Thequestion relates to the scope of the legislative field covered by Entry 45of List I viz. ‘Banking’ and Entry 32 of List II of the Seventh Scheduleof the Constitution of India, consequentially power of the Parliament tolegislate. The moot question is the applicability of the Securitisationand Reconstruction of Financial Assets and Enforcement of SecurityInterest Act, 2002 (for short, ‘the SARFAESI Act’) to the co­operative BANKS

 

1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE/ORIGINAL JURISDICTION
CIVIL APPEAL NO. 5674 OF 2009
PANDURANG GANPATI CHAUGULE … APPELLANT
VERSUS
VISHWASRAO PATIL MURGUD SAHAKARI
BANK LIMITED … RESPONDENT
WITH
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J U D G M E N T
Arun Mishra, J.

  1. The matters have been referred in view of conflicting decisions in
    Greater Bombay Coop. Bank Ltd. v. United Yarn Tex (P) Ltd. and Ors.1
    ,
    Delhi Cloth & General Mills Co. Ltd. v. Union of India and Ors.2
    ,
    T. Velayudhan Achari and Anr. v. Union of India and Ors.3
    , and Union
    of India and Anr. v. Delhi High Court Bar Association and Ors.4
    . The
    question relates to the scope of the legislative field covered by Entry 45
    of List I viz. ‘Banking’ and Entry 32 of List II of the Seventh Schedule
    of the Constitution of India, consequentially power of the Parliament to
    legislate. The moot question is the applicability of the Securitisation
    and Reconstruction of Financial Assets and Enforcement of Security
    Interest Act, 2002 (for short, ‘the SARFAESI Act’) to the co­operative
    banks.
  2. The Parliament’s competence to amend Section 2(c) of the
    SARFAESI Act by adding sub­clause ‘(iva) ­ a multi­State co­operative
    1 (2007) 6 SCC 236
    2 (1983) 4 SCC 166
    3 (1993) 2 SCC 582
    4 (2002) 4 SCC 275
    8
    bank’ has also been questioned. The issue arises whether the
    definition of ‘banking company’ contained in Section 5(c) of the
    Banking Regulation Act, 1949 (for short, ‘the BR Act, 1949’) covers cooperative banks registered under the State law and also multi­State
    co­operative societies under the Multi­State Co­operative Societies Act,
    2002 (for short, ‘the MSCS Act’). Consequently, (i) whether cooperative banks at State and multi­State level are co­operative banks
    within the purview of the SARFAESI Act ? and (ii) whether provisions
    of the SARFAESI Act apply to the co­operative banks registered under
    the MSCS Act ?
  3. Section 56(c)(i)(cci) is contained in Part V of the BR Act, 1949,
    and was brought into force on 1.3.1966. It defines ‘co­operative bank’
    to mean a ‘state co­operative bank,’ a ‘central co­operative bank,’ and
    a ‘primary co­operative bank.’ By the notification issued in 2003, the
    co­operative bank was brought within the class of banks entitled to
    seek recourse to the provisions of the SARFAESI Act. Section 2(1)(c)
    (iva) was inserted into the SARFAESI Act, w.e.f. 15.1.2013. Before
    that, the co­operative bank and the multi­State co­operative bank took
    recourse to the SARFAESI Act under the notification issued in 2003.
  4. Writ petitions were filed questioning vires of the notification
    dated 28.1.2003 issued under Section 2(1)(c)(v) of the SARFAESI Act
    and the insertion of Section 2(1)(c)(iva) to the SARFAESI Act in 2013.
    9
    The backdrop history of litigation indicates that in Narendra Kantilal
    Shah v. Joint Registrar, Co­operative Societies5
    , a Full Bench of the
    Bombay High Court opined that term ‘banking company’ also means
    co­operative bank within the meaning of Section 2(d) of the RDB Act,
  5. Hence, with effect from the date of constitution of Debts
    Recovery Tribunal under RDB Act, 1993, the courts and authorities
    under the Maharashtra Co­operative Societies Act, 1960, as also the
    MSCS Act would cease to have jurisdiction to entertain the
    applications submitted by the co­operative banks for recovery of their
    dues. The decision in Narendra Kantilal Shah (supra) was set aside by
    this Court in Greater Bombay Coop. Bank Ltd. (supra). This Court
    opined that the co­operative banks established under the Maharashtra
    Co­operative Societies Act, 1960 and Andhra Pradesh Co­operative
    Societies Act, 1964, transacting the business of banking do not fall
    within the meaning of ‘banking company’ as defined in Section 5(c) of
    the BR Act, 1949. Therefore, the provisions of the Recovery of Debts
    Due to Banks and Financial Institutions Act, 1993, now renamed as
    The Recovery of Debts and Bankruptcy Act, 1993 (for short, ‘the RDB
    Act, 1993′), by invoking the doctrine of incorporation do not apply to
    the recovery of dues by co­operative banks from their members. The
    field of co­operative societies cannot be said to have been covered by
    the Central legislation by reference to Entry 45 of List I of the Seventh
    5 AIR 2004 Bom 166
    10
    Schedule of the Constitution of India. Co­operative banks constituted
    under the Co­operative Societies Acts enacted by the respective States
    would be covered by ‘co­operative societies’ by Entry 32 of List II of the
    Seventh Schedule of the Constitution of India. In the year 2004, the
    Banking Regulation (Amendment) and Miscellaneous Provisions Act,
    2004, was passed by the Union of India, amending various provisions
    contained in the BR Act, 1949 retrospectively, w.e.f. 1.3.1966. On the
    same anvil, the question posed is whether provisions can be applied to
    recovery provisions carved out in the SARFAESI Act.
  6. Writ Petition No.2672 of 2007 was filed by Khaja Industries,
    challenging the invocation of the SARFAESI Act by Jalgaon Peoples
    Co­operative Bank. The Bombay High Court dismissed the same. The
    recourse to the proceedings under the SARFAESI Act was upheld. In
    Rama Steel v. Union of India6
    , the decision in Khaja Industries was
    followed. Against the decision of Bombay High Court, appeals have
    been filed.
  7. On 13.8.2008, Pandurang Ganpati Chougule – appellant,
    questioned the action of Vishwasrao Patil Murgud Sahakari Bank
    Limited under the SARFAESI Act before the Civil Judge in Spl. Civil
    Suit No.226 of 2007. Deciding the preliminary issue, the Trial Court
    held that it did not have the jurisdiction to decide the suit. The first
    6 (2007) 6 Mah. L.J. 387
    11
    appeal preferred was dismissed. Against that, the appeal has been
    preferred before this Court. A separate writ petition under Article 32
    of the Constitution of India has also been filed, questioning the
    invocation of the SARFAESI Act by issuing notices under Section 13
    by co­operative banks. During the pendency of the matters, the
    Central Government brought into force the Enforcement of Security
    Deposit and Debts Law (Amendment) Act, 2012 (Act 1 of 2013),
    amending the definition of Section 2(1)(c) of the SARFAESI Act; the
    amendment has also been questioned in the writ petition filed in this
    Court.
  8. In Administrator, Shri Dhakari Group Co­operative Cotton Seal &
    Ors. v. Union of India, (Special Civil Application No.930 of 2001), the
    Gujarat High Court struck down the notification dated 28.1.2003,
    relying upon Greater Bombay Coop. Bank Ltd. (supra), same has also
    been questioned in the appeal. Later on, Gujarat High Court in Neel
    Oil Industries v. Union of India7
    , rejected the challenge to the
    Constitutional validity of clause (iva) ‘multi­State co­operative bank’
    inserted by way of Amendment Act, 2013.
  9. On 30.7.2015, the matter was referred to a larger Bench. After
    that, on 26.2.2016, a three­Judge Bench referred the matter to a
    larger Bench, due to conflicting decisions mentioned earlier of the
    7 AIR 2015 Gujarat 171
    12
    three­Judge Bench of this Court.
    ARGUMENTS:
  10. Shri Devansh A. Mohta, learned counsel appearing on behalf of
    the appellants, raised the following arguments:
    (a) The scope of banking under Entry 45 of List I is to be interpreted
    in light of the definition of expression ‘banking’ in terms of Section 5(b)
    of the BR Act, 1949. He has referred to Rustom Cavasjee Cooper v.
    Union of India8
    in which this Court held that ‘banking’ under Entry 45
    did not include ‘banker’ or ‘bank.’ Banking is an activity. Entry
    pertains to the activity of banking alone. Section 5(b) read with
    Section 6(1) of the BR Act, 1949, recognizes two kinds of activities that
    a bank may undertake: (1) the banking business, i.e., ‘core banking
    business’; and (2) any other business as provided in Section 6(1). He
    has also referred to the decision in Mahaluxmi Bank Ltd. v. Registrar of
    Companies, West Bengal9
    in which the court considered the meaning
    of ‘banking,’ and held that the essence of banking was the relationship
    brought into existence, i.e., the core of banking.
    (a) As to the scope of Entry 45 List I, he has further referred to the
    decision in ICICI Bank Limited v. Official Liquidator of APS Star
    Industries Limited and Ors.10, wherein it was emphasised that even if a
    8 (1970) 1 SCC 248
    9 AIR 1961 Calcutta 666
    10 (2010) 10 SCC 1
    13
    company was doing different businesses in addition to clause (a) to (o)
    of Section 6(1), it would remain a banking company as long as it was
    performing the core banking functions under Section 5(b). The core
    banking function is the sine qua non for being regulated by the BR Act,
  11. Therefore, ‘banking’ in Entry 45 of List I is essentially meant to
    be confined to ‘core banking business’. At the time when the
    Constitution of India was promulgated, a well­defined and wellestablished meaning of the expression ‘banking’ prevailed in the form
    of the definition of ‘banking’ under Section 5(b) of the BR Act, 1949.
    The same expression was borrowed by the Framers of the Constitution
    of India, and same meaning was to be given to the expression
    ‘banking’ in the Entry as defined in the BR Act, 1949 as observed by
    this Court in The State of Madras v. Gannon Dunkerley & Co., (Madras)
    Ltd.11 and Diamond Sugar Mills Ltd. and Anr. v. State of Uttar Pradesh
    and Anr.12
    .
    (b) There is a difference between ‘entity’ and ‘activity’. Section 6(1)
    and 6(2) of the BR Act, 1949, enable only a banking entity to perform
    certain additional business/functions. The performance of additional
    business/functions does not confer any status of a banking company
    upon such an entity. He also referred to Sections 32 and 33 of the
    State Bank of India Act, 1955 (for short, ‘the SBI Act’). Section 32
    11 AIR 1958 SC 560
    12 AIR 1961 SC 652
    14
    recognises that the State Bank of India can carry ‘agency business’ on
    behalf of Reserve Bank of India, that is not a banking business
    performed by the State Bank of India as apparent from the perusal of
    Section 33, which categorically enables the State Bank of India to
    carry on banking business under Section 5(b) and other forms of
    business under Section 6(1) of the BR Act, 1949. Thus, it was
    submitted that every activity performed by a bank is not a banking
    activity.
    (c) That Entry 43 of List I of the Seventh Schedule of the
    Constitution of India confers upon the Parliament the competence to
    pass law pertaining to ‘incorporation, regulation and winding up’ of a
    trading corporation, more particularly a banking corporation.
    However, ‘co­operative societies’ are expressly excluded from the
    purview of the Parliament’s competence being a State subject under
    Entry 32 of List II. He argued that the legislative history of the BR Act,
    1949, made a difference between ‘entity’ and ‘activity.’ The expression
    ‘banking’ was defined in Chapter X­A of the Companies Act (VII of
    1913). Sections 277F to 277N were inserted vide Amendment Act
    No.22 of 1936. After that, the BR Act, 1949, was enforced, providing a
    comprehensive definition of ‘banking’ to bring within its scope all
    institutions which receive deposits repayable on demand or otherwise
    for lending or investment. At that time, the relevant entries of the
    Government of India Act, 1935, which dealt with the subject of
    15
    banking as well as trading corporation, were in List I (Federal
    Legislative List). Entry 38 and Entry 33 were in relation to ‘banking’
    and ‘corporation’ respectively. In the Constitution of India, Entry 38
    and Entry 33 have been substituted. Entry 38 is substituted as Entry
    45 of List I and Entry 33 has been bifurcated into Entry 43, and 44 of
    List I. Until 1965 before the amendment was inserted in the BR Act,
    1949, it dealt with ‘banking companies.’ The word ‘companies’ was
    omitted in the year 1965. The function of the State Bank of India was
    governed by a separate statute such as the State Bank of India Act,
  12. In the year 1965, the Central Government passed the Banking
    Laws [Application of Cooperative Societies Act, 1965 (Act No.23 of
    1965)]. He has referred to the Statement of Objects and Reasons,
    which brings out that the BR Act, 1949, was only to regulate the
    banking business relatable to Entry 45 and not to regulate the cooperative societies.
    (d) Section 2(10) of the Maharashtra Co­operative Societies Act,
    1960, is related to the management and business of co­operative
    societies. Under Section 91 of the Maharashtra Act, any dispute
    touching the constitution, management or business is required to be
    referred to a co­operative court.
    (e) Similarly, Section 3(f) of the MSCS Act defines ‘co­operative
    bank’ to mean a multi­State co­operative society, which undertakes
    the banking business. Under Section 84(2) of the MSCS Act, a dispute
    16
    can be raised. The power of Parliament is confined to specific
    provisions of the BR Act, 1949 (a legislation referable to Entry 45 of
    List I), and the Reserve Bank of India Act (a legislation referable to
    Entry 38 of List I). The Parliament lacks legislative competence to
    regulate any other business, function, or facets of co­operative
    societies. It could have extended the provisions of said Act only. The
    Parliament cannot regulate these co­operative societies like a company
    performing banking functions or a banking corporation.
    (f) The object of the SARFAESI Act is to regulate securitisation and
    reconstruction of financial assets and enforcement of security
    interests. The business of securitisation is not a banking business.
    Under Section 2(1)(l) of the SARFAESI Act, a ‘financial asset’ means
    debt or receivable and includes inter alia any financial asset. Section
    2(1)(ha) defines ‘debt’ to mean the same as defined in clause (g) of
    Section 2 of the RDB Act, 1993. Financial assistance to members is
    another form of business that is not a banking business. Therefore,
    an attempt to regulate the assets of a co­operative bank by bringing
    them within the purview of the SARFAESI Act is contrary to the
    original intent of the extending provisions of the BR Act, 1949 and
    that would amount to exercising control over the entities which are
    beyond the purview of competence of Parliament.
    (g) The Parliament lacks legislative competence to regulate financial
    17
    assets related to the non­banking activity of a co­operative society as
    they are expressly excluded from the purview of Entry 43 of List I. The
    regulation cannot be based upon an interpretation of only Entry 45
    without any regard to Entry 43. The legislative action would be
    inconsistent with the limitation inherent in the federal scheme of
    distribution of legislative powers between the Union and the State. It
    would amount to regulation of co­operative society which subject
    matter is covered under Entry 32 of List II and also confer upon them
    a status of a banking corporation or a banking company. It would
    render an entity falling under Entry 32 of List II subject to the control
    of the Parliament, which would be contrary not only to the text but
    also to the constitutional intendment as opined in I.T.C. Ltd. v.
    Agriculture Produce Market Committee and Ors.13
    (h) Notification No.105(E) dated 28.1.2003 is ultra vires as the
    Parliament has included only two classes of entities, i.e., banking
    company and banking corporation within its purview. The definition
    of ‘bank’ under Section 2(1)(c)(v) means ‘such other bank which the
    Central Government may by notification, specify for this Act.’ The
    power of the Central Government is confined to the entity of the kind
    referred under Clauses (i) to (iv) and not beyond that, i.e., a banking
    company or a banking corporation only and not co­operative
    societies/banks. The co­operative bank is neither a banking company
    13 (2002) 9 SCC 232
    18
    nor a banking corporation; thus, it falls outside the purview of Section
    2(1)(c)(v) of the SARFAESI Act. The notification is ultra vires and
    violative of not only the parent statute but also the Constitution of
    India. For this purpose, learned counsel relied upon Hinsa Virodhak
    Sangh v. Mirzapur Moti Kuresh Jamat and Ors.14. Recovery of debts
    due is essential for the bank, i.e., entity and not for the banking
    business, i.e., activity. In Greater Bombay Coop. Bank Ltd. (supra), the
    argument based upon the banking business of the co­operative bank
    to be covered by Entry 45, was rejected. Therefore, recovery of dues
    was held to be outside the purview of Entry 45 of List I. The Central
    legislation seeking to regulate banks can only bring within its purview
    entities falling in Entry 43, i.e., banking corporation and banking
    companies. Thus, the Parliament is not competent to enact a law
    concerning the subject matter of Entry 32 of List II.
