938. Gwyer, CJ, speaking for the majority,

found that the Madras Act is an attempt to deal, in a very

drastic manner, with the problem of rural indebtedness

“which has vexed legislators since the days of Solon”.

The precise question that arose before the Federal Court

was whether the Madras Act trespassed into the federal

field covered by Entry 28, List I, where the Federal

legislature has an exclusive power to legislate with

respect, inter alia, to promissory notes. Section 79 of the

Negotiable Instruments Act, 1881, expressly clashed with

the Madras Act in that, in a promissory note where

interest at a specified rate is expressly made payable,

interest is to be calculated at that rate until payment or

until such date after the institution of a suit to recover the

amount, as the Court directs. Inasmuch as the Madras

Act scales down such interest, a direct clash between the

provisions of Madras Act and the Negotiable Instruments

Act became inevitable.

67

24. The majority answered the question by upholding

the Madras Act in its entirety as it was an Act, in pith and

substance, relatable to “money lending and money

lenders” inasmuch as the Madras Act operated not on the

promissory note, but on a decree in which the promissory

note had merged, and had, thus, become a judgmentdebt.

It was held that the Act neither affected nor

purported to affect any liability on a promissory note.

25. Having held this, the majority, however, speaking

through Gwyer, 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 view

of the Madras High Court that the impugned

Act does not really affect the principles

embodied in the Negotiable Instruments Act,

for, that proposition seems to me much too

broadly stated. I doubt whether any provincial

Act could, in the form of a debtors’ relief Act,

fundamentally affect the principle of

negotiability, or the rights of a bonafide

transferee for value. Perhaps the position is

different where the promissory note has never

changed hands and is sued upon by the

original payee; and it may be (though I do not

decide the question) that an Act such as the

68

Court is now considering can operate upon

the original debt in such cases, even though

the creditor has taken a promissory note in

respect of his debt. If it were otherwise, the

power of Provincial Legislatures to enact

remedial legislation in a field peculiarly their

own would be very greatly hampered; so

much so, indeed, that the Central Legislature

might well find itself compelled to review the

situation. But it would perhaps 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 a clash between the Madras Act and the Negotiable

Instruments Act, the latter would prevail. Despite the fact

that the law thus laid down cannot be said to be of

persuasive value, being in a dissenting judgment, yet, the

learned Judge dealt with the doctrine of incidental

trenching in great detail, and followed Canadian cases,

summarised by Lord Tomlin in Attorney General for

Canada v. Attorney General for British Columbia

(1930 A.C. 111 at 118) in four neat propositions on the

subject, as follows:

69

“The doctrine which has been evolved with

regard to the Canadian cases 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 is the further

doctrine of unoccupied field.

xxx xxx xxx

In Jai Gobind Singh v. Lachmi Narain Ram

(1940) 3 F.L.J. 46 p. 51, where the amount

due on an earlier promissory note had formed

part of the mortgage money, I distinguished

the case by pointing out that the suit being on

a mortgage the field was apparently clear,

and, therefore, the question of interfering with

the interest due on the promissory note did

not directly arise. No Canadian case has been

cited before us in which although the subject

of legislation was substantially within S. 92, it

not only incidentally encroached upon a

subject mentioned in S. 91, but at the same

time actually clashed with an existing

Dominion legislation.6 The principles laid down

by their Lordships have gone only so far as to

permit an incidental encroachment, provided

the Dominion field is unoccupied. In no case

so far decided have their Lordships tolerated a

trespass as well as a clash. If a clash with the

Dominion legislation were also allowed, then a

Provincial Legislature would be in a position,

6 Lord Tomlin’s fourth proposition, in Attorney General for Canada (supra), namely,

“There can be a domain in which provincial and Dominion legislation may overlap, in

which case neither legislation will be ultra vires if the field is clear, but if the field is

not clear and the two legislations meet the Dominion legislation must prevail”, must

be read subject to this caveat.