    (i) The amendment incorporated is a colourable exercise. The
    notification dated 28.1.2003 is ultra vires in view of the decisions in
    K.C. Gajapati Narayan Deo and Ors. v. State of Orissa15 and State of
    Tamil Nadu and Ors. v. K. Shyam Sunder and Ors16
    . Once entities are
    excluded by Entry 43, the Union of India cannot control it by an
    indirect method. The Multi­State Co­operative Bank is a primary cooperative bank that is, in turn, a co­operative society. In Apex
    14 (2008) 5 SCC 33
    15 AIR 1953 SC 375
    16 (2011) 8 SCC 737
    19
    Cooperative Bank of Urban Bank of Maharashtra & Goa Ltd. v.
    Maharashtra State Cooperative Bank Ltd. and Ors.17
    , it was observed
    that co­operative societies are in the purview of the State List.
    (j) The MSCS Act is relatable to Entry 44. This Court is not
    required to pronounce upon the validity of the said Act. The source of
    legislative authority to regulate such banks would be Entry 43. The
    purpose of Act No.23 of 1965 was to regulate the banking business of
    certain co­operative societies. They do not cease to be co­operative
    societies as held in Virendra Pal Singh and Ors. v. District Assistant
    Registrar, Cooperative Societies, Etah, and Anr.18. There is a difference
    in the Entries 43, 44 and 32 as held in S.S. Dhanoa v. Municipal
    Corporation, Delhi and Ors.19, Daman Singh and Ors. v. State of Punjab
    and Ors.20
    , and Dalco Engineering Private Limited v. Satish Prabhakar
    Padhye and Ors.21
    . The decision in Greater Bombay Coop. Bank Ltd.
    (supra) laid down the law correctly.
    (k) There has to be harmonious construction of the Entries in List I
    and List II. Any argument of alarm relating to an adverse effect on the
    banking sector would be of no consequence or relevance to the
    question of construction of the constitutional entry as held in I.T.C.
    17 (2003) 11 SCC 66
    18 (1980) 4 SCC 109
    19 (1981) 3 SCC 431
    20 (1985) 2 SCC 670
    21 (2010) 4 SCC 378
    20
    Ltd. (supra).
  13. Shri Vijay Kumar, learned counsel appearing on behalf of
    petitioners, submitted that Parliament is not competent to enact laws
    concerning co­operative societies/banks. Banking business for a cooperative society is merely an incidental/ancillary business. A cooperative society doing business remains a co­operative society and is
    covered under Entry 32 of List II. He has placed reliance on Iqbal
    Naseer Usmani v. Central Bank of India and Ors.22. There is complete
    mechanism provided under the State Co­operative Societies Acts and
    MSCS Act; thus, the amendment to the SARFAESI Act and the
    notification deserve to be struck down.
  14. Shri Vishwas Shah, learned counsel appearing on behalf of
    appellants, has argued that it is not necessary to question the 1965
    Amendment made to the BR Act, 1949. The validity of the notification
    and the provisions of the SARFAESI Act have to be tested on their
    own. The co­operative banks differ from other banks. Entities are
    basically co­operative societies, and it incidentally trenches on
    banking. The dominant legislation on the subject is State legislation
    under Entry 32. The co­operative banks are different from banking
    companies to the extent that they advance loans to their members
    only. The banking companies/corporations deal with the public. The
    22 (2006) 2 SCC 241
    21
    co­operative banks do not carry the business as defined in the BR Act,
  15. The Doctrine of Pith and Substance has to be applied, cooperative society engaged in banking does not cease to be a cooperative society. In Entry 45 of List I, ‘banking’ does not include cooperative banks. He relied upon Gannon Dunkerley & Co. (Madras)
    Ltd. (supra) and I.T.C. Ltd. (supra).
  16. Shri Satpal Singh, learned counsel, has re­emphasised that
    amendment made by inserting the definition of ‘multi­State cooperative bank’ is colourable legislation and deserves to be struck
    down. The Co­operative Acts are comprehensive. The meaning of the
    expression ‘bank’ could not have been enlarged.
  17. Per contra, Shri Shekhar Naphade, learned senior counsel,
    appearing on behalf of Cosmos Bank, raised the following arguments:
    (a) Section 2(1)(c) of the SARFAESI Act defines ‘bank’ to mean
    ‘banking company’ as defined in Section 5(c) of the BR Act, 1949.
    Thus, the definition of ‘bank’ contained in Section 5(c) of the BR Act,
    1949 stands incorporated in Section 2(d) of the SARFAESI Act, that
    came into existence on 21.6.2002; hence, it is necessary to examine
    Section 5(c) of the BR Act, 1949, as it stood on 21.6.2002. It is
    covered by way of incorporation, w.e.f. 1.3.1966. Section 56(a)
    became part of Statute since 1.3.1966, the reference to a ‘banking
    company’ or a ‘company’ shall be construed as a reference to a co­
    22
    operative bank. Section 56(a) becomes part of Section 5(c) of the BR
    Act, 1949, and stands incorporated in Section 5(c) of the BR Act,
  18. Thus, a reference to the banking company has to be read as a
    reference to the co­operative bank.
    (a) Section 56(a) becomes part of Section 5(c) of the BR Act, 1949.
    Although Section 56(a) is located in a separate place, its impact on
    Section 5(c) results in a co­operative bank both on State level as well
    as multi­State level becoming part of a banking company. Therefore,
    the SARFAESI Act covers in its purview co­operative banks and multiState co­operative banks.
    (b) The insertion of a ‘multi­State co­operative bank’ in Section 2(1)
    (c)(iva) is ex majori cautela as multi­State co­operative bank comes
    under the ambit of ‘banking company’ mentioned in Section 2(1)(c)
    and as defined in Section 2(d) of the SARFAESI Act. In Daman Singh
    (supra), this Court held that expression ‘corporation’ occurring under
    Article 31A(1)(3) of the Constitution of India is required to be given a
    broad interpretation and takes within its compass a registered cooperative society.
    (c) He relied on The Majoor Sahakari Bank Ltd. v. N.N. Majmudar
    and Anr.23 in which the Bombay High Court observed that co­operative
    society doing business of banking is a company. The question
    23 AIR 1957 Bom 36
    23
    mentioned above arose as the Government of Bombay issued a
    notification and directed that all the provisions of the Bombay
    Industrial Disputes Act shall apply to the business of banking
    companies registered under any of the enactments relating to the
    companies for the time being in force.
    (d) Article 246 distributes legislative powers between the Union and
    the State regarding three lists in the Seventh Schedule. Under Article
    246(1), the Parliament has exclusive power to make laws in respect of
    97 matters enumerated in List I notwithstanding anything contained
    in clauses (2) and (3). As per Article 246(3), the State legislature has
    legislative powers to make laws with respect to 66 matters enumerated
    in List II. 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 Article 246(1), i.e., the exclusive power of the Parliament to
    legislate concerning matters enumerated in List I. As a consequence if
    there is a conflict in an Entry in List I and an Entry in List II, which is
    not capable of reconciliation, the power of Parliament to legislate
    concerning matters enumerated in List I must supersede pro tanto the
    power of the State legislature. Both the Parliament and the State
    legislatures have concurrent power of legislation for 47 matters
    enumerated in List III.
    (e) Reliance has been placed on Virendra Pal Singh (supra), in which
    24
    the Court examined the powers of the State legislature relating to the
    service conditions of employees. The Court held that the State
    legislature was competent to legislate concerning employees of the
    bank. This Court did not deal with the banking business of the cooperative societies. He argued that regulating the non­banking affairs
    of society and regulating the banking business of society are two
    different things. Entry 32 of List II deals with regulation of nonbanking affairs of the co­operative society, on the other hand, Entry
    45 of List I deals with banking; hence, any legislation dealing with
    regulation of banking will be traceable to Entry 45 of List I and only
    the Parliament will be competent to legislate. The SARFAESI Act does
    not deal with incorporation, regulation, and winding up of the
    corporation, company, or co­operative societies. It does not regulate
    the working of a corporation, company, or co­operative society. It only
    provides for the recovery of dues of banks, including co­operative
    banks, the procedure for recovery, the authority competent to recover
    the loan, and the judicial forum to deal with disputes arising out of
    recovery. Thus, the Act does not touch upon Entry 32 of List II. The
    decision in Greater Bombay Coop. Bank Ltd. (supra) requires
    reconsideration and clarification. There is no in­depth consideration
    of its provisions and, more particularly, Section 56 of the BR Act,
    1949.
    (f) The ratio of the judgment is material. The obiter relates to the
    25
    finding of court on an issue that arises in the matter but is not
    required to be decided for the final decision of the case. Thus, the
    finding of an issue is considered as an obiter. In contrast to ratio and
    obiter, the opinion of the court on an issue that does not arise is a
    casual or passing observation. The question in Greater Bombay Coop.
    Bank Ltd. (supra) was whether the court and authorities constituted
    under the State Co­operative Societies Act and the MSCS Act continue
    to have jurisdiction to consider applications/disputes submitted
    before them by State level and multi­State co­operative banks for
    recovery of debts due to them. The question was of the applicability of
    the RDB Act, 1993 to debts due to co­operative banks constituted
    under the MCS Act, 1960, the MSCS Act, and the APCS Act, 1964.
    The question whether the State legislature was competent to legislate
    law concerning co­operative societies transacting business of banking
    in the light of Entry 32 of List II of the Seventh Schedule, did not arise
    in the matter; hence, any observation made by this Court, concerning
    the said issue, cannot be considered as the ratio of the judgment in
    Greater Bombay Coop. Bank Ltd. (supra).
    (g) He relied upon the decision of a Division Bench of the Bombay
    High Court in The Shamrao Vithal Co­operative Bank Ltd., Mumbai,
    and Anr. v. M/s. Star Glass Works, Mumbai and Ors.24 in which
    meaning of incorporation by reference was considered. The same has
    24 AIR 2003 Bom 205
    26
    to be taken to a logical end. The Parliament has provided an
    additional remedy to co­operative banks to recover their dues by
    recourse to the Co­operative Societies Act. The Court did not consider
    the said aspect in Greater Bombay Coop. Bank Ltd. (supra). The
    distinction between co­operative banks serving the members and the
    corporate bank doing commercial transactions would make no
    difference. The activity remains banking merely by the fact that cooperative banks are co­operative societies doing banking business; it
    does not make the banking activity carried out by them incidental one.
    It remains their activity. It was observed that the definition of
    ‘banking company’ in Section 5(c) had not been altered by Act No.23 of
  19. The incorporation, by reference, has the effect of changing the
    definition of ‘banking company.’ Even if in the RDB Act, 1993, the cooperative bank is not included right from the beginning, nothing came
    in the way of Parliament to enact a law that provides for an additional
    remedy to co­operative banks.
  20. Shri Jaideep Gupta, learned senior counsel appearing on behalf
    of the Reserve Bank of India, raised the following arguments:
    (a) The matter is covered by Entry 45 of List I of the Seventh
    Schedule of the Constitution of India. For the very reason, the
    Parliament has the right to legislate in respect of the banking business
    as defined in Section 5(b) of the BR Act, 1949.
    27
    (a) Banking operations would inter alia include accepting of loans
    and deposits, the grant of loans and recovery of debts due to the bank.
    There can be little doubt that the Parliament can enact a law about
    the conduct of the business by a bank. Recovery of dues is an
    essential function of a banking institution. Entry 45 of List I would
    mean legislation regarding all aspects of banking, including ancillary
    or subsidiary matters relating to that. The SARFAESI Act falls within
    the ambit of Entry 45 of List I.
    (b) The Parliament can enact a law in respect of matters contained
    in Entry 45 of List I, even if the bank in question is a co­operative
    society. Entry 45 of List I makes no difference whether an entity
    carrying business of banking is a company or statutory corporation or
    a co­operative society.
    (c) The 1965 amendment to the BR Act, 1949, brought within its
    ken co­operative banks, is not under challenge and has never been
    successfully questioned. The Parliament has the power to legislate
    concerning matters referred to in the SARFAESI Act under Entry 45 of
    List I, even if the entity which carries out the activity of banking, is a
    co­operative society. It is permissible for the Parliament to include
    multi­State co­operative banks within the definition of ‘bank.’
    Similarly, the Government could have notified co­operative banks
    under the purview of Section 2(1)(c)(v) of the SARFAESI Act, more so,
    in view of the definition in clause (cci) of Section 56 of the BR Act,
    28
    1949.
    (d) The argument of the appellant that Section 2(1)(c) of the
    SARFAESI Act refers to an entity and not the activity, therefore, it
    cannot be justified under Entry 45 of List I, is misconceived. Section
    2(1)(c) is only a definition provision. The subject matter of legislation
    is securitisation, reconstruction of financial assets and enforcement of
    security interest of banks or financial institutions. The subject matter
    of legislation is not based on the entity.
    (e) The SARFAESI Act is not a legislation relating to incorporation,
    regulation, and winding up of the co­operative societies or multi­State
    co­operative society engaged in banking. The same is traceable to
    Entry 45 of List I, i.e., the activity of banking.
    (f) The Statement of Objects and Reasons of the SARFAESI Act
    indicates that it relates to the business of banking and matters
    incidental to it. It confers the power upon the bank and financial
    institutions to take possession of security and sell them to overcome
    the slow pacing of recovery of default loans and mounting levels of
    non­performing assets of banks and financial institutions. It was
    based on the recommendation of the Narasimham Committee I and II
    and the Andhyarujina Committee formed by the Central Government
    to examine the banking sector reforms. The legislation in question,
    thus, relates to the business of banking.
    29
    (g) The argument of the appellant that ‘such other banks’ cannot
    include co­operative banks, is also without basis, and the Parliament
    has the power to legislate. Certain observations made in Greater
    Bombay Coop. Bank Ltd. (supra) are incorrect and required to be
    overruled. The questions which arose in the said case were different.
  21. Shri Vijay Hansaria, learned senior counsel appearing on behalf
    of Maharashtra State Co­operative Bank, reiterated the aforesaid
    arguments and additionally urged that the Maharashtra State Cooperative Bank has 41 branches in the State of Maharashtra. As on
    31.3.2015, it had deposits of Rs.9,992 crores and has granted loans
    and advances to the extent of Rs.12,006 crores and has working
    capital to the extent of Rs.20,947 crores. There are total 2115
    members including 1818 co­operative institutions, 296 individuals
    and individual societies and 1 State Government and the number of
    total shares held by them is 45,67,280 (35,66,104 are held by cooperative institutions, 1176 are held by individuals and individual
    societies, and 10,00,000 are held by the State Government). The MSC
    Bank advances various terms loans and working capital loans to cooperative processing units like Sugar Factories, Private Sugar Mills,
    Spinning Mills, Oil Mills, Marketing Co­operatives, Educational
    Institutions, and other co­operative Industrial Units. It is the apex
    institution of all District Central Co­operative Banks, Urban Co­
    30
    operative Banks, and Primary Agricultural Co­operative Societies. It
    has a network of co­operative banks and the agricultural co­operative
    societies in the State of Maharashtra on 31.3.2015 as under:
    Total number of District Central Co­operative Banks 31
    Number of branches of District Central Co­operative
    Banks
    3,734
    Number of Primary Agriculture Credit Societies 21,124
    Number of members of Primary Agriculture Credit
    Societies
    1,14,54,704
    He further pointed out that out of 31 District Co­operative
    Banks, 30 primarily cater to the financial needs of the agriculture
    sector. MSC Bank provides re­finance facilities to the District Central
    Co­operative Bank, and it also takes care of the financial needs of the
    non­farming sector by providing re­finance facilities to the District Cooperative Banks under the NABARD’s general re­finance to enable
    them to help rural artisans and small­scale industries. It has also
    introduced the crop loan system in the State in association with
    District Co­operative Banks. Thus, the notification issued and the
    amendment are appropriate, more so, in light of the amendment
    incorporated in 1965. The matter is covered under Entry 45 of List I
    of the Seventh Schedule.
  22. On behalf of the Indian Banks Association, Shri P.V. Yogeswaran
    learned counsel, supported the arguments raised on behalf of the
    Banks. He further argued that the enactment of the SARFAESI Act is
    within the legislative competence of the Parliament. It does not
    31
    deprive borrowers’ right to challenge the action under Section 13 of
    the SARFAESI Act as well as under the Maharashtra Co­operative
    Societies Act and is not violative of Article 14. It only provided an
    additional remedy. This Court upheld the validity of Sections 13 and
    17 of the SARFAESI Act. The Parliament can legislate concerning cooperative banks within the purview of Entry 45 of List I.
  23. Shri Vinay Navre, learned senior counsel appearing on behalf of
    Co­operative Banks, vehemently argued that:
    (a) The expression ‘incorporation, regulation and winding up’ in
    Entries 43 and 44 of List I and Entry 32 of List II refers only to
    organisational aspects of the corporations. It does not have any
    bearing on the business/transactional aspects. He has relied upon
    decisions in Hindustan Lever and Anr. v. State of Maharashtra and
    Anr.25
    , Kerala State Electricity Board v. Indian Aluminium Co. Ltd.26 and
    Sita Ram Sharma and Ors. v. State of Rajasthan and Ors.27. The
    framers of the Constitution deliberately did not define many terms
    used in the Lists in the Seventh Schedule. Wherever it was required,
    they defined such terms. Some of the subjects enumerated in Lists of
    the Seventh Schedule are defined in Article 366 of the Constitution,
    for instance, Agricultural Income (List I, Entry 82), Corporation Tax
    (List I, Entry 85), Debt (List II, Entry 42), Pension (List I, Entry 71) and
    25 (2004) 9 SCC 438
    26 (1976) 1 SCC 466
    27 (1974) 2 SCC 301
    32
    (List II, Entry 42). The framers of the Constitution avoided defining
    the term ‘banking’ in Article 366. The intention was not to restrict its
    meaning. For certain Entries, the framers of the Constitution
    specified the meaning, such as in Entry 71 of List I and Entries 5, 8,
    13, 17, 18 of List II.
    (a) There was a purpose for the framers not to define as an Entry
    has to be given meaning as per changes in society, science, and
    technology. When the American Constitution was framed more than
    200 years before the Indian Constitution, space science and
    technology were unknown to the human. The Entry ‘defence’ in the
    Union List was interpreted to include even space science and
    technology. He argued that the internet was unknown in 1950. Today
    Entry 31 of List I of the VII Schedule of the Constitution of India can
    include the internet. The courts interpreted an Entry taking into
    account the changing perspectives of the time, retaining the
    substance.
    (b) The term ‘banking’ as understood in 1950 was too narrow, and
    after 70 years, the banking industry has undergone significant
    changes. Today it includes portfolio management, underwriting of
    shares, and investment banking. There are grey areas like credit card
    companies, i.e., VISA or American Express. The definition in the BR
    Act, 1949, cannot be used to restrict the scope of the term ‘banking’ in
    33
    Entry 45 of List I.
    (c) If the argument of the appellants that co­operative banks are not
    covered by Entry 45 of List I is accepted, the consequences will be
    disastrous. Entire Part V of the BR Act, 1949, would become
    unconstitutional. The Parliament can amend Section 84 of the MSCS
    Act, and it could enact the SARFAESI Act. Similarly, power can be
    provided to recover dues under the SARFAESI Act also. The argument
    raised on behalf of appellants as to ‘occupied field’ cannot be accepted
    as the question of ‘occupied field’ is germane concerning the
    Concurrent List as held in State of A.P. and Ors. v. Mcdowell & Co. and
    Ors.28. The recovery of dues is an essential function of a bank. The
    argument to the contrary cannot be accepted. The purpose of the
    SARFAESI Act is the enforcement of security interests. The
    consequence thereof is a recovery, which is an incidental one.
    (d) The SARFAESI Act is for enforcement of security, and it is
    referable to Entry 6 of List III also, more so, because of the provisions
    contained in Sections 69 and 69A of the Transfer of Property Act,
  24. Section 13 or other provisions of the SARFAESI Act do not
    interfere with the legislative field occupied by Entry 32 of List II. The
    Maharashtra Co­operative Societies Act, 1960, provides two remedies
    to the co­operative banks for recovery of their dues. Section 91 is akin
    28 (1996) 3 SCC 709
    34
    to a civil suit, and Section 101 provides a summary procedure for
    issuance of a revenue recovery certificate. The SARFAESI Act does not
    take away the remedies of the co­operative banks under Section 91 or
    101 of the said Act; it provides additional remedy under Section 13 to
    co­operative banks to recover the dues and enforce security interest.
    It is a classic case of co­operative/collaborative federalism.
  25. Shri Abhijet Sengupta, learned counsel appearing on behalf of
    Jana Seva Sahakari Bank Ltd., urged that petition under Article 32 of
    the Constitution cannot be said to be maintainable, given the
    decisions in Dewan Bahadur Seth Gopal Das Mohta v. Union of India
    and Ors.29
    , and Khyerbari Tea Co. Ltd. and Ors. v. State of Assam30
    .
    Entry 45 of List I and Entry 32 of List II are to be read harmoniously.
  26. Following questions arise for consideration:
    (1) Whether ‘co­operative banks’, which are co­operative societies
    also, are governed by Entry 45 of List I or by Entry 32 of List II of
    the Seventh Schedule of the Constitution of India, and to what
    extent?
    (2) Whether ‘banking company’ as defined in Section 5(c) of
    the BR Act, 1949 covers co­operative banks registered under the
    State Co­operative Laws and also multi­State co­operative
    29 (1955) 1 SCR 773
    30 (1964) 5 SCR 975
    35
    societies?
    (3)(a) Whether co­operative banks both at the State level and
    multi­State level are ‘banks’ for applicability of the SARFAESI
    Act?
    (3)(b) Whether provisions of Section 2(c) (iva) of the SARFAESI
    Act on account of inclusion of multi­State co­operative banks
    and notification dated 28.1.2003 notifying cooperative banks in
    the State are ultra vires?
    IN REFERENCE QUESTION NO.1:
  27. In order to appreciate the rival submissions, we have to consider
    Entries 43, 44 and 45 of List I and Entry 32 of List II of the Seventh
    Schedule of the Constitution of India. The Entries are reproduced
    hereunder:
    “43. Incorporation, regulation and winding up of
    trading corporations, including banking, insurance
    and financial corporations but not including cooperative societies.
  28. Incorporation, regulation and winding up of
    corporations, whether trading or not, with objects
    not confined to one State, but not including
    universities.
  29. Banking.

  1. Incorporation, regulation and winding up of
    corporation, other than those specified in List I, and
    universities; unincorporated trading, literary,
    scientific, religious and other societies and
    associations; co­operative societies.”
    36
  2. In the BR Act, 1949, ‘banking’ has been defined under Section
    5(b) thus:
    “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
    withdrawable by cheque, draft, order or otherwise;”
  3. Under Section 5(c) of the BR Act, 1949, the term ‘banking
    company’ has been defined thus:
    “5. Interpretation.— In this Act, unless there is
    anything repugnant in the subject or context,—
    (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 financing its
    business as such manufacturer or trader shall not
    be deemed to transact the business of banking
    within the meaning of this clause;”
  4. Section 6 in Part II of the BR Act, 1949 deals with forms of
    business in which banking companies may engage, is extracted
    hereunder:
    “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, hoondees, promissory notes,
    coupons, drafts, bills of lading, railway receipts,
    warrants, debentures, certificates, scrips and other
    37
    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,
    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 deposits 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 and property
    which may come into the possession of the company
    in satisfaction or part satisfaction of any of its
    claims;
    (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
    38
    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 sub­section;
    (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 sub­section
    (1).”
    39
  5. Initially, the provisions of the BR Act, 1949, applied only to
    banking companies. The provisions of the BR Act, 1949, were
    extended to co­operative banks by Act No.23 of 1965, w.e.f. 1.3.1966.
    Earlier Section 56 was repealed by Act No.36 of 1957, w.e.f.
    17.9.1957. Bill No.85 of 1964 was introduced in Parliament on
    17.12.1964 to amend the Reserve Bank of India Act, 1934 and the
    Banking Companies Act, 1949 to regulate the banking business of
    certain co­operative societies and for matters connected in addition to
    that.
  6. Before we come to the amendments made, it is necessary to
    consider the Statement of Objects and Reasons. It was considered
    necessary to extend provisions of the BR Act, 1949 to State cooperative banks, the central co­operative banks, and, more
    importantly, to primary non­agriculture credit societies, which were
    relatable to banking. The Statement of Objects and Reasons is
    extracted hereunder:
    “STATEMENT OF OBJECTS OF REASONS
    The provisions of the Banking Companies Act, 1949
    are not now applicable to or in relation to cooperative banks. The deposits and working funds of
    co­operative banks are now so large that the
    extension of the more important provisions of the
    Banking Companies Act, 1949 (and of certain other
    allied provisions of the Reserve Bank of India, Act,
    1934) to these banks will be in the public interest.
    The Bill seeks accordingly to extend to the State cooperative banks, the central co­operative banks and
    the more important primary non­agricultural cooperative banks certain provisions of the existing
    Central laws which are relatable to “banking”.
    40
  7. The notes on clauses explain in detail the various
    provisions of the Bill.”
    (emphasis supplied)
    The President’s recommendation under Article 117 of the
    Constitution contained in appended Notes on clauses is also
    significant. The State or apex co­operative banks, all central cooperative banks, and primary non­agricultural credit societies, which
    have paid­up capital and reserves of a nominal value of Rs.1 lakh or
    more, were to be deemed to be co­operative banks. Consequential
    change in the qualifications of directors was proposed to be made.
    Clause 6 provided to keep reserve at 3 per cent for apex co­operative
    banks. It was proposed to control co­operative banks effectively under
    the provisions of the Reserve Bank of India Act and Banking
    Companies Act. It would not be necessary to make separate
    provisions concerning them, as such the Banking Companies Act was
    to be renamed as Banking Regulation Act, and it would not be
    confined any longer to companies incorporated under the Companies
    Act carrying on the business of banking.
  8. What is of utmost significance is that extensive amendments and
    omissions of several provisions of the BR Act, 1949 became necessary
    concerning matters covered under Entry 32 of List II; as such various
    amendments were separately reflected in a separate chapter,
    amendments were incorporated under various provisions of the Act in
    41
    Parts IIA, III and IIIA. The provisions relatable directly or indirectly to
    incorporation, management and winding up of co­operative banks
    were proposed to be omitted as these Parts or provisions were not in
    pith and substance within the scope of any entry in the Central or
    Concurrent List of subjects in the Seventh Schedule of the
    Constitution of India. Following is the relevant extract of the Notes
    appended to President’s recommendation under Article 117 of the
    Constitution of India:
    “According to the scheme of control as it is
    envisaged in the Reserve Bank of India Act and in
    the Banking Companies Act, (a) all the State or apex
    co­operative banks, (b) all central co­operative
    banks and (c) such of the primary non­agricultural
    credit societies, including in particular urban cooperative banks, as have paid­up capital and
    reserves of a nominal value of Rs. 1 lakh or more,
    will be deemed to be co­operative banks. The
    definition of the expression “co­operative bank” will
    exclude (a) all primary agricultural credit societies,
    whatever the nominal value of their paid­up capital
    may be, (b) primary non­agricultural credit societies
    with paid­up capital and reserves of a nominal value
    of less than rupees one lakh, even though they may
    be accepting deposits from non­members and (c) all
    other co­operative societies which do not obtain, or
    may hereafter cease to obtain, deposits from nonmembers.
    Clauses 8 and 9 provide for the modification of the
    definition of (a) financial institutions and (b) nonbanking insitutions for the purposes of Chapter IIIB
    of the Reserve Bank of India Act. It is proposed that
    (a) all co­operative banks, (b) all agricultural credit
    societies and (c) all primary non­agricultural credit
    societies which are not co­operative banks should
    be excluded from the scope of the statutory
    provisions relating to the Reserve Bank’s control
    over the loan investment or other allied policies of
    financial and non­banking institutions. Cooperative banks will be effectively controlled in
    42
    accordance with other provisions which are being
    made for this purpose in the Reserve Bank of India
    Act and the Banking Companies Act and it will not,
    therefore, be necessary to make any separate
    provision in regard to them. Agricultural credit
    societies have been excluded generally from the
    scope of the various provisions of the present Bill.
    The working funds and turnover of primary nonagricultural credit societies which are not cooperative banks are relatively insignificant, with the
    result that the trouble or expense involved in
    controlling their loans or advances or investment
    policies may not be worthwhile.
    Clauses 10 and 11.— Chapter III provides for the
    amendments necessary to Banking Companies Act.
    Clauses 10 and 11 seek to alter the description of
    this Act and to make certain consequential changes
    in the long title and the preamble. The Act, it is
    proposed, should be known in future as the
    Banking Regulation Act, 1949. This will be
    appropriate, as its application will not be confined
    any longer to companies incorporated under the
    Companies Act and carrying on the business of
    banking.
    Parts IIA, III and IlIA and such of the provisions in
    the other Parts of the Act as are relatable either
    directly or indirectly to the incorporation,
    management and winding up of co­operative banks
    are proposed to be omitted, as these Parts or
    provisions are not in pith and substance within the
    scope of any entry in the Central or Concurrent List
    of subjects in the Seventh Schedule to the
    Constitution.”
    (emphasis supplied)
    The provisions of Bankers’ Books Evidence Act, 1891 were also
    proposed to be suitably modified to apply to the co­operative banks
    thus:
    “The provisions of the Bankers’ Books Evidence Act,
    1891 and the Banking Companies (Legal
    Practitioners’ Clients’ Accounts) Act, 1949 are
    proposed to be modified suitably, so that the special
    procedure as to evidence or the protection in respect
    of certain accounts may be extended to or be
    43
    available in future in relation to co­operative banks
    [clause (zk)].
    The Third Schedule as proposed to be amended
    provides for the prescribed Forms in which the
    ba1ance­sheets and profit and loss accounts of cooperative banks will have to be maintained. The
    Forms may, if necessary, be modified in future in
    the light of further experience and in accordance
    with the procedure which is already prescribed in
    the Act for this purpose.”
    The co­operative banks were also required to submit the balance
    sheet and profit and loss account to the Reserve Bank of India.
  9. Various amendments were carried out in the Reserve Bank of
    India Act to make it applicable to the co­operative banks. The ‘central
    co­operative bank’ was defined by substituting clause (bi) to Section 2
    of the Reserve Bank of India Act, 1934. Similarly, ‘co­operative bank’,
    ‘co­operative credit society’ and ‘co­operative society’ were defined by
    substituting Section 2(bii), Section 2(biii) and Section 2(biv)
    respectively. The relevant definitions as inserted in the Reserve Bank
    of India Act, 1934 are extracted hereunder:
    “(bi) “central co­operative bank” means the principal
    co­operative society in a district in a State, the
    primary object of which is the financing of other cooperative societies in that district:
    Provided that in addition to such principal society
    in a district or where there is no such principal
    society in a district, the State Government may
    declare any one or more co­operative societies
    carrying on the business of financing other cooperative societies in that district to be a central cooperative bank or banks within the meaning of this
    definition;
    (bii) “co­operative bank” means a State co­operative
    bank, a central co­operative bank and a primary co­
    44
    operative bank;
    (biii) “co­operative credit society” means a cooperative society, the primary object of which is to
    provide financial accommodation to its members
    and includes a co­operative land mortgage bank:
    (biv) “co­operative society” means a society
    registered, or deemed to be registered, under the
    Co­operative Societies Act, 1912 or any other law
    relating to co­operative societies for the time being
    in force in any State;”
    The ‘primary co­operative bank’ has been defined in Section
    2(ciii), and ‘primary credit society’ has been defined in Section 2(civ).