70

though indirectly, to nullify the Dominion

legislation, even inside the field exclusively

open to the Dominion, which would make the

position intolerable.

xxx xxx xxx

The scheme of S. 100 of the Act is to exclude

completely from the authority of the Provincial

Legislature the power to legislate with respect

to subjects in List I. If in consequence of

certain difficulties that Provincial Legislatures

would experience by a rigid enforcement of

such an exclusion we must in interpreting the

words “with respect to” import the Canadian

doctrine of permissibility of incidental

encroachment, we must then at the same time

import the other allied doctrine also that such

an encroachment is permissible only when the

field is actually unoccupied. It is only in this

way that actual clash between the 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, that gap 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 certain observations in Fatehchand (supra) make it

clear that the doctrine of incidental trenching and

unoccupied field is a one way street, as was held in the

dissenting judgment of Sulaiman, J. in Subrahmanyan

71

Chettiar (supra), i.e. that all State legislations have to

give way to a Central legislation, even if a Central

legislation incidentally trenches upon a State subject,

covered by State legislation. He relied upon paragraph

56 in Fatehchand (supra) in particular. Paragraph 56 is

part of a long discussion, beginning from paragraph 55

and ending with paragraph 67, which deals with an

argument made that that part of the Maharashtra Debt

Relief Act, which deals with gold loans, is void because

Parliament has occupied the field. This question was

answered by referring to Entry 52, List I and Entry 24, List

II. It was held that the Industrial Development and

Regulation Act, 1951 has occupied the field of the gold

industry under 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 become inoperative. This

does not however mean that Entry 30, List II, which deals

with money lending, has been rendered inoperative and,

therefore, the Maharashtra Debt Relief Act, made under

72

Entry 30, List II, would remain intact. The learned Judge

also went on to refer to Entries 6 and 7 of List III and to

Article 254(2) of the Constitution stating that if it were to

be held that the Debt Relief Act related to contracts, then,

having received Presidential assent, it would prevail over

the aforesaid Central enactments in the State of

Maharashtra in light of Article 254(2). It is in this context

that the general observation as to Parliamentary

paramountcy, in paragraph 56 of the judgment, is made.

Obviously where an entry in List II is itself subject to the

corresponding entry in List I and, by the requisite

declaration, Parliament occupies the field, the State

legislatures are denuded of legislative competence only

because the particular entry, namely Entry 24, List II, is

expressly subject to Entry 52, List I. This is not the case

insofar as Entry 45, List I and Entry 30, List II is

concerned.

73

27. Shri Bhushan then relied upon a concurring

judgment of Ranganathan, J. in Federation of Hotels

and Restaurants v. Union of India, (1989) 3 SCC 634.

In paragraph 74, the learned Judge, while upholding the

Hotel Receipts Tax Act, 1980 held that, in pith and

substance, it was referable to Entry 82, List I, being, in

substance, a tax on income. In particular, Shri Bhushan

relied upon the statement of the law that since Parliament

had exclusive power, under Article 246(1) and (3) of the

Constitution, to make laws with respect to any of the

matters enumerated in List I, if an Act of Parliament is

squarely covered by an entry in the Union List, no

restriction can be read into the power of Parliament to

make laws in regard thereto. This was made in the

context of a taxation entry, which as the aforesaid

paragraph 74 itself states, refers to the Constitutional

scheme which neatly divides the subject matters of tax

between the Union and the States, so that there can be

said to be no overlapping. There is no discussion in this

74

paragraph of Parliamentary paramountcy 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

seen how the said Article refers to federal supremacy

insofar as the whittling down of a State List entry is

concerned, when compared with a Union List entry. Once

the spheres of both the entries have been delineated, the

doctrine of pith and substance comes in to test whether a

particular legislation is referable, as a whole, to an entry

in List I or to the competing entry in List II. Once it is

found that the legislation as a whole 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 of unoccupied

field not to apply to federal legislation. The expression

“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

75

trenching and unoccupied field, which applies, therefore,

to legislation made under sub-articles (1) to (3) of Article

246, thus making it clear that incidental encroachment by

Parliament cannot be tolerated when the exclusive field

allotted to the State legislature is not unoccupied.