    The definitions are extracted hereunder:
    “(ciii) “primary co­operative bank” means a cooperative society, other than a primary agricultural
    credit society,—
    (1) the primary object or principal business of
    which is the transaction of banking business;
    (2) the paid­up share capital and reserves of
    which are not less than one lakh of rupees; and
    (3) the bye­laws of which do not permit admission
    of any other co­operative society as a member;
    (civ) “primary credit society” means a co­operative
    society, other than a primary agricultural credit
    society,—
    (1) the primary object or principal business of
    which is the transaction of banking business;
    (2) the paid­up share capital and reserves of
    which are less than one lakh of rupees; and
    (3) the bye­laws of which do not permit admission
    of any other co­operative society as a member;
    Explanation.— If any dispute arises to the primary
    object or principal business of any co­operative
    society referred to in this clause or clause (cii) or
    clause (ciii), a determination thereof by the Bank
    shall be final.’;”
    Other corresponding changes were brought in the provisions to
    apply the Reserve Bank of India Act to co­operative banks.
    45
    (a) Various amendments have been carried out in the Banking
    Companies Act, 1949, it was renamed as the BR Act, 1949. The
    ‘primary agricultural credit society’ was excluded from the purview of
    the Reserve Bank of India Act and the BR Act, 1949. Co­operative
    land mortgage banks and any other co­operative society except in the
    manner and to the extent specified in Part V were also excluded.
    Section 3 of the BR Act, 1949 was substituted as under:
    “3. Nothing in this Act shall apply to­
    (a) a primary agricultural credit society;
    (b) a co­operative land mortgage bank; and
    (c) any other co­operative society, except in the
    manner and to the extent specified in Part V.”
    (b) As it became necessary to apply certain provisions of the BR Act,
    1949 to the co­operative banks in the modified form without inserting
    the amendments/omissions in the various provisions, as that would
    have made the understanding of provisions a little complicated.
    Entire amendments made which applied to or about the co­operative
    societies concerning co­operative banks were specified in Section 56,
    Chapter V, though they had the effect of amending the main
    provisions of the Act wherever they occurred.
    (c) It was provided by Section 56(a) of the BR Act, 1949 that
    throughout the Act, unless the context otherwise requires, references
    to a banking company or the company or such company shall be
    construed as references to a co­operative bank. Section 56(a)(i) and
    46
    (ii) is extracted hereunder:
    “56. 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
    construed as references to a co­operative
    bank,
    (ii) references to “commencement of this
    Act” shall be construed as references to
    commencement of the Banking Laws
    (Application to Co­operative Societies) Act,
    1964”
    By virtue of Section 56(b) in Section 2, the words and figures ‘the
    Companies Act, 1956′ were omitted. After clause (cc) in Section 5
    definition of ‘central co­operative banks’ in clause (ccc) was added as
    under:
    “(ccc) “central co­operative bank”, “co­operative
    bank”, “co­operative society”, “director”, “primary
    agricultural credit society”, “primary co­operative
    bank”, “primary credit society” and “State cooperative bank” shall have the meanings
    respectively assigned to them in the Reserve Bank of
    India Act, 1934.”
    (d) Section 5A was modified concerning the co­operative banks.
    Section 5A provided that the provisions of Part V shall prevail and
    override bye­laws of a co­operative society or any agreement executed
    by it, whether the same be registered, executed or passed, before or
    after the commencement of the Banking Laws (Application to Cooperative Societies) Act, 1964. Section 5A is extracted hereunder:
    47
    “5A. (1) The provisions of this Part shall have effect,
    notwithstanding anything to the contrary contained
    in the bye­laws of a co­operative society, or in any
    agreement executed by it, or in any resolution
    passed by it in general meeting, or by its Board of
    directors or other body entrusted with the
    management of its affairs, whether the same be
    registered, executed or passed, as the case may be,
    before or after the commencement of the Banking
    Laws (Application to Co­operative Societies) Act,
    1964.
    (2) Any provision contained in the bye­laws,
    agreement or resolution aforesaid shall, to the
    extent to which it is repugnant to the provisions of
    this Part, become or be void, as the case may be.”;”
    (e) By virtue of provisions contained in Section 56(e) in Part V of the
    BR Act, 1949 so far as it extends to co­operative society/banks, the
    modification has been made in Section 6(1)(b) to the extent ‘but
    excluding the business of a managing agent or secretary and treasurer
    of the company’ shall be omitted. In clause (d) after the word
    ‘company,’ the words ‘or co­operative society’ shall be inserted.
    (f) In Section 6(1) in clause (d), the words ‘co­operative society’ were
    inserted after the word ‘company.’ For co­operative society to be
    named as a co­operative bank, the following section was substituted:
    “7. (1) No co­operative society other than a cooperative bank shall use as part of its name any of
    the words “bank”, “banker” or “banking” and no cooperative society shall carry on the business of
    banking in India unless it uses as part of its name
    at least one of such words.
    (2) Nothing in this section shall apply to­
    (a) a primary credit society, or
    (b) a co­operative society formed for the protection
    48
    of the mutual interests of co­operative banks or
    co­operative land mortgage banks.;”
    (emphasis supplied)
    (g) Section 11 was substituted in application to co­operative banks.
    The relevant portion of Section 11(1) is extracted hereunder:
    “11. (1) Notwithstanding any law relating to cooperative societies for the time being in force, no cooperative bank shall commence or carry on the
    business of banking in India unless the aggregate
    value of its paid­up capital and reserves is not less
    than one lakh of rupees:”
    (h) Section 18 was substituted, which provided for maintaining cash
    reserve. Every co­operative bank not being a State co­operative bank
    included in the Second Schedule to the Reserve Bank of India Act,
    1934, shall maintain in India by way of cash reserve of 3 per cent of
    the amount. The relevant portion of Section 18 is extracted hereunder:
    “18. Every co­operative bank, not being a State cooperative bank ∙for the time being included in the
    Second Schedule to the Reserve Bank of India Act,
    1934, shall maintain in India, by way of cash
    reserve with itself or in current account opened with
    the Reserve Bank or the State Bank of India or the
    State co­operative bank of the State concerned or
    with any other bank notified by the Central
    Government in this behalf or, in the case of a
    primary co­operative bank, with the central cooperative bank of the district concerned or partly in
    cash with itself and partly in such account or
    accounts, a sum equivalent to at least three per cent
    of the total of its time and demand liabilities in India
    and shall submit to the Reserve Bank before the
    15th day of every month a return showing the
    amount so held on Friday of each week of the
    preceding month with particulars of its time and
    demand liabilities in India on each such Friday, or,
    if any such Friday is a public holiday under the
    Negotiable Instruments Act, 1881, at the close of
    business on the preceding working day.”
    49
    (i) Section 19 was substituted concerning the application to the cooperative societies. The relevant portion of Section 19 is as under:
    “19. No co­operative bank shall hold shares in any
    other co­operative society except to such extent and
    subject to such conditions as the Reserve Bank may
    specify in that behalf: …”
    The restriction was imposed under Section 19 on holding shares
    in other co­operative societies except as provided by the Reserve Bank
    of India.
    (j) Section 22 of the BR Act, 1949, as amended in its application
    with respect to the co­operative banks, provides that no co­operative
    society shall carry on banking business in India unless it is a primary
    credit society or a co­operative bank and holds a licence issued in that
    behalf by the Reserve Bank. Thus, it was necessary that only primary
    credit society could involve in the banking business in India and to
    hold a licence from the Reserve Bank of India. The provisions of subSections (1) and (2) of Section 22 were also substituted in their
    application to the co­operative bank as under:
    “(0) in section 22,—
    (i) for sub­sections (1) and (2), the following subsections shall be substituted, namely:­
    “(1) Save as hereinafter provided, no co­operative
    society shall carry on banking business in India
    unless—
    (a) it is a primary co­operative society, or
    (b) it is a co­operative bank and holds a licence
    issued in that behalf by the Reserve Bank, subject
    to such conditions, if any, as the Reserve Bank
    may deem fit to impose:
    50
    Provided that nothing in this sub­section shall
    apply to a co­operative society, not being a primary
    credit society or a co­operative bank carrying on
    banking business at the commencement of the
    Banking Laws (Application to Co­operative Societies)
    Act, 1964, for a period of one year from such
    commencement.
    (2) Every co­operative society carrying on business
    as a co­operative bank at the commencement of the
    Banking Laws (Application to Cooperative Societies)
    Act, 1964, shall before the expiry of three months
    from such commencement, every primary credit
    society which becomes a primary co­operative bank
    after such commencement shall before the expiry of
    three months from the date on which it so becomes
    a primary co­operative bank and every co­operative
    society other than a primary credit society shall
    before commencing banking business in India,
    apply in writing to the Reserve Bank for a licence
    under this section:
    Provided that nothing in clause (b) of sub­section
    (1) shall be deemed to prohibit a co­operative society
    carrying on business as a co­operative bank at the
    commencement of the Banking Laws (Application to
    Co­operative Societies) Act, 1964, and a primary
    credit society which becomes a primary co­operative
    bank after such commencement, from carrying on
    banking business until it is granted a licence in
    pursuance of this section or is by notice in writing
    informed by the Reserve Bank that a licence cannot
    be granted to it.;”
    (emphasis supplied)
    (k) The embargo has also been created by sub­Section (1) of Section
    23, to open a new place of business insofar as it applies to the cooperative banks thus:
    “(1) Without obtaining the prior permission of the
    Reserve Bank, no co­operative bank shall open a
    new place of business or change otherwise than
    within the same city, town or village, the location of
    an existing place of business:”
    It has been made necessary by substituting Sections 29 and 30
    51
    for every co­operative bank to submit accounts and balance sheets to
    the Reserve Bank of India. Reserve Bank of India has also been given
    power under Section 35 to inspect primary co­operative banks. In
    Section 35A(1)(c), after the words ‘banking company’, the words
    ‘banking business of any co­operative bank’ has been substituted.
    Forms have also been prescribed for submitting balance sheet,
    property, and assets, and profit and loss account.
    Thus, it is apparent that deep and pervasive control by the
    Reserve Bank of India is provided on primary credit society, which is
    involved in banking. As per the provisions of the BR Act, 1949, no
    business can be done by any co­operative society without obtaining a
    licence from the Reserve Bank of India. The very existence of the cooperative banks is dependent and is governed by the Reserve Bank of
    India Act as well as the BR Act, 1949. The aforesaid legislations are
    under Entry 38 and Entry 45, respectively, of List I of the Constitution
    of India.
  10. Before proceeding further, it is necessary to consider the
    provisions contained in the SARFAESI Act. The SARFAESI Act has
    been enacted to regulate securitisation and reconstruction of financial
    assets and enforcement of security interest and for matters connected
    therewith and incidental to that. It was considered that banks do not
    have the power to take possession of the property and sell them. The
    52
    legal system related to commercial transactions has not kept pace
    with the changing commercial practices and financial sector reforms.
    The relevant portion of the Statement of Objects and Reasons of the
    SARFAESI Act is extracted hereunder:
    “STATEMENT OF OBJECTS AND REASONS
    The financial sector has been one of the key drivers
    in India’s efforts to achieve success in rapidly
    developing its economy. While the banking industry
    in India is progressively complying with the
    international prudential norms and accounting
    practices there are certain areas in which the
    banking and financial sector do not have a level
    playing field as compared to other participants in
    the financial markets in the world. There is no legal
    provision for facilitating securitisation of financial
    assets of banks and financial institutions. Further,
    unlike international banks, the banks and financial
    institutions in India do not have power to take
    possession of securities and sell them. Our existing
    legal framework relating to commercial transactions
    has not kept pace with the changing commercial
    practices and financial sector reforms. This has
    resulted in slow pace of recovery of defaulting loans
    and mounting levels of non­performing assets of
    banks and financial institutions. Narasimham
    Committee I and II and Andhyarujina Committee
    constituted by the Central Government for the
    purpose of examining banking sector reforms have
    considered the need for changes in the legal system
    in respect of these areas. These Committees, inter
    alia, have suggested enactment of a new legislation
    for securitisation and empowering banks and
    financial institutions to take possession of the
    securities and to sell them without the intervention
    of the court. Acting on these suggestions, the
    Securitisation and Reconstruction of Financial
    Assets and Enforcement of Security Interest
    Ordinance, 2002 was promulgated on the 21st
    June, 2002 to regulate securitisation and
    reconstruction of financial assets and enforcement
    of security interest and for matters connected
    therewith or incidental thereto. The provisions of the
    Ordinance would enable banks and financial
    institutions to realise long­term assets, manage
    problem of liquidity, asset liability mismatches and
    53
    improve recovery by exercising powers to take
    possession of securities, sell them and reduce nonperforming assets by adopting measures for
    recovery or reconstruction.
  11. It is now proposed to replace the Ordinance by a
    Bill, which, inter alia, contains provisions of the
    Ordinance to provide for—
    (g) defining ‘security interest’ as any type of
    security including mortgage and charge on
    immovable properties given for due repayment of
    any financial assistance given by any bank or
    financial institution;
    (h) empowering banks and financial institutions
    to take possession of securities given for financial
    assistance and sell or lease the same or take over
    management in the event of default, i.e.
    classification of the borrower’s account as nonperforming asset in accordance with the
    directions given or guidelines issued by the
    Reserve Bank of India from time to time;”
  12. Under Section 13 of the SARFAESI Act, it is open to the Bank to
    enforce the security interest without intervention of the court or
    tribunal in accordance with the provisions of the Act, and the appeal
    to Debts Recovery Tribunal is provided. The Appellate Tribunal has
    been defined to mean Debts Recovery Appellate Tribunal, and the right
    to appeal/application against the action has been provided in Section
    17 to the Debts Recovery Tribunal. Thus, Debts Recovery Tribunal is
    constituted under the RDB Act, 1993.
  13. What is of significance is the definitions of ‘bank’ and ‘banking’
    which have been provided in the SARFAESI Act in Section 2(1)(c) and
    2(1)(d) respectively thus:
    54
    “2. Definitions.—(1) In this Act, unless the context
    otherwise requires,—
    (c) “bank” means—
    (i) a banking company; or
    (ii) a corresponding new bank; or
    (iii) the State Bank of India; or
    (iv) a subsidiary bank; or
    (iva) a multi­State co­operative bank; or
    (v) such other bank which the Central
    Government may, by notification, specify for
    the purposes of this Act;

(d) “banking company” shall have the meaning
assigned to it in clause (c) of section 5 of the
Banking Regulation Act, 1949 (10 of 1949);”

  1. In exercise of power conferred under Section 2(1)(c)(v) of the
    SARFAESI Act, a notification was issued by the Ministry of Finance
    and Company Affairs on 28.1.2003 specifying co­operative banks as
    defined in clause (cci) of Section 5 of the BR Act, 1949 for the purpose
    of the SARFAESI Act. Following notification was issued:
    “S.O.105 (E).— In exercise of the powers
    conferred under item (v) of clause (c) of Subsection (1) of Section 2 of the Securitisation and
    Reconstruction of Financial Assets and
    Enforcement of Security Interest Act, 2002 (54 of
    2002), the Central Government hereby specifies
    “Co­operative Bank” as defined in clause (cci) of
    Section 5 of the Banking Regulation Act 1949 (10
    of 1949) as ‘bank’ for the purpose of the
    Securitization and Reconstruction of Financial
    Assets and Enforcement of Security Interest Act,
    2002 (54 of 2002).”
  2. In Section 2(1)(c) of the SARFAESI Act, further amendments have
    been made by incorporating a ‘multi­State co­operative bank,’ w.e.f.
    15.1.2013 by way of Enforcement of Security Interest and Recovery of
    55
    Debts Laws (Amendment) Act, 2012 (No.1 of 2013). Other provisions
    of the SARFAESI Act were also amended. A similar amendment was
    made to the RDB Act, 1993, in Section 2(d) by inserting clause (vi) ‘a
    multi­State co­operative bank.’ Section 2(d) is extracted hereunder:
    “2. Definitions.—In this Act, unless the context
    otherwise requires,—
    (d) “bank” means—
    (i) a banking company;
    (ii) a corresponding new bank;
    (iii) State Bank of India;
    (iv) a subsidiary bank; or
    (v) a Regional Rural Bank;
    (vi) a multi­State­co­operative bank;”
  3. We have to examine the legislative competence of the Parliament
    with respect to co­operative banks within the State as the MSCS Act,
    2002 is enacted in exercise of power under Entry 44 List I of the
    Seventh Schedule of the Constitution of India. The legislative
    competence of Parliament regarding the MSCS Act, 2002 is not in
    issue.