29. The paramountcy principle contained in Article 246,

as we have seen, is only taken as a 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 and

unoccupied field would apply equally to both

Parliamentary and State legislations. In the very first

judgment of the Federal Court, In Re CP & Berar Sales

of Motor Spirit & Lubricants Taxation Act, 1938 AIR

1939 FC 1 at 31, Jayakar, J. set out principles that were

evolved on a reading of the British North America Act by

the Privy Council, which would prove to be a useful guide

to the construction of Section 100 of the Government of

76

India Act, 1935, which was the precursor of Article 246 of

the Constitution. These principles were set out as follows:

“(1) That the provisions of an Act like the

Government of India Act, 1935, should not be

cut down by a narrow and technical

construction, but, considering the magnitude

of the subjects with which it purports to deal in

very few words, should be given a large and

liberal interpretation, so that the Central

Government, to a great extent, but within

certain fixed limits, may be mistress in her

own house, as the Provinces, to a greatextent,

but again within certain fixed limits, are

mistresses in theirs. See Henrietta Muir

Edwards v. Attorney-General for Canada

(1930 AC 124 at 136 and 137).

(2) In an enquiry like the one before us in this

Reference, the Court must ascertain the true

nature and character of the challenged

enactment, its pith and substance; and not the

form alone which it may have assumed under

the hand of the draftsman. See AttorneyGeneral

for Ontario v. Reciprocal

Insurers (1924 AC 328 at 337).

(3) Where there is an absolute jurisdiction

vested in a Legislature, the laws promulgated

by it must take effect according to the proper

construction of the language in which they are

expressed. But where the law-making

authority is of a limited or qualified character,

obviously it may be necessary to examine,

with some strictness, the substance of the

legislation, for the purpose of determining

what it is that the Legislature is really doing.

77

See Attorney-General for Ontario v.

Reciprocal Insurers (1924 AC 328 at 337).

(4) Even where there has been an endeavour

to give pre-eminence to the Central

Legislature in cases of a conflict of powers, it

is obvious that, in some cases where this

apparent conflict exists, the Legislature could

not have intended that powers exclusively

assigned 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.

30. Indeed, in a recent judgment of this Court, this has,

in fact, been held. In UCO Bank v. Dipak Debbarma,

(2017) 2 SCC 585 at 596, this Court held:

“13. The federal structure under the

constitutional scheme can also work to nullify

an incidental encroachment made by the

parliamentary legislation on a subject of a

State legislation where the dominant

legislation is the State legislation. An attempt

to keep the aforesaid constitutional balance

intact and give a limited operation to the

doctrine of federal supremacy can be

discerned in 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. Bommai v. Union of

78

India [S.R. Bommai v. Union of India, (1994) 3

SCC 1], the learned Judge has gone to

observe as follows: (ITC Ltd. 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 States does not

mean that States are mere appendages of the

Centre. Within the sphere allotted to them,

States are supreme. The Centre cannot

tamper with their powers. More particularly,

the courts should not adopt an approach, an

interpretation, which has the effect of or tends

to have the effect of whittling down the powers

reserved to the States.’ (S.R. Bommai

case [S.R. Bommai v. Union of India, (1994) 3

SCC 1], SCC pp. 216-17, para 276)

94. Although Parliament cannot legislate on

any of the entries in the State List, it may do

so incidentally while essentially legislating

within the entries under the Union List.

Conversely, the State Legislatures may

encroach on the Union List, when such an

encroachment is merely ancillary to an

exercise of power intrinsically under the State

List. The fact of encroachment does not affect

the vires of the law even as regards the area

of encroachment. [A.S. Krishna v. State of

Madras [A.S. Krishna v. State of Madras, AIR

1957 SC 297 : 1957 Cri LJ 409]; Chaturbhai

M. Patel v. Union of India [Chaturbhai M.

Patel v. Union of India, (1960) 2 SCR 362 :

AIR 1960 SC 424]; State of Rajasthan v. G.

Chawla [State of Rajasthan v. G. Chawla, AIR

79

1959 SC 544 : 1959 Cri LJ 660] and Ishwari

Khetan Sugar Mills (P) Ltd. v. State of

U.P. [Ishwari Khetan Sugar Mills (P)

Ltd. v. State of U.P., (1980) 4 SCC 136] This

principle commonly known as the doctrine of

pith and substance, does not amount to an

extension of the legislative fields. Therefore,

such incidental encroachment in either event

does not deprive the State Legislature in the

first case or Parliament in the second, of their

exclusive powers under the entry so

encroached upon. In the event the incidental

encroachment conflicts with legislation

actually enacted by 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 [ITC Ltd. v. Agricultural Produce

Market Committee, (2002) 9 SCC 232], seems

to have been echoed in a recent

pronouncement of this 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 the 2002 Act

will not have an overriding effect on the

provisions of the State Rent Control Acts.”

This Court then went on to hold that between the

Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 (SARFAESI),

80

which was enacted under Entry 45, List I, and the Tripura

Land Revenue and Reforms Act, 1960, referable to Entry

18 of List II, SARFAESI would prevail since Section 187 of

the Tripura Act (which prohibited banks from transferring

property which has been mortgaged by a member of a

Scheduled Tribe to any person other than a member of a

Scheduled Tribe), is a provision which is outside Entry 18,

List II and, therefore, incidentally trenches upon Entry 45,

List I. On the facts of the case, therefore, it was found

that since legislation had been made by Parliament under

Entry 45, List I and the SARFAESI Act dealt exclusively

with activities relating to sale of secured assets by banks,

Section 187 of the Tripura Act, to the extent it is

inconsistent with the SARFAESI Act, must give way.

31. It is also important to notice that paragraph 12 of the

aforesaid judgment sets out paragraphs 13 to 15 of the

Constitution Bench judgment in Special Reference No.1

81

of 2001, (2004) 4 SCC 489.7

Shri Bhushan strongly

relied upon paragraph 15 of this judgment. It is clear that

the entire discussion begins from paragraph 13, which

makes it clear that an entry in one list cannot be so

interpreted as to cancel or obliterate another entry made

in another list and in the case of an apparent conflict, it is

the primary duty of the Court to harmonise the two

entries. It is only when there is an irreconcilable conflict

between two legislations that the Central legislation shall

prevail. It is after noticing this statement of the law

contained in paragraph 15 of the Constitution Bench

judgment in Special Reference No.1 (supra), that the

discussion on incidental encroachment in paragraphs 13

and 14, referred to hereinabove, is then laid down by the

7

In this case, a Constitution Bench of this Court had to decide on whether a Gujarat

statute, which defined “gas” as being predominantly methane gas, was ultra vires

the State 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 with

gas and gas works. The Constitution Bench went into great detail in considering

various Acts, judgments and other authorities, including dictionaries, and held that

natural gas fell within the definition of “petroleum”, and further that Entry 25, List II

referred 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 Bench

was careful to indicate, in paragraph 43 of the judgment, that Entry 25, List II would

not be reduced to “useless lumber” as feared by the States, because natural gas was

never intended to be covered by that entry, which is given full effect by including gas

manufactured and used in gas works.

82

Court in UCO Bank (supra). Shri Bhushan’s reliance on

the latter part of paragraph 15 in Special Reference No.1

(supra), to negate what has been stated in paragraphs 13

and 14 of UCO Bank (supra), therefore, holds no water.