    MEANING OF ‘BANKING’
  4. The main issue is as to the meaning of ‘banking’ used in Entry
    45 of List I of the Seventh Schedule of the Constitution of India. It is
    necessary to understand the meaning of ‘bank’ and ‘banking.’ Before
    the Constitution was promulgated, banking was dealt with by the
    erstwhile Banking Companies Act, 1949. Upon its extension to cooperative banks run by co­operative societies, it was renamed as the
    56
    BR Act, 1949. Before we consider the definition of ‘banking’ under the
    BR Act, 1949, it is necessary to understand the meaning of ‘bank’ and
    ‘banking.’ The bank ordinarily means any establishment which
    carries the business of banking. The expression ‘bank’ has been
    defined in several enactments. In Concise Oxford English Dictionary,
    ‘bank’ has been defined thus:
    “bank • n. 1 a financial establishment that uses
    money deposited by customers for investment, pays
    it out when required, makes loan at interest, and
    exchanges currency.”
    In Concise Oxford English Dictionary, the word ‘banking’ has
    been defined thus:
    “banking • n. the business conducted or services
    offered by a bank.”
    In Black’s Law Dictionary, Ninth Edition ‘banking’ means the
    business carried on by or with a bank. ‘Bank’ is defined thus:
    “bank. (15c) 1. A financial establishment for the
    deposit, loan, exchange, or issue of money and for
    the transmission of funds; esp., a member of the
    Federal Reserve System. • Under securities law, a
    bank includes any financial institution, whether or
    not incorporated, doing business under federal or
    state law, if a substantial portion of the institution’s
    business consists of receiving deposits or exercising
    fiduciary powers similar to those permitted to
    national banks and if the institution is supervised
    and examined by a state or federal banking
    authority; or a receiver, conservator, or other
    liquidating agent of any of the above institutions.
    15USCA § 78c(a)(6). [Cases: Banks and Banking 2,
    232, 289, 359.].
  5. The office in which such an establishment
    conducts transactions.”
    57
    Banks can be of different kinds such as Co­operative Bank,
    Collecting Bank, Commercial Bank, Correspondent Bank, Custodian
    Bank, Depository Bank, Drawee Bank, Federal Home Loan Bank,
    Federal Land Bank, Intermediary Bank, Investment Bank, Mutual
    Savings Bank, Nationalised Banks, Negotiable Bank, Non­Member
    Bank, Payor Bank, Savings and Loan Bank, Saving Bank.
    The expression ‘bank’ has been defined in various enactments
    relating to it.
  6. The ‘Reserve Bank’ has been defined in Section 5(l) to mean
    Reserve Bank of India constituted under Section 3 of the Reserve
    Bank of India Act, 1934 (2 of 1934). Section 5(ha) defines the
    ‘National Bank’ to mean the National Bank for Agriculture and Rural
    Development established under Section 3 of the National Bank for
    Agriculture and Rural Development Act, 1981. The ‘State Bank of
    India’ is defined in Section 5(nc) to mean the State Bank of India
    constituted under Section 3 of the State Bank of India Act, 1955 (23 of
    1955).
  7. The term ‘banking’ used in Entry 45 List I, came up for
    consideration in Rustom Cavasjee Cooper (supra), in which 11­Judge
    Bench of this Court considered the question of ‘banking’ and observed:
    58
    “27. The argument raised by Mr Setalvad,
    intervening on behalf of the State of Maharashtra
    and the State of Jammu and Kashmir, that the
    Parliament is competent to enact Act 22 of 1969,
    because the subject­matter of the Act is “with
    respect to” regulation of trading corporations and
    matters subsidiary and incidental thereto, and on
    that account is covered in its entirety by Entries 43
    and 44 of List I of the Seventh Schedule, cannot be
    upheld. Entry 43 deals with incorporation,
    regulation and winding up of trading corporations
    including banking companies. Law regulating the
    business of a corporation is not a law with respect
    to regulation of a corporation. In List I entries
    expressly relating to trade and commerce are
    Entries 41 and 42. Again several entries in List I
    relate to activities commercial in character. Entry 45
    “Banking”; Entry 46 “Bills of exchange, cheques,
    promissory notes and other like instruments”; Entry
    47 “Insurance”; Entry 48 “Stock Exchanges and
    future markets”; Entry 49 “Patents, inventions and
    designs”. There are several entries relating to
    activities commercial as well as non­commercial in
    List II — Entry 21 “Fisheries”; Entry 24 “Industries
    X X X” ; Entry 25 “Gas and Gas works”; Entry 26
    “Trade and commerce”; Entry 30 “Money­lending
    and money­lenders”; Entry 31 “Inns and Innkeeping”; Entry 33 “Theatres and dramatic
    performances, cinemas etc.”. We are unable to
    accede to the argument that the State Legislatures
    are competent to legislate in respect of the subjectmatter of those entries only when the commercial
    activities are carried on by individuals and not when
    they are carried on by corporations.
  8. The expression “banking” is not defined in any
    Indian statute except in the Banking Regulation Act,
  9. 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.
  10. In support of his contention Mr Palkhivala relied
    upon the observation of Lord Porter in
    Commonwealth of Australia v. Bank of New South
    Wales, LR (1950) AC 235 that banking consists of
    59
    the creation and transfer of credit, the making of
    loans, purchase and disposal of investments and
    other kindred transactions; and upon the statement
    in Halsbury’s Laws of England, 3rd Edn., Vol. 2,
    Article 270 at pp. 150 and 151 that:
    “A ‘banker’ is an individual partnership or
    corporation, whose sole or predominating
    business is banking, that is the receipt of money
    on current or deposit account and the payment of
    cheques drawn by and the collection of cheques
    paid by a customer.”
    and in the footnote (g) at p. 151 that:
    “Numerous other functions are undertaken at
    the present day by banks such as the payment of
    domiciled bills, custody of valuables, discounting
    bills, executor and trustee business, or acting in
    relation to stock exchange transactions, and
    banks have functions under certain financial
    legislation, X X X .”
    These functions are not strictly banking business.
  11. The Attorney­General said that the expression
    “banking” in Entry 45, List I means all forms of
    business which since the introduction of western
    methods of banking in India, banking institutions
    have been carrying on in addition to banking as
    defined in Section 5(b) of the Banking Regulation
    Act, and on that account all forms of business
    described in Section 6(1) of the Banking Regulation
    Act in clauses (a) to (n) are, if carried on in addition
    to the “hard­core of banking” banking and the
    Parliament is competent to legislate in respect of
    that business under Entry 45, List I. In support of
    his contention that apart from the business of
    accepting money from the public for lending or
    investment, and withdrawable by cheque, draft or
    otherwise, banking includes many allied business
    activities which banking institutions were engaged
    in, the Attorney­General invited our attention to
    clause 21 of the Charter of the Bank of Bengal (Act
    6 of 1839); Section 27 of Act 4 of 1862; to Sections
    36 and 37 of the Presidency Banks Act 11 of 1876;
    to Section 91(15) of the British North America Act;
    to Paget’s Law of Banking, 7th Edn., at p. 5; to the
    Standard Form of Memorandum of Association of a
    Banking Company in Palmer’s Company Precedents
    Form 138; and to the Statement of Objects and
    60
    Reasons in support of the Bill which was enacted as
    the Indian Companies (Amendment) Act, 1936.
  12. The Charter of the Bank of Bengal, the Presidency Banks Act 4 of 1862, Ch. X­A of the Indian Companies Act, 1913, as incorporated by the Indian Companies (Amendment) Act, 1936, merely described the business which a banking institution could carry on. It was not intended thereby to include those activities within the expression “banking”. The Acts enacted after the Banking Regulation Act, 1949, also support that inference. Under Section 33 of the State Bank of India Act, 1955, the State Bank is entitled to carry on diverse business activities beside banking. Similarly the Banks subsidiary to the State Bank were by Section 36 of Act 38 of 1959 to act as agents of the State Bank, and also to carry on and transact business of banking as defined in Section 5(b) of the Banking Regulation Act, 1949, and were also competent to engage in such one or more other forms of business specified in Section 6(1) of that Act. These provisions do not aid in construing the Entry “Banking” in Entry 45, List I.
    1. In modern times in India as elsewhere, to attract
      business, banking establishments render, and
      compete in rendering, a variety of miscellaneous
      services for their constituents. If the test for
      determining what “banking” means in the
      constitutional entry is any commercial activity
      which bankers at a given time engage in, great
      obscurity will be introduced in the content of that
      expression. The coverage of constitutional entry in a
      Federal Constitution which carves out a field of
      legislation must depend upon a more satisfactory
      basis.
  13. 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 re­writing 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
    61
    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.
  14. Counsel for the petitioner contended that the
    word “banking” would have the same meaning as
    the definition of “banking” occurring in Section 5(b)
    of the Banking Regulation Act of 1949 hereinafter
    referred to for the sake of brevity as the 1949 Act.
    This contention was amplified to exclude four types
    of business from the banking business and
    therefore the Act of 1969 was said to be not within
    the legislative competence of Banking under Entry
    45 in List I. These four types of business are: (1) the
    receiving of scrips or other valuables on deposit or
    for safe custody and providing of safe deposit vaults,
    (2) agency business, (3) business of guarantee,
    giving of indemnity and underwriting and (4)
    business of acting as executors and trustees.
    “Banking” was defined for the first time in the 1949
    Act as meaning the acceptance for the purpose of
    lending or investments of deposits of money from
    the public repayable on demand or otherwise and
    withdrawable by cheque, draft or otherwise. In
    England there is no statutory definition of banking
    but the Courts have evolved a meaning and
    principle as to what the legitimate business of a
    bank is.
  15. Keeping valuables for safe custody, the
    providing of safe deposit vaults occur in clause (a) of
    Section 6(1) along with various types of business
    like borrowing, raising or taking up of money, or
    lending or advancing of money. It will appear from
    clause (n) of Section 6(1) of the 1949 Act that in
    addition to the forms of business mentioned in
    clauses (a) to (m) a banking company may engage in
    “doing all such other things as are incidental or
    conducive to the promotion or advancement of the
    business of the company”. The words “other things”
    appearing in clause (n) after enumeration of the
    various types of business in clauses (a) to (m) point
    to one inescapable conclusion that the businesses
    62
    mentioned in clauses (a) to (m) are all incidental or
    conducive to the promotion or advancement of the
    business of the company. Therefore these
    businesses are not only legitimate businesses of the
    banks but these also come within the normal
    business activities of commercial banks of repute.
    Entry 45 in List I of the 7th Schedule of the
    Constitution, namely, “banking” will therefore have
    the wide meaning to include all legitimate
    businesses of a banking company referred to in
    Section 5( b) as well as in Section 6(1) of the 1949
    Act. The contention on behalf of the petitioner that
    the four disputed businesses are not banking
    businesses is not supportable either on logic or on
    principle when businesses mentioned in the subclauses of Section 6(1) of the 1949 Act are
    recognised to be legitimate business activities of a
    banking company by statute and practice and usage
    fully supports that view.
  16. It was suggested by counsel for the petitioner
    that by banking business is meant only the hard
    core of banking as defined in Section 5( b) of the
    1949 Act. It is unthinkable that the business of
    banks is only confined to that aspect and not to the
    various forms of business mentioned in Section 6(1)
    of the 1949 Act. Receiving valuables on deposit or
    for safe custody and providing for safe custody
    vaults which are contemplated in clause (a) of
    Section 6(1) of the 1949 Act cannot be dissociated
    from other forms of unchallenged business of a
    bank mentioned in that clause because any such
    severance would be illogical particularly when
    deposit for safe custody and safe deposit vaults are
    mentioned in the long catalouge of businesses in
    clause (a). The agency business which is mentioned
    in clause (b) of Section 6(1) is one of the recognised
    forms of business of commercial banks with regard
    to mercantile transactions and payment or
    collection of price. Agency is after all a
    comprehensive word to describe the relationship of
    appointment of the bank as the constituent’s
    representative. The forms of agency transactions
    may be varied. It may be acting as collecting agent
    or disbursing agent or as depository of parties. The
    categories of agency can be multiplied in terms of
    transactions. That is why the business of agency
    mentioned in clause (b) is first in the general form of
    acting as an agent for any Government or local
    63
    authority, secondly carrying on of agency business
    of any description including the clearing and
    forwarding of goods and thirdly acting as attorney
    on behalf of the customers. The business of
    guarantee is in the modern commercial word
    practically indissolubly connected with a bank and
    forms a part of the business of the bank. It is almost
    common place for Courts to insist on bank
    guarantee in regard to furnishing of security. There
    may be so many instances of guarantee. As to the
    business of trusteeship and executorship it may be
    said that this is the wish of the settler who happens
    to be a constituent of the bank appointing the bank
    as executor or trustee because of the utmost faith
    and confidence that the constituent has in the
    solvency and stability of the bank and also to
    preserve the continuity of the trustee or the
    executor irrespective of any change by reason of
    death or any other incapacity. It is needless to state
    that these four disputed forms of business all spring
    out of the relation between the bank on the one
    hand and the customer on the other and the bank
    earns commission on these transactions or charges
    fees for the services rendered. Although trust
    accounts may be kept in a separate account all
    moneys arising out of the trust money go to the
    general pool of the bank and the bank utilises the
    money and very often trust moneys may be kept in
    fixed deposit with the trustee bank and expenses on
    account of the trust are met out of the general funds
    of the trustee bank. Payments to beneficiaries are
    made by crediting the beneficiaries accounts in the
    trustee bank and if they are not constituents other
    modes of payment through other banks are adopted.
    The position of the banks as executor is similar to
    that of a trustee. Whatever moneys the bank may
    spend are recouped by the bank out of the accounts
    of the trust estate.
  17. There are various provisions in the 1949 Act to
    indicate that a banking company cannot carry on
    business of a managing agent or Secretary and
    treasurer of a company and that it cannot acquire,
    construct, maintain, alter any building or works
    other than those necessary or convenient for the
    purpose of the company. A banking company
    cannot acquire or undertake the whole or any
    portion of any business unless such business is of
    one of those enumerated in Section 6(1) of the 1949
    64
    Act. A bank cannot deal in buying or selling or
    bartering of goods except in connection with certain
    purposes related to some of the businesses
    enumerated in the aforesaid Section 6(1). These
    provisions also establish that businesses mentioned
    in Section 6 of the 1949 Act are incidental and
    conducive to banking business. A bank cannot
    employ any person whose remuneration is in the
    form of a commission or a share in the profits of the
    banking company or whose remuneration is in the
    opinion of the Reserve Bank excessive. One of the
    most important provisions is Section 35 of the 1949
    Act, which states that the Reserve Bank at any time
    may and on being directed so to do by the Central
    Government cause an inspection to be made by one
    or more of its officers of the books of account and to
    report to the Central Government on any inspection
    and the Central Government thereafter if it is of
    opinion after considering the report that the affairs
    of the banking company are being conducted to the
    detriment of the interests of its depositors, may
    prohibit the banking company from receiving fresh
    deposits or direct the Reserve Bank to apply under
    Section 38 for the winding up of the banking
    company. Another important provision in the 1949
    Act, is found in Section 27 which provides for
    monthly returns in the prescribed form and manner
    showing assets and liabilities. The power of the
    Reserve Bank under Sections 27 and 35 of the 1949
    Act relates to the affairs of the banking company
    which comprehend the various forms of business of
    the bank mentioned in Section 6 of the 1949 Act.
    Then again Section 29 of the 1949 Act contemplates
    accounts relating to accounts of all business
    transacted by the bank. Section 35­A of the 1949
    Act confers power on the Reserve Bank to give
    directions with regard to the affairs of a bank. These
    provisions indicate beyond any measure of doubt
    that all forms of business mentioned in Section 6(1)
    of the 1949 Act are lawful, legitimate businesses of a
    bank as these have grown along with increase of
    trade and commerce. The word “banking” has never
    had any static meaning and the only meaning will
    be the common understanding of men and the
    established practice in relation to banking. That is
    why all these disputed forms of business come
    within the legitimate business of a bank.”
    (emphasis supplied)
    65
    The submission raised by the petitioner that banking business
    meant only the hardcore of banking, was not accepted. It was held
    that the word ‘banking’ has never had any static meaning, and the
    only meaning will be the common understanding of men and the
    established practice about banking. Various forms of business come
    within the legitimate business of a bank.
  18. It was argued on behalf of appellants that the BR Act, 1949
    recognises two categories of finance activity which a bank may
    undertake such as (1) the banking business under Section 5(b), i.e.,
    core banking business; and (2) any other business as provided in
    Section 6(1). For the purpose, reliance has been placed on Rustom
    Cavasjee Cooper (supra). The decision of the High Court of Calcutta in
    Mahaluxmi Bank Ltd. (supra), is pressed into service, wherein it was
    held:
    “5. After this an application was made to this Court for
    sanction of the special resolution effecting the said
    alterations. The Court directed certain advertisements
    to issue and also directed service of the usual notices as
    required by Sec.17 of the Companies Act, 1956. The
    Registrar of Joint Stock Companies filed an affidavit­inopposition and at the hearing opposed the application
    but no creditor or share­holder of the company opposed
    the application. P. B. Mukharji, J., before whom the
    application was heard, gave effect to the contentions
    raised by the Registrar and dismissed the application.
    In dismissing the application the learned Judge made
    inter alia the following observations in his judgment:
    “At the outset it must be said that it is a curious
    application. If the object is “to lend money to such
    person or persons or firms and at such terms as
    may seem expedient,” then it may amount to
    some kind of a banking in disguise. It is quite
    66
    true that under the Banking Companies Act,
    banking’ is defined to mean the acceptance, “for
    the purpose of lending or investment of deposits
    of money from the public, repayable on demand
    or otherwise, and withdrawable by cheque, draft,
    order or otherwise.” With a little clever
    manipulation, the petitioner might go on doing
    the banking business under the proposed
    amendment although by allowing such
    amendment it will put on the garb of a nonbanking company.”
    It has been argued that these observations of the
    learned Judge are due to a misconception of the true
    nature and character of a banking business. Reliance is
    placed by the learned counsel for the appellant
    company on the definition of the word ‘banking’ as
    given in Sec.5 (1)(b) of the Banking Companies Act,
    1949, which is as follows:
    “‘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,
    order or otherwise.”
    Now this definition makes it clear that receiving money
    on deposit from customers and honouring their
    cheques is the essential characteristic of banking. The
    money deposited by the customers can be utilised by
    the banker for lending it or for investing it but the bank
    also undertakes the obligation to repay the deposit on
    demand or otherwise and the mode by which the
    withdrawal of the deposit can be effected is by the issue
    of cheques, drafts, orders or otherwise, that is, by like
    methods.
  19. In Hart’s Law of Banking, a banker or bank is
    defined as one who, in the ordinary course of his
    business, receives money which he pays by honouring
    the cheques of persons from or on whose account he
    receives it. Sir John Paget in his book On Banking has
    pointed out that “no person or body corporate or
    otherwise can be a banker who does not (1) take deposit
    accounts, (2) take current accounts, (3) issue and pay
    cheques, and (4) collect cheques crossed and uncrossed
    for his customers.” Sheldon in his book on the Practice
    and Law of Banking, seventh edition at page 183,
    formulates the following definition of a banker.
    “A person cannot claim to be carrying on the
    67
    business of banking unless he receives money or
    instruments representing money on current
    account, honours cheques drawn thereon, and
    collects the proceeds of cheques which his
    customers place into his hands for collection.”
    In the case of Re Bottomgate Industrial Co­operative
    Society, (1891) 65 LT 712 at p. 714, Smith, J. defines
    the business of bankers thus:
    “The principal part of the business of a banker is
    receiving money on deposit, allowing the same to
    be drawn against as and when the depositor
    desires, and paying interest on the amounts
    standing on deposit.”
  20. Then Sec.6 (1) of the Banking Companies Act, 1949,
    provides that in addition to the business of banking, a
    banking company may engage in any one or more of the
    different kinds of business specified in the various subclauses of sub­sec. (1) of Sec. 6. This indicates that the
    main or real business of a banking company is as
    stated in Sec. 5 (1)(b) of the Act but banking companies
    usually carry on and are permitted to carry on other
    kinds of business which are auxiliary or incidental to
    the main business. Sub­section (2) of Sec. 6 Iays down
    that no banking company shall engage in any form of
    business other than those referred to in sub­section (1).
    So the banking company is expressly prohibited from
    carrying on any kind of incidental or allied business
    other than those enumerated in sub­clauses (a) to (o) of
    sub­section (1) of Sec. 6 of the Act. Thus it is
    abundantly clear that the essence of banking is the
    relationship which is brought into existence at the time
    of the deposit; that is the core of banking. It is true that
    the business of banking covers every possible phase or
    combination of deposit, custody, investment, loan,
    exchange, issue and transmission of money, creation
    and transfer of credit and other kindred activities but if
    the essential characteristic of banking, namely, the
    power to receive deposits from the public which are
    repayable in the manner indicated in Sec. 5 (1) (b) of
    the Banking Companies Act is absent and merely the
    power of granting loans is retained and exercised that,
    in my view, does not make the company a banking
    company. Lending of money may be one phase of a
    banking business but it is not the main phase or the
    distinguishing phase. In the case of Bank of Commerce
    Ltd. v. Kunja Behari Kar, 1944 FCR 370: (AIR 1945 FC
    2) it was argued before the Federal Court that Bengal
    68
    Money Lenders’ Act, 1940, was a legislation which fell
    within the item of banking in entries Nos. 33 and 38 of
    List 1 of Schedule VII of the Government of India Act,
    1935 inasmuch as lending money to customers or
    advancing money on promissory notes is a principal
    part of the banking business and the case of Tennant v.
    Union Bank of Canada, 1894 AC 31 was referred to, but
    the Federal Court did not accept the contention. It was
    pointed out that money lending by a bank qua bank
    might make such money lending part of a banking
    business but not otherwise (per Spens, C. J. at page
    389).”
  21. The decision in ICICI Bank Ltd. (supra) has been relied upon in
    which the Court emphasised that even if different businesses under
    clause (a) to (o) of section 6(1) are shut down, the company would still
    be a banking company as long as it is performing the core banking
    functions under Section 5(b). The Court observed:
    “37. The point we are trying to make is that apart
    from the principal business of accepting deposits
    and lending the said 1949 Act leaves ample scope
    for the banking companies to venture into new
    businesses subject to such businesses being subject
    to the control of the regulator viz. RBI. In other
    words, the 1949 Act allows banking companies to
    undertake activities and businesses as long as they
    do not attract prohibitions and restrictions like
    those contained in Sections 8 and 9. In this
    connection we need to emphasise that Section 6(1)
    (n) enables a banking company to do all things as
    are incidental or conducive to promotion or
    advancement of the business of the company.
    Section 6(1) enables banking companies to carry on
    different types of businesses. Under Section 6(1),
    these different types of businesses are in addition to
    business of banking viz. core banking. The
    importance of the words “in addition to” in Section
    6(1) is that even if different businesses under
    clauses (a) to (o) are shut down, the company would
    still be a banking company as long as it is in the
    core banking of accepting deposits and lending so
    that its main income is from the spread or what is
    called as “interest income”. Thus, we may broadly
    69
    categorise the functions of the banking company
    into two parts viz. core banking of accepting
    deposits and lending and miscellaneous functions
    and services. Section 6 of the BR Act, 1949 provides
    for the form of business in which banking
    companies may engage. Thus, RBI is empowered to
    enact a policy which would enable banking
    companies to engage in activities in addition to core
    banking and in the process it defines as to what
    constitutes “banking business”.”
  22. Learned counsel urged that performing core banking function is
    the sine qua non for being regulated by the BR Act, 1949. The BR Act,
    1949 applies to a primary credit society which has been brought
    within its purview, leaving out primary agricultural credit society and
    a co­operative land mortgage bank. The business of banking cannot
    be carried out in India as per Section 22 of the BR Act, 1949 as
    applicable to the co­operative banks/societies, unless it is a primary
    credit society, and it is a co­operative bank and holds a licence issued
    by the Reserve Bank of India. It is not in dispute that all co­operative
    banks run by cooperative societies hold the licence, and all cooperative banks are doing the business within the purview of the BR
    Act, 1949. We are unable to accept the submission that banking
    under Entry 45 of List I does not cover ‘co­operative banks’. The
    activity of the co­operative bank is covered under Section 5(1)(b). A
    similar submission was not accepted in Rustom Cavasjee Cooper
    (supra). No doubt about it that every commercial activity cannot be
    brought within the scope of ‘banking’ in Entry 45 of List I. ‘Banking’
    itself has a wide meaning, and the activity of co­operative banks is
    70
    definitely, beyond an iota of doubt, covered by Entry 45 of List I.
  23. It was argued on behalf of appellants that banking’s legal term
    ‘nomen juris’ is defined under Section 5(b) of the BR Act, 1949. When
    the Constitution was being drafted, the definition of ‘banking’ in the
    said Act prevailed. The makers of the Constitution adopted the same
    expression. Thus, intent bore the precise and definite meaning it had
    in law and, therefore, must be construed having regard to its known
    legal import. For this purpose, reference has been made to the
    observations made by this Court in Gannon Dunkerley & Co., (Madras)
    Ltd. (supra), in which it was held:
    “(36) The principle of these decisions is that when,
    after the enactment of a legislation, new facts and
    situations arise which could not have been in its
    contemplation, the statutory provisions could
    properly be applied to them if the words thereof are
    in a broad sense capable of containing them. In that
    situation, “it is not,” as observed by Lord Wright in
    1936 AC 578 (H), “that the meaning of the words
    changes, but the changing circumstances illustrate
    and illuminate the full import of that meaning”. The
    question then would be not what the framers
    understood by those words, but whether those
    words are broad enough to include the new facts.
    Clearly, this principle has no application to the
    present case. Sales tax was not a subject which
    came into vogue after the Government of India Act,
  24. It was known to the framers of that statute
    and they made express provision for it under Entry
  25. Then it becomes merely a question of
    interpreting the words, and on the principle, already
    stated, that words having known legal import
    should be construed in the sense which they had at
    the time of the enactment, the expression “sale of
    goods” must be construed in the sense which it has
    in the Sale of Goods Act.
    71
    (37) A contention was also urged on behalf of the
    respondents that even assuming that the expression
    “sale of goods” in Entry 48 could be construed as
    having the wider sense sought to be given to it by
    the appellant and that the provisions of the Madras
    General Sales Tax Act imposing a tax on
    construction contracts could be sustained as within
    that entry in that sense, the impugned provisions
    would still be bad under S. 107 of the Government
    of India Act, and the decision in Dukhineswar
    Sarkar v. Commercial Tax Officer, (S) AIR 1957 Cal
    283 (Z19) was relied on in support of this
    contention. Section 107, so far as is material, runs
    as follows:
    S. 107 — (1) “If any provision of a Provincial
    law is repugnant to any provision of a Dominion
    law which the Dominion Legislature is competent
    to enact or to any provision of an existing law
    with respect to one of the matters enumerated in
    the Concurrent Legislative List, then, subject to
    the provisions of this section, the Dominion law,
    whether passed before or after the Provincial law,
    or, as the case may be, the existing law, shall
    prevail and the Provincial law shall, to the extent
    of the repugnancy, be void.
    (2) Where a Provincial law with respect to one
    of the matters enumerated in the Concurrent
    Legislative List contains any provision repugnant
    to the provisions of an earlier Dominion law or an
    existing law with respect to that matter, then, if
    the Provincial law, having been reserved for the
    consideration of the Governor­General has
    received the assent of the Governor­General, the
    Provincial law shall in that Province prevail, but
    nevertheless the Dominion Legislature may at any
    time enact further legislation with respect to the
    same matter.”
    Now, the argument is that the definition of “sale”
    given in the Madras General Sales Tax Act is in
    conflict with that given in the Sale of Goods Act,
    1930, that the sale of goods is a matter falling
    within Entry 10 of the Concurrent List, and that, in
    consequence, as the Madras General Sales Tax
    (Amendment) Act, 1947, (Mad. 25 of 1947) under
    which the impugned provisions had been enacted,
    had not been reserved for the assent of the
    Governor­General as provided in S. 107 (2). Its
    provisions are bad to the extent that they are
    72
    repugnant to the definition of “sale” in the Sale of
    Goods Act, 1930. The short answer to this
    contention is that the Madras General Sales Tax Act
    is a law relating not to sale of goods but to tax on
    sale of goods, and that it is not one of the matters
    enumerated in the Concurrent List or over which
    the Dominion legislature is competent to enact a
    law, but is a matter within the exclusive competence
    of the Province under Entry 48 in List II. The only
    question that can arise with reference to such a law
    is whether it is within the purview of that Entry. If it
    is, no question of repugnancy under S. 107 can
    arise. The decision in (S) AIR 1957 Cal 283 (Z19) on
    this point cannot be accepted as sound.”
    In Diamond Sugar Mills Ltd. (supra), it was held:
    “(10) In considering the meaning of the words “local
    area” in entry 52 we have, on the one hand to bear
    in mind the salutary rule that words conferring the
    right of legislation should be interpreted liberally
    and the powers conferred should be given the widest
    amplitude; on the other hand we have to guard
    ourselves against extending the meaning of the
    words beyond their reasonable connotation, in an
    anxiety to preserve the power of the legislature. In
    Re the Central Provinces & Berar Sales of Motor
    Spirit and Lubricants Taxation Act, 1938, 1939 FCR
    18 at p. 37: (AIR 1939 FC 1 at p. 4) Sir Maurice
    Gwyer, C.J., observed:
    “I conceive that a broad and liberal spirit
    should inspire those whose duty it is to interpret
    it; but I do not imply by this that they are free to
    stretch or pervert the language of the enactment
    in the interests of any legal or constitutional
    theory, or even for the purpose of correcting any
    supposed errors.”
    Again, in Navinchandra Mafatlal v. Commissioner
    of Income Tax, Bombay City, 1955 1 SCR 829: ( (S)
    AIR 1955 SC 58) Das, J. (as he then was) delivering
    the judgment of this Court observed: —
    “………. The cardinal rule of interpretation
    however, is that words should be read in their
    ordinary, natural and grammatical meaning
    subject to this rider 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.”
    73
    (25) It is true that when words and phrases
    previously interpreted by the courts are used by the
    Legislature in a later enactment replacing the
    previous statute, there is a presumption that the
    Legislature intended to convey by their use the same
    meaning which the courts had already given to
    them. This presumption can however only be used
    as an aid to the interpretation of the later statute
    and should not be considered to be conclusive. As
    Mr Justice Frankfurter observed in Federal
    Communication Commissioner v. Columbia
    Broadcasting System of California, (1940) 311 U.S.
    132 when considering this doctrine, the persuasion
    that lies behind the doctrine is merely one factor in
    the total effort to give fair meaning to language. The
    presumption will be strong where the words of the
    previous statute have received a settled meaning by
    a series of decisions in the different courts of the
    country; and particularly strong when such
    interpretation has been made or affirmed by the
    highest court in the land. We think it reasonable to
    say however that the presumption will naturally be
    much weaker when the interpretation was given in
    one solitary case and was not tested in appeal. After
    giving careful consideration to the view taken by the
    learned Judge of the Allahabad High Court in ILR
    (1942) All 302: (AIR 1942 All 156) (supra) about the
    meaning of the words “local area” & proper weight to
    the rule of interpretation mentioned above, we are of
    opinion that the Constitution makers did not use
    the words “local area” in the meaning which the
    learned Judge attached to it. We are of opinion that
    the proper meaning to be attached to the words
    “local area” in Entry 52 of the Constitution, (when
    the area is a part of the State imposing the law) is
    an area administered by a local body like a
    municipality, a district board, a local board, a union
    board, a Panchayat or the like. The premises of a
    factory is therefore not a “local area”.