32. It is clear from a reading of this judgment that, from

the point of view of a State Debt Relief Act, as the

legislation is referable to the special 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 the Parliamentary statute on Entry 30,

List II, read with the State Debt Relief Acts made

thereunder, would make Section 21A yield to the State

Debt Relief Acts, to the extent that they cover relief of

agriculturists from debts due to banks. It is clear that

where Section 21A of the Banking Regulation Act

incidentally trenches upon the State Debt Relief Acts,

enacted under Entry 30, List II, so far as relief of

83

agricultural indebtedness is concerned, where there is

State legislation on the same subject matter which directly

clashes with Section 21A, Section 21A will have to give

way to the State Debt Relief Acts insofar as relief from

agricultural indebtedness due to banks is concerned. The

non-obstante clause in Section 21A cannot override a

State Debt Relief Act in this situation, as Parliament

cannot give itself supremacy over State legislation where

none exists under the Constitution. If this were not the

case, the exclusive power of the States to make laws

within List II would become illusory, and “Parliamentary

paramountcy” would trap many a beneficent State

legislation made within its exclusive domain, contrary to

the statement of law laid down by the Privy Council in

Prafulla Kumar (supra), and contrary to principle (4) laid

down by Jayakar, J. in In Re CP & Berar Sales (supra),

both of which have been consistently followed by several

judgments of this Court.

84

33. In fact, a reading of the entries in List II would

demonstrate that 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 the provisions of Entry 2-A of List I.

13. Communications, that is to say, roads,

bridges, ferries, and other means of

communication not specified in List I;

municipal tramways; ropeways; inland

waterways and traffic thereon subject to the

provisions of List I and List III with regard to

such waterways; vehicles other than

mechanically propelled vehicles.

17. Water, that is to say, water supplies,

irrigation and canals, drainage and

embankments, water storage and water power

subject 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 the provisions of List I

with respect to regulation and development

under the control of the Union.

24. Industries subject to the provisions of

Entries 7 and 52 of List I.

26. Trade and commerce within the State

subject to the provisions of Entry 33 of List III.

85

27. Production, supply and distribution of

goods subject to the provisions of Entry 33 of

List III.

33. Theatres and dramatic performances;

cinemas subject to the provisions of Entry 60

of List I; sports, entertainments and

amusements.

37. Elections to the Legislature of the State

subject to the provisions of any law made by

Parliament.

50. Taxes on mineral rights subject to any

limitations imposed by Parliament by law

relating to mineral development.

57. Taxes on vehicles, whether mechanically

propelled or not, suitable for use on roads,

including tramcars subject to the provisions of

Entry 35 of List III.”

34. Numerically, this would amount to a little over onefifth

of the total number of entries in List II – 12 out of 66.

35. Certain entries such as Entry 12 exclude from the

State List ancient, historical monuments and records

declared by law made by Parliament to be of national

importance. Entry 12 of List II reads as under:-

“12. Libraries, museums and other similar

institutions controlled or financed by the State;

ancient and historical monuments and records

86

other than those declared by or under law

made by Parliament to be of national

importance.”

Yet another delineation of the legislative power of the

States is made by Entries 32 and 63 of List II, which

speak of a particular subject and then give a residuary

power qua the same subject over matters not specified in

List I.

“32. Incorporation, regulation and winding up

of corporations, other than those specified in

List I, and universities; unincorporated trading,

literary, scientific, religious and other societies

and associations; co-operative societies.

63. Rates of stamp duty in respect of

documents other than those specified in the

provisions of List I with regard to rates of

stamp duty.”8

36. All the other entries of the State List give exclusive

power to the States to legislate on the subject matters

mentioned therein. If Shri Jayant Bhushan’s submission

is to be accepted, this threefold scheme contained within

List II itself would be violated. If Parliamentary legislation

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

to be read with Entry 91, List I.