  26. In our opinion, the framers of the Constitution cannot be said to
    have confined the meaning of ‘banking’ to a particular definition, as
    given in the BR Act, 1949. The word ‘banking’ has been incorporated in
    Entry 45 of List I. The decision in Rustom Cavasjee Cooper (supra)
    74
    vividly leaves no room for doubt that banking done by the co­operative
    bank is covered within the ambit of Entry 45 of List I. The decision in
    Gannon Dunkerley & Co., (Madras) Ltd. (supra) stands neutralised by
    introduction of Article 366(29A) of the Constitution of India and the
    meaning of the said term has been redefined. Entries have to be given
    full effect in pith and substance considering forms of business of cooperative banks performing the activities of banking under a licence.
    The same is covered within the purview of Entry 45 of List I.
  27. On the strength of Sections 32 and 33 of the State Bank of India
    Act, 1955, learned counsel on behalf of appellants argued that Section
    32 recognises that State Bank of India can carry on ‘agency business’
    on behalf of Reserve Bank of India. Section 33 enables the State Bank
    of India to carry on banking business under Section 5(b) and other
    forms of business under Section 6(1) of the BR Act, 1949. The
    argument is of no avail. The State Bank of India Act, 1955, is
    independent and is not co­related with the co­operative banks, and
    the State Bank of India has been established as a corporation under
    the Act. Thus, the provision is of no help to take home the submission
    espoused on behalf of appellants to take them out of the purview of
    Entry 45 of List I.
  28. Learned Counsel on behalf of appellants argued that there is a
    difference between entity and activity. On a plain reading of Section
    75
    6(1) of the BR Act, 1949, it becomes evident that there is a distinction
    between the business of banking and entity that performs the banking
    functions. Section 6(1) and 6(2) enable only an entity to perform
    certain additional business functions. It does not confer any such
    status upon such an entity.
  29. In our opinion, Section 6 deals with the forms of business in
    which banking companies may engage. There cannot be any form of
    activity/business of banking without there being an entity. Section 6
    is not a provision of the conferral of the status of the banking
    company. The definitions of ‘banking’ and ‘banking company’ are
    contained in Section 5(b) and 5(c) of the BR Act, 1949 respectively,
    and when reading with Section 56(a), it means co­operative banks
    also. The co­operative bank falls within the definition of Section 5(c),
    and its activity is of banking, and in addition to the business of
    banking, a co­operative bank may engage in any of the business as
    enumerated in Section 6.
    EFFECT OF ENTRIES 43 AND 45 OF LIST I AND ENTRY 32 OF
    LIST II OF THE SEVENTH SCHEDULE OF THE CONSTITUTION OF
    INDIA
  30. Entry 43 of List I of the Seventh Schedule of the Constitution of
    India has been pressed into service on behalf of appellants. It confers
    upon the Parliament the competence to pass the law pertaining to
    ‘incorporation, regulation and winding up’ of the trading corporation,
    76
    more particularly, a banking corporation. However, co­operative
    societies are expressly excluded from the purview of the Parliament’s
    competence. No doubt about it that in Entry 43 of List I
    ‘incorporation, regulation and winding up’ of the co­operative societies
    have been kept out of the purview of the Union List by specifically
    excluding the co­operative societies, otherwise, they would have been
    included for ‘incorporation, regulation and winding up’ in Entry 43 of
    List I. The terms “incorporation, regulation and winding up of cooperative societies” were reserved as State subjects under Entry 32 of
    List II, it was so omitted from List 43 of List I. But the exclusion from
    Entry 43 of List I taking out ‘incorporation, regulation and winding up’
    of co­operative societies out of the purview of the Parliament, does not
    advance the cause of the co­operative banks. As a corollary to the
    aforesaid submission, it was also urged that the banking company
    was defined and governed by Sections 277F to Section 277N under
    Chapter X­A of the Companies Act (VII of 1913). It was inserted vide
    Amendment Act No.22 of 1936. On 10.3.1949, the Banking
    Companies Act, 1949, was enforced. The primary objective of the
    Banking Companies Act, 1949, was to provide a comprehensive
    definition of ‘banking’ to bring within its scope all the institutions
    which receive deposits repayable on demand or otherwise for lending
    or investment. At the relevant time, the Government of India Act,
    1935, which dealt with the subject of ‘banking’ as well as ‘trading
    77
    corporation,’ was in List I (Federal Legislative List), thus:
    “Entry 38 in relation to “banking”: “Banking,” that is
    to say, the conduct of banking business by
    corporations other than corporations owned and
    controlled by a federated state and carrying on
    business only within that State.
    Entry 33 in relation to corporation: “Corporations,”
    that is to say, the incorporation, regulation, and
    winding­up of trading corporations, including
    banking, insurance, and financial corporations, but
    not including corporations owned or controlled by a
    Federated State and carrying on business only
    within that State or co­operative societies, and of
    corporations, whether trading or not, with objects
    not confined to one unit (but not including
    Universities).”
    Entry 38 of the Government of India Act was re­enacted as
    ‘banking’ in Entry 45 of List I, while Entry 33 was bifurcated in
    Entries 43 and 44. Learned Counsel further argued that up to 1965,
    the primary entity which was regulated by the Parliament was a
    company that found a place in Entry 43. Thus, both in its function,
    i.e., banking and as an entity, fell in List I (banking under Entry 45
    and company under Entry 43). Therefore, it was within the control of
    the Parliament. Up to 1965, Banking Companies Act, 1949, only dealt
    with a juristic entity called banking companies. Then from the
    Preamble, the word “company” was omitted. The banking corporation
    was governed by the State Bank of India Act, 1955. Thus, the
    question of regulating the banking business of an entity outside the
    purview of List I never arose. In 1965, the Government enacted
    Banking Laws (Application to Co­operative Societies Act, 1965 (Act
    78
    No.23 of 1965) and extended the provisions of Banking Companies
    Act, 1949, and Reserve Bank of India Act to co­operative banks. Thus,
    learned counsel urged that the Statement of Objects and Reasons of
    the said Amendment Act was only to regulate relatable Entry 45 and
    not to regulate the co­operative societies. The provisions relatable
    either directly or indirectly to ‘incorporation, management and winding
    up’ of co­operative banks were omitted as they were not covered under
    Entry 45 of List I.
  31. Shri Devansh A. Mohta, learned counsel, further argued that
    Section 2(10) of the Maharashtra Co­operative Societies Act, 1960 has
    defined ‘co­operative bank’ thus:
    “Section 2 ­ Definitions
    In this Act, unless the context otherwise requires, —
    (10) “co­operative bank” means a society which is
    doing the business of banking as defined in clause
    (b) of sub­section (1) of section 5 of the Banking
    Companies Act, 1949 and includes any society
    which is functioning or is to function as a Cooperative Agriculture and Rural Multipurpose
    Development Bank under Chapter XI;”
    Under Section 91 of the Maharashtra Act, any dispute relating to
    constitution, management or business is required to be referred to a
    co­operative court. Similarly, Section 2(f) of the Multi­State Cooperative Society Act defines ‘co­operative bank’ to mean multi­State
    co­operative society, which undertakes the banking business. Under
    Section 84(2), a claim for any debt or demand due shall be deemed to
    be a dispute touching the constitution, management, or business of a
    79
    multi­State co­operative society. The Parliament has extended specific
    provisions of the BR Act, 1949, and the Reserve Bank of India Act,
    1934, which legislations are relatable to Entry 45 of List I and Entry
    38 of List I, respectively. The Parliament lacks legislative competence
    to regulate any other business, function, or facet of co­operative
    societies. It could not have provided a recovery procedure as that is
    within the domain of the State legislature. We cannot accept the
    aforesaid submission raised by the learned Counsel.
  32. In Delhi High Court Bar Association (supra), this Court in the
    context of the RDB Act, 1993 held that Parliament has the legislative
    competence to enact the Act. ‘Banking’ in Entry 45 of List I would
    comprehend legislation in respect of matters ancillary or subsidiary to
    it. The Parliament can enact a law regarding the conduct of the
    banking business, which includes recovery of banks’ dues, and for
    that purpose, set up the adjudicatory body like the Banking Tribunal
    is permissible. Thus, the establishment of Debts Recovery Tribunal
    under the RDB Act, 1993, was upheld. The Court opined:
    “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 11­A 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
    80
    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 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.”
  33. In view of the aforesaid discussion, we are of the opinion that
    recovery of dues would be an essential function of any banking
    institution and the Parliament can enact a law under Entry 45 of List I
    as the activity of banking done by co­operative banks is within the
    purview of Entry 45 of List I. Obviously, it is open to the Parliament to
    provide the remedy for recovery under Section 13 of the SARFAESI
    Act. Co­operative bank’s entire operation and activity of banking are
    governed by a law enacted under Entry 45 of List I, i.e., the BR Act,
    1949, and the RBI Act under Entry 38 of List I.
    81
  34. In UCO Bank and Anr. v. Dipak Debbarma and Ors.31
    , the
    question arose under the SARFAESI Act vis­a­vis the provisions of
    Section 187 of Tripura Land Revenue and Land Reforms Act, 1960 as
    under the Tripura Act there was a legislative embargo on the sale of
    mortgaged properties by the bank to any person who is not a member
    of a Scheduled Tribe. The auction purchasers in the case were not
    members of the Scheduled Tribe. This Court observed that provisions
    of the SARFAESI Act enable the bank to take possession of any
    property where a security interest has been created in its favour and
    sell such property to any person to realise dues. This Court observed
    that the Parliament enacted the law traceable to Entry 45 dealing
    exclusively with activities relating to the sale of secured assets, which
    being Central legislation would prevail, thus:
    “15. In the present case the conflict between the
    Central and the State Act is on account of an
    apparent overstepping by the provisions of the State
    Act dealing with land reform into an area of banking
    covered by the Central Act. The test, therefore,
    would be to find out as to which is the dominant
    legislation having regard the area of encroachment.
  35. The 2002 Act is relatable to the entry of banking
    which is included in List I of the Seventh Schedule.
    Sale of mortgaged property by a bank is an
    inseparable and integral part of the business of
    banking. The object of the State Act, as already
    noted, is an attempt to consolidate the land revenue
    law in the State and also to provide measures of
    agrarian reforms. The field of encroachment made
    by the State Legislature is in the area of banking. So
    long there did not exist any parallel Central Act
    dealing with sale of secured assets and referable to
    31 (2017) 2 SCC 585
    82
    Entry 45 of List I, the State Act, including Section
    187, operated validly. However, the moment
    Parliament stepped in by enacting such a law
    traceable to Entry 45 and dealing exclusively with
    activities relating to sale of secured assets, the State
    law, to the extent that it is inconsistent with the
    2002 Act, must give way. The dominant legislation
    being the Parliamentary legislation, the provisions of
    the Tripura Act, 1960, pro tanto, (Section 187)
    would be invalid. It is the provisions of the 2002 Act,
    which do not contain any embargo on the category
    of persons to whom mortgaged property can be sold
    by the bank for realisation of its dues that will
    prevail over the provisions contained in Section 187
    of the Tripura Act, 1960.”
  36. In State Bank of India v. Santosh Gupta and Anr.32, the question
    arose concerning the rights of banks to enforce security interests
    outside the court’s process by acting under Section 13 of the
    SARFAESI Act and its applicability to the State of Jammu and
    Kashmir. The recovery of debts and adjudicatory mechanisms
    provided in the SARFAESI Act, therefore, it comes within the purview
    of subject ‘banking’ in Entry 45 of List I of the Seventh Schedule. The
    Presidential order under Article 370 empowered the Parliament to
    legislate on the Seventh Schedule List I Entry 45 read with Entry 95 in
    respect of the State of Jammu and Kashmir. The SARFAESI Act can
    be validly applied to the State of Jammu and Kashmir even if Section
    140 of the Transfer of Property Act of J&K, 1920, conflicts with the
    SARFAESI Act. Thus, the transfer of property by way of sale or
    assignment is only one of the several ways for recovery of debts and,
    32 (2017) 2 SCC 538
    83
    thus, the SARFAESI Act as a whole cannot be said to be in pith and
    substance an Act relatable to the subject of transfer of property. The
    sale and mortgage of property for recovering loans/debts is also an
    integral part of ‘banking’. The setting up of an adjudicatory body like
    the banking tribunal would also fall under Entry 45 of List I of the
    Seventh Schedule. Thus, State law can operate if there is no Central
    law regarding the same. The State law cannot encroach upon the
    Central law by operation of the principle of repugnancy if there is a
    Central law. The Parliament is qualified with exclusive power to make
    law concerning banking. It is not possible to dissect the provisions of
    the SARFAESI Act and attach them to different entries under different
    lists. In pith and substance, the SARFAESI Act does not deal with the
    transfer of property in Entry 6 of List III of the Seventh Schedule but
    deals with the recovery of debt owing to banks and financial
    institutions. It was observed:
    “30. When it came to SARFAESI itself, this Court
    has held in Central Bank of India v. State of Kerala,
    (2009) 4 SCC 94: (SCC p. 116, para 36)
    “36. Undisputedly, the DRT Act and the
    Securitisation Act have been enacted by
    Parliament under Schedule VII List I Entry 45
    whereas the Bombay and Kerala Acts have been
    enacted by the State Legislatures concerned
    under Schedule VII List II Entry 54. To put it
    differently, two sets of legislations have been
    enacted with reference to entries in different lists
    in the Seventh Schedule. Therefore, Article 254
    cannot be invoked per se for striking down State
    legislations on the ground that the same are in
    conflict with the Central legislations. That apart,
    as will be seen hereafter, there is no ostensible
    overlapping between two sets of legislations.
    84
    Therefore, even if the observations contained in
    Kesoram Industries case, (2004) 10 SSC 201, are
    treated as law declared under Article 141 of the
    Constitution, the State legislations cannot be
    struck down on the ground that the same are in
    conflict with Central legislations.”
  37. A judgment of the Privy Council in Attorney
    General for Canada v. Attorney General for the
    Province of Quebec, 1947 AC 33 (PC) also throws
    some light on what is the correct meaning to be
    given to the expression “banking”. A Quebec Statute
    deemed as vacant property, without an owner,
    (which will now belong to His Majesty) all deposits
    or credits in credit institutions and other
    establishments which received funds or securities
    on deposit where for 30 years or more such deposits
    or credits are not the subject of any operation or
    claim by the persons entitled thereto. In an appeal
    from the Court of King’s Bench of the Province of
    Quebec, the Bank of Montreal argued that the State
    Act was beyond the powers of the Quebec
    Legislature as “banking” was one of the subjects
    allotted exclusively to Parliament of Canada. Lord
    Porter, in an illuminating judgment, posed the
    question and answered it thus: (AC p. 44)
    “Is then, the repayment of deposits to depositors
    or their successors­in­title under the law as
    existing a part of the business of banking or
    necessarily incidental thereto, or is it primarily
    concerned with property and civil rights or
    incidental to those subjects? Their Lordships
    cannot but think that the receipt of deposits and
    the repayment of the sums deposited to the
    depositors or their successors as defined above is
    an essential part of the business of banking.”
    In this view of the matter, the Privy Council further
    held: (AC p. 46)
    “… In their view, a Provincial Legislature enters
    on the field of banking when it interferes with the
    right of depositors to receive payment of their
    deposits, as in their view it would if it confiscated
    loans made by a bank to its customers. Both are
    in a sense matters of property and civil rights, but
    in essence they are included within the category
    of banking.”
    85
  38. Applying the doctrine of pith and substance to
    SARFAESI, it is clear that in pith and substance the
    entire Act is referable to Entry 45 List I read with
    Entry 95 List I in that it deals with recovery of debts
    due to banks and financial institutions, inter alia
    through facilitating securitisation and
    reconstruction of financial assets of banks and
    financial institutions, and sets up a machinery in
    order to enforce the provisions of the Act. In pith
    and substance, SARFAESI does not deal with
    “transfer of property”. In fact, insofar as banks and
    financial institutions are concerned, it deals with
    recovery of debts owing to such banks and financial
    institutions and certain measures which can be
    taken outside of the court process to enforce such
    recovery. Under Section 13(4) of SARFAESI, apart
    from recourse to taking possession of secured assets
    of the borrower and assigning or selling them in
    order to realise their debts, the banks can also take
    over the management of the business of the
    borrower, and/or appoint any person as manager to
    manage secured assets, the possession of which has
    been taken over by the secured creditor. Banks as
    secured creditors may also require at any time by
    notice in writing, any person who has acquired any
    of the secured assets from the borrower and from
    whom money is due or payable to the borrower, to
    pay the secured creditor so much of the money as is
    sufficient to pay the secured debt. It is thus clear
    that the transfer of property, by way of sale or
    assignment, is only one of several measures of
    recovery of a secured debt owing to a bank and this
    being the case, it is clear that SARFAESI, as a
    whole, cannot possibly be said to be in pith and
    substance, an Act relatable to the subject­matter
    “transfer of property”.