87

were to invade an exclusive sphere of the State, and were

to prevail over State legislation made within the States’

exclusive powers, all the entries of List II would be

subjected to entries of List I, which is not the

constitutional scheme. Further, only one entry, namely,

Entry 12 of List II, specifically excepts ancient and

historical monuments and records, if Parliament declares

them, by law, to be of national importance. The argument,

therefore, that Section 21A is made by Parliament at the

national level and is of national importance and must,

therefore, prevail over State legislation made within the

exclusive subject matters of List II, would again fall foul of

the constitutional scheme, in that all the entries of List II

would then be subject to Parliamentary law, which is of

national importance. Also, Entry 30, List II cannot be read

to refer to relief of agricultural indebtedness other than

what is specified in List I, as that would be reading into

Entry 30 words that are conspicuous by their absence,

but which are found in Entries 32 and 63, List II. All this

88

would go to show that where the States have exclusive

legislative competence under certain entries of List II,

legislation made thereunder cannot be effaced by

legislation made under List I, which incidentally trenches

upon State legislation made under an exclusive power.

37. We have already seen how agriculture as a subject

matter is entirely and exclusively left to the States in all its

aspects, save and except evacuee property under Entry

41, List III, which is also left to the States, but

concurrently with Parliament, specifically including

agricultural land therein. Also, we must not forget that the

amendment suggested by Shri Shri Shibban Lal Saxena

to make draft Entry 34 (Entry 30 of List II), a concurrent

subject, was turned down. Any argument that has the

effect of making relief of agricultural indebtedness a

concurrent subject by which Parliamentary legislation

ousts State legislation must, therefore, also be rejected.

89

38. This is not to say that Parliament is helpless insofar

as relief from agricultural indebtedness to banks is

concerned. Article 249 of the Constitution enables

Parliament to legislate on the aforesaid subject in the

national interest if the Rajya Sabha declares, by a

resolution supported by not less than 2/3rd of the

members present and voting, that it is necessary or

expedient in national interest that Parliament should do

so. Equally, under Article 252 of the Constitution, if the

legislatures of two or more States deem it desirable that

Parliament should pass an Act for regulating a matter

exclusively in the State List, this can be done by

resolutions to that effect passed by the legislatures of

such States. Also, to implement a treaty, agreement or

convention with other countries, Parliament, under Article

253 of the Constitution, has the power to legislate on an

exclusive State subject. In an emergency, Parliament

can, under Article 250, legislate on matters exclusively

reserved for the States under List II. This being the case,

90

we need not be unduly weighed down by Shri Bhushan’s

argument that, unless we accept his submission,

Parliament would be denuded of legislative competence

altogether to deal with the subject matter of relief against

debts due to banks from the agricultural sector.

39. The next important question is as to whether the

judgment of this Court in Yasangi Venkateswara Rao

(supra) is binding on this Bench having been delivered by

another earlier 2-Judge Bench of this Court.

40. In order to appreciate the answer to this question, it

is necessary to indicate what was held by the judgment of

the learned Single Judge of the Andhra Pradesh High

Court in State Bank of India, In re, (supra). After setting

out the Banking Regulation Act and the scope of Section

21A, Section 21A was contrasted with the A.P.

Agriculturists Relief Act, 1938, and it was held that the

purpose, operation and effect of Section 21A of the

Banking Regulation Act is not even remotely connected

91

with the purpose, operation and effect of the A.P.

Agriculturists Relief Act, which was held to be a special

law enacted to relieve agriculturist debtors. It was further

held that charging excessive interest was no longer part

of the A.P. Agriculturists Relief Act, and, therefore, the

spheres of the two provisions were completely different.

Coming to legislative competence, the learned Judge

went into great detail in considering several judgments of

the Federal Court, High Courts and this Court, and

ultimately held that Section 21A is not a law referable to

Entry 45, List I. The learned Judge also went on to hold

that Section 21A was arbitrary and violative of Article 14

of the Constitution.

41. By a 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 could come to the conclusion that

Parliament had no jurisdiction to enact Section

21-A. There can be no doubt that Section 21-

92

A deals with the question of the rate of interest

which can be charged by a banking company.

Entry 45 of List I of the Seventh Schedule

clearly empowers Parliament to legislate with

regard to banking. The enactment of Section

21-A was clearly within the domain of

Parliament. The said section applies to all

types of loans which are granted by a banking

company, whether to an agriculturist or a nonagriculturist,

and, therefore, reference by the

High Court to Entry 30 of List II was of no

consequence. In our opinion, the said Section

21-A had been validly enacted.”

(at page 377)

At first blush, it appears that, though cryptic, the said

paragraph does contain reasons for upsetting the High

Court judgment. But, on a closer look, it becomes clear

that there is no reasoning worth the name for so doing.

Paragraph 7 is a series of conclusions put together

without any clear reasoning in support. This is probably

because only the learned Additional Solicitor General for

the appellant appeared before the Court and argued the

case on behalf of the appellant. The respondent, though

probably served, did not appear and consequently was

not heard. It will also be noticed that, despite the fact that

93

the judgment of the single Judge referred to a very large

number of High Court, Federal Court, Privy Council and

Supreme Court judgments, not a single judgment is

adverted to in the cryptic paragraph 7 set out

hereinabove. Can it be said that this judgment is a

declaration of the law under Article 141 of the

Constitution, which as a matter of practice we cannot

differ from being a bench of coordinate strength?

42. This question is answered by referring to

authoritative works and judgments of this Court. In

Precedent in English Law by Cross and Harris (4th edn.),

‘ratio decidendi’ is described as follows:

“The ratio decidendi of a case is any rule of

law expressly or impliedly treated by the judge

as a necessary step in reaching his

conclusion, having regard to the line of

reasoning adopted by him, or a necessary

part of his direction to the jury.”

(at page 72)

94

43. In Dalbir Singh v. State of Punjab (1979) 3 SCR

1059 at 1073-1074, a dissenting judgment of A.P. Sen, J.

sets out what is the ratio decidendi of a judgment:

“According to the well-settled theory of

precedents every decision contains three

basic ingredients:

(i) findings of material facts, direct and

inferential. An inferential finding of facts is the

inference which the Judge draws from the

direct or perceptible facts;

(ii) statements of the principles of law

applicable to the legal problems 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 it determines finally

their rights and liabilities in relation to the

subject-matter of the action. It is the judgment

that estops the parties from reopening the

dispute. However, for the purpose of the

doctrine of precedents, ingredient (ii) is the

vital element in the 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 a judge when giving

judgment that constitutes a precedent. The

95

only thing in a judge’s decision binding a party

is the principle upon which the case is decided

and for this reason it is important to analyse a

decision and isolate from it the ratio decidendi.

In the leading case of Qualcast

(Wolverhampton) Ltd. v. Haynes [LR 1959 AC

7 43 : (1959) 2 All ER 38] it was laid down that

the ratio decidendi may be defined as a

statement of law applied to the legal problems

raised by the facts as found, upon which the

decision is based. The other two elements in

the decision are not precedents. The

judgment is not binding (except directly on the

parties themselves), nor are the findings of

facts. This means that even where the direct

facts of an earlier case appear to be identical

to those of the case before the court, the

judge is not bound to 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 limited ratio” in Subhajit Tewary v. Union

of India (1975) 3 SCR 616, a judgment of a 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 whether the

C.S.I.R. (Council of Scientific and Industrial

Research) was ‘State’ under Art. 12. The

96

C.S.I.R. is a registered society with official and

non-official members appointed by

Government and subject to some measure of

control by Government in the Ministry of

Science and Technology. The court held it was

not ‘State’ as defined in Art. 12. It is significant

that the court implicitly assented to the

proposition that if the society were really an

agency of the Government it would be ‘State’.

But on the facts and features present there

the character of agency of Government was

negatived. The rulings relied on are,

unfortunately, in the province of Art. 311 and it

is clear that a body may be ‘State’ under Part

III but not under Part XIV. Ray, C.J., rejected

the argument that merely because the Prime

Minister was the President or that the other

members were appointed and removed by

Government did not make the Society a

‘State’. With great respect, we agree that in

the absence of the other features elaborated

in Airport Authority case (1979) 3 SCC 489,

the composition of the Governing Body alone

may not be decisive. The laconic discussion

and the limited ratio in Tewary (supra) hardly

help either side here.”