  39. In Delhi Cloth & General Mills Co. Ltd. (supra), the question came
    up for consideration concerning legislation whether it falls within one
    entry or the other. However, some portion of the subject­matter of the
    legislation incidentally trenched upon and might enter a field under
    another list; then, it must be held to be valid in its entirety, even
    86
    though it might incidentally trench on matters which are beyond its
    competence. It was observed:
    “33. Mr O.P. Malhotra raised a contention as to the
    legislative competence of the Parliament to enact
    Section 58­A and the Deposits Rules enacted in
    exercise of the power conferred by Section 58­A read
    with Section 642 of the Companies Act, 1956. This
    is only to be mentioned to be rejected. Mr Malhotra
    urged that when a company invites and accepts
    deposits, there comes into existence a lenderborrower relationship between the depositor and the
    company, and therefore the legislation dealing with
    the subject squarely falls under Entry 30 of the
    State List, ‘money lending and moneylenders’. If this
    submission were to carry conviction, every depositor
    in the bank would be a moneylender and the
    transaction would be one of moneylending. Is the
    banking industry to be covered under Entry 30? On
    the other hand, Entry 45 in Union List is a specific
    Entry ‘Banking’ and therefore any legislation
    relating to banking would be referable to Entry 45 in
    the Union List. Entry 43 in the Union List is:
    “Incorporation, regulation and winding up of trading
    corporations, including banking, insurance and
    financial corporations but not including cooperative
    societies”. Entry 44 refers to “incorporation,
    regulation, and winding up of corporation whether
    trading or not when business is not confined to one
    State but not including universities”. Obviously the
    power to legislate about the companies is referable
    to Entry 44 when the objects of the company are not
    confined to one State and irrespective of the fact
    whether it is trading or not. When a law is
    impugned on the ground that it is ultra vires the
    powers of the legislature which enacted it, what has
    to be ascertained is the true character of the
    legislation. To do that one must have regard to the
    enactment as a whole, to its objects and to the
    scope and effect of its provisions (see A.S. Krishna v.
    State of Madras, 1957 SCR 399, 410). To resolve the
    controversy if it becomes necessary to ascertain to
    which entry in the three Lists, the legislation is
    referable, the court has evolved the doctrine of pith
    and substance. If in pith and substance, the
    legislation falls within one entry or the other but
    some portion of the subject­matter of the legislation
    incidentally trenches upon and might enter a field
    87
    under another List, then it must be held to be valid
    in its entirety, even though it might incidentally
    trench on matters which are beyond its competence
    (see Ishwari Khaetan Sugar Mills (P) Ltd. v. State of
    U.P., (1980) 3 SCR 331, 343, Union of India V.H.S.
    Dhillon, (1972) 2 SCR 33, Kerala State Electricity
    Board v. Indian Aluminium Company, (1976) 1 SCR
    552 and State of Karnataka v. Ranganatha Reddy,
    (1978) 1 SCR 641). Applying this doctrine of pith
    and substance, Section 58­A which is incorporated
    in the Companies Act is referable to Entries 43 and
    44 in the Union List and the enactment viewed as a
    whole cannot be said to be legislation on
    moneylenders and moneylending or being referable
    to Entry 30 in the State List. Undoubtedly, therefore
    Parliament had the legislative competence to enact
    Section 58­A.”
  40. Reliance has also been placed on the decision of a Constitution
    Bench in I.T.C. Ltd. (supra). The question involved in the said case
    was to the applicability and validity of Bihar Agricultural Produce
    Markets Act, 1960 and the Karnataka Agricultural Produce Marketing
    (Regulation) Act, 1966, to the extent these State legislations deal with
    the sale of tobacco in market areas with particular reference to the
    levy thereupon of market fee after enactment of Tobacco Board Act,
    1975 ­ parliamentary legislation. The scope of Entry 52 in the Union
    List of the Seventh Schedule of the Constitution of India with
    particular reference to the meaning of the expression ‘Industries’ as
    also in Entry 24 in the State List of the Seventh Schedule of the
    Constitution came up for consideration. The Court relied on the
    decision of Constitution Bench in Belsund Sugar Co. Ltd. v. State of
    88
    Bihar33, in which it was held that merely because the industry is
    controlled by a declaration under Section 2 of the IDR Act enacted by
    Entry 52 of the Union List, the State Legislature would not be denied
    of its power to regulate the products of such industry by the exercise
    of its legislative power under the State List. The Court ultimately held
    that State Legislation and the Tobacco Board Act, 1975 to the extent
    they relate to the sale of tobacco in market areas, cannot co­exist. The
    State legislatures were competent to pass legislation concerning such
    goods. In I.T.C. Ltd. (supra), it was observed:
    “87. Further, in Belsund Sugar Co., (1999) 9 SCC
    620, the Constitution Bench cited with approval the
    decision in SIEL case, (1998) 7 SCC 26 and
    reiterated that merely because the industry is
    controlled by a declaration under Section 2 of the
    IDR Act enacted by Entry 52 of the Union List, the
    State Legislature would not be denied of its power to
    regulate the products of such an industry by
    exercise of its legislative power under the State List.
    It would be useful to extract para 119 of Belsund
    Sugar Co. case, (1999) 9 SCC 620, as under: (SCC
    pp. 670­71)
    “119. However, so far as the IDR Act is concerned,
    it is enacted under Entry 52 of the First Schedule
    which deals with industries in general.
    Simultaneously in the State List itself there is
    Entry 24 which deals with industries subject to
    the provisions of Entries 7 and 52 of List I.
    Consequently, the products of such controlled
    industries would necessarily not be governed by
    the sweep of the general legislation pertaining to
    such industries as per Entry 52 of the Union List.
    The aforesaid Constitution Bench judgment was
    not concerned with any State legislation enacted
    under Entry 24. On the contrary, it dealt with
    legislation of the Union Parliament under Entry 54
    of the Union List read with Entry 23 of the State
    33 (1999) 9 SCC 620
    89
    List. The scheme of the aforesaid legislative entries
    is entirely different from the scheme of Entry 52 of
    List I read with Entry 24 of List II with which we
    are concerned. On a conjoint reading of the
    aforesaid two entries, therefore, the ratio of the
    decision of the Constitution Bench in the
    aforesaid case cannot be effectively pressed into
    service by Shri Ranjit Kumar for supporting his
    contention. In this contention, we may usefully
    refer to a decision of this Court in SIEL Ltd.,
    (1998) 7 SCC 26, where one of us, Sujata V.
    Manohar, J. was a Member. It has rightly
    distinguished the ratio of the Constitution Bench
    decision in the case of Hingir Rampur Coal Co.
    Ltd., AIR 1961 SC 459 and taken the view that
    merely because an industry is controlled by a
    declaration under Section 2 of the IDR Act
    enacted by Entry 52 of the Union List, the State
    Legislature would not be denied of its powers to
    regulate the products of such an industry by
    exercise of its legislative powers under Entry 24 of
    the State List. In that case the question was
    whether the U.P. Sheera Niyantran Adhiniyam,
    1964 could be said to be repugnant to the
    Molasses (Control) Order issued by the Central
    Government under Section 18­G of the IDR Act
    imposing restrictions on the sale of molasses and
    fixing the maximum price of molasses. Answering
    the question in the negative, it was held that the
    term ‘industry’ in Entry 24 would not take within
    its ambit trade and commerce or production,
    supply and distribution of goods which are within
    the province of Entries 26 and 27 of List II.
    Similarly, Entry 52 in List I which deals with
    industry also would not cover trade and commerce
    in, or production, supply and distribution of, the
    products of those industries which fall under Entry
    52 of List I. For the industries falling in Entry 52
    of List I, these subjects are carved out and
    expressly put in Entry 33 of List III. It was also
    held that since the Molasses (Control) Order of
    1961 passed by the Central Government in
    exercise of powers conferred by Section 18­G was
    not extended at any point of time to the State of
    U.P. or the State of Bihar, the question of
    repugnancy between the Molasses Control Order,
    1961 and the U.P. Sheera Niyantran Adhiniyam,
    1964 does not arise. Consequently, it must be
    held that in the absence of a statutory order
    90
    promulgated under Section 18­G of the IDR Act, it
    cannot be said that the field for regulation of sale
    and purchase of products of the flour industry
    like atta, maida, suji, bran, etc. would remain
    outside the domain of the State Legislature.”
  41. That the legislative power of Parliament in
    certain areas is paramount under the Constitution
    is not in dispute. What is in dispute is the limits of
    those areas as judicially defined. Broadly speaking,
    parliamentary paramountcy is provided for under
    Articles 246 and 254 of the Constitution. The first
    three clauses of Article 246 of the Constitution
    relate to the demarcation of legislative powers
    between Parliament and the State Legislatures.
    Under clause (1), notwithstanding anything
    contained in clauses (2) and (3), Parliament has
    been given the exclusive power to make laws with
    respect to any of the matters enumerated in List I or
    the Union List in the Seventh Schedule. Clause (2)
    empowers Parliament, and the State Legislatures
    subject to the power of Parliament under clause (1),
    to make laws with respect to any of the matters
    enumerated in List III in the Seventh Schedule
    described in the Constitution as the “Concurrent
    List” notwithstanding anything contained in clause
    (3). Under clause (3) the State Legislatures have
    been given exclusive powers to make laws in respect
    of matters enumerated in List II in the Seventh
    Schedule described as the “State List” but subject to
    clauses (1) and (2). The three lists while
    enumerating in detail the legislative subjects
    carefully distribute the areas of legislative authority
    between Parliament (List I) and the State (List II).
    The supremacy of Parliament has been provided for
    by the non obstante clause in Article 246(1) and the
    words “subject to” in Articles 246(2) and (3).
    Therefore, under Article 246(1) if any of the entries
    in the three lists overlap, the entry in List I will
    prevail (M.P.V. Sundararamier & Co. v. State of A.P.,
    AIR 1958 SC 468). Additionally some of the entries
    in the State List have been made expressly subject
    to the power of Parliament to legislate either under
    List I or under List III. Entries in the lists of the
    Seventh Schedule have been liberally interpreted,
    nevertheless courts have been wary of upsetting this
    balance by a process of interpretation so as to
    deprive any entry of its content and reduce it to
    “useless lumber” (Calcutta Gas Co. (Proprietary) Ltd.
    91
    v. State of W.B., AIR 1962 SC 1044). The use of the
    word “exclusive” in clause (3) denotes that within
    the legislative fields contained in List II, the State
    Legislatures exercise authority as plenary and
    ample as Parliament.
    “276. The fact that under the scheme of our
    Constitution, greater power is conferred upon the
    Centre vis­à­vis 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.”
  42. To sum up: the word “industry” for the
    purposes of Entry 52 of List I has been firmly
    confined by Tika Ramji, AIR 1956 SC 676 to the
    process of manufacture or production only.
    Subsequent decisions including those of other
    Constitution Benches have reaffirmed that Tika
    Ramji case, AIR 1956 SC 676 authoritatively defined
    the word “industry” — to mean the process of
    manufacture or production and that it does not
    include the raw materials used in the industry or
    the distribution of the products of the industry.
    Given the constitutional framework, and the weight
    of judicial authority it is not possible to accept an
    argument canvassing a wider meaning of the word
    “industry”. Whatever the word may mean in any
    other context, it must be understood in the
    constitutional context as meaning “manufacture or
    production”.
  43. It was held that: (AIR pp. 94­95, para 10)
    “Market no doubt ordinarily means a place
    where business is being transacted. That was
    probably all that it meant at a time when trade
    was not developed and when transactions took
    place at specified places. But with the
    development of commerce, bargains came to be
    concluded more often than not through
    correspondence and the connotation of the word
    ‘market’ underwent a corresponding expansion. In
    modern parlance the word ‘market’ has come to
    mean business as well as the place where
    business is carried on.”
    92
  44. As noticed earlier the majority view in ITC
    case, 1985 Supp SCC 476 has been upheld in the
    judgment of Brother Pattanaik, on slightly different
    reasoning and the decisions of this Court in M.A.
    Tulloch, AIR 1964 SC 1284 and Baijnath Kadio,
    (1969) 3 SCC 838 dealing with legislation on mining
    and relied upon in the majority judgment of ITC
    case, 1985 Supp SCC 476 have been found to be
    not relevant for the decision. It is true, while
    legislating on any subject covered under an entry of
    any list, there can always be a possibility of
    entrenching upon or touching the field of legislation
    of another entry of the same list or another list for
    matters which may be incidental or ancillary
    thereto. In such eventuality, inter alia, a broad and
    liberal interpretation of an entry in the list may
    certainly be required. An absolute or watertight
    compartmentalization of heads of subject for
    legislation may not be possible but at the same time
    entrenching into the field of another entry cannot
    mean its total sweeping off even though it may be in
    the exclusive list of heads of subjects for legislation
    by the other legislature. As in the present case the
    relevant heads of subject in List II, other than Entry
    24, cannot be made to practically disappear from
    List II and assumed to have crossed over in totality
    to List I by virtue of declaration of the tobacco
    industry under Entry 52 of List I, in the guise of
    touching or entrenching upon the subjects of List
    II.”
  45. In Calcutta Gas Company (Proprietary) Ltd. v. State of West
    Bengal and Ors.34
    , a Constitution Bench of this Court considered the
    meaning of ‘industry’ in Entry 52 of List I and Entries 24 and 25 of
    List II and observed that having regard to the principles, while giving
    the most extensive scope to both the entries, the interpretation which
    harmonizes has to be adopted. It was held:
    “9. With this background let us construe the
    aforesaid entries. There are three possible
    34 AIR 1962 SC 1044
    93
    constructions, namely, (1) Entry 24 of List II, which
    provides for industries generally, covers the
    industrial aspect of gas and gas­works leaving Entry
    25 to provide for other aspects of gas and gasworks; (2) Entry 24 provides generally for industries,
    and Entry 25 carves out of it the specific industry of
    gas and gas­works, with the result that the industry
    of gas and gas­works is excluded from Entry 24; and
    (3) the industry of gas and gas­works falls under
    both the entries, that is, there is a real overlapping
    of the said entries. Having regard to the aforesaid
    principle, while giving the widest scope to both the
    entries, we shall adopt the interpretation which
    reconciles and harmonizes them.”
  46. In Central Bank of India v. State of Kerala and Ors.35, the
    question came up for consideration concerning Entry 45 of List I and
    Entry 54 of List II. The question arose whether Section 38­C of the
    Bombay Sales Tax Act, 1959 and Section 26­B of the Kerala General
    Sales Tax Act, 1963 and similar provisions contained in other State
    legislation by which a first charge was created on the property of the
    dealer or such other person, who was liable to pay sales tax, were
    inconsistent with the provisions contained in the RDB Act, 1993 and
    the SARFAESI Act and whether central legislations would have
    primacy over the state legislations. It was observed:
    “92. An analysis of the abovenoted provisions makes
    it clear that the primary object of the DRT Act was
    to facilitate creation of special machinery for speedy
    recovery of the dues of banks and financial
    institutions. This is the reason why the DRT Act not
    only provides for establishment of the Tribunals and
    the Appellate Tribunals with the jurisdiction, powers
    and authority to make summary adjudication of
    applications made by banks or financial institutions
    and specifies the modes of recovery of the amount
    35 (2009) 4 SCC 94
    94
    determined by the Tribunal or the Appellate
    Tribunal but also bars the jurisdiction of all courts
    except the Supreme Court and the High Courts in
    relation to the matters specified in Section 17. The
    Tribunals and the Appellate Tribunals have also
    been freed from the shackles of procedure contained
    in the Code of Civil Procedure. To put it differently,
    the DRT Act has not only brought into existence
    special procedural mechanism for speedy recovery