Also, in Municipal Corpn. of Delhi v. Gurnam Kaur,

(1989) 1 SCC 101 at 110, this Court stated:

“11. Pronouncements of law, which are not

part of the ratio decidendi are classed as

obiter dicta and are not authoritative. With all

respect to the learned Judge who passed the

order in Jamna Das case [Writ Petitions Nos.

981-82 of 1984] and to the learned Judge who

97

agreed with him, we cannot concede that this

Court is bound to follow it. It was delivered

without argument, without reference to the

relevant provisions of the Act conferring

express power on the Municipal Corporation

to direct removal of encroachments from any

public place like pavements or public streets,

and without any citation of authority.

Accordingly, we do not propose to uphold the

decision of the High Court because, it seems

to us that it is wrong in principle and cannot be

justified by the terms of the relevant

provisions. A decision should be treated as

given per incuriam when it is given in

ignorance of the terms of a statute or of a rule

having the force of a statute. So far as the

order shows, no argument was addressed to

the court on the question whether or not any

direction could properly be made compelling

the Municipal Corporation to construct a stall

at the pitching site of a 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 per incuriam is taken to mean per

ignoratium. The courts have developed this

principle in relaxation of the rule of stare

decisis. Thus, the “quotable in law” is avoided

and ignored if it is rendered in ignorance of a

statute or other binding authority.

xxx xxx xxx

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67. Thus, “per incuriam” are those decisions

given in ignorance or forgetfulness of some

statutory provision or authority binding on the

court concerned, or a statement of law caused

by inadvertence or conclusion that has been

arrived at without application of mind or

proceeded without any reason so that in such

a case some part of the decision or some step

in the reasoning on which it is based, is found,

on that account to be demonstrably wrong.”

It is clear, therefore, that where a matter is not argued at

all by the respondent, and the judgment is one of

reversal, it would be hazardous to state that the law can

be declared on an ex parte appraisal of the facts and the

law, as demonstrated before the Court by the appellant’s

counsel alone. That apart, where there is a detailed

judgment of the High Court dealing with several

authorities, and it is reversed in a cryptic fashion without

dealing with any of them, the per incuriam doctrine kicks

in, and the judgment loses binding force, because of the

manner in which it deals with the proposition of law in

question. Also, the ratio decidendi of a judgment is the

principle of law adopted having regard to the line of

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reasoning of the Judge which alone binds in future cases.

Such principle can only be laid down after a discussion of

the relevant provisions and the case law on the subject. If

only one side is heard and a judgment is reversed,

without any line of reasoning, and certain conclusions

alone are arrived at, without any reference to any case

law, it would be difficult to hold that such a judgment

would be binding upon us and that we would have to

follow it. In the circumstances, we are of the 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 us to go into the arguments relating to

Article 14, more so in view of the fact that counsel

appearing for the Union of India and the Reserve Bank of

India are correct in stating that there is no pleading worth

the name which would rebut, on facts, the presumption of

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constitutionality that attaches to Section 21A of the

Banking Regulation Act. References to RBI circulars and

the counter affidavits filed in the present writ petition again

do not take us much further, as what has to be decided is

a pure question of legislative competence.

Conclusion

45. We declare Section 21A of the Banking Regulation

Act to be valid as it is part of an enactment which, in pith

and substance, is relatable to Entry 45, List I of the

Seventh Schedule to the Constitution. However, insofar

as Section 21A incidentally encroaches upon the field of

relief of agricultural indebtedness, set out in Entry 30, List

II, it will not operate only in States where there is a State

Debt Relief Act which deals with the subject matter of

relief of agricultural indebtedness, where the State Debt

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

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specified banks, Section 21A will, in the former situation,

apply in such States, and, in the latter situation, apply

only in respect of loans made to agriculturists where such

loans are given by banks other than the banks specified

or covered by the concerned State Debt Relief Act, as the

case may be.

……………………………J.

(R.F. Nariman)

……………………………J.

(Navin Sinha)

New Delhi;

February 16, 2018.

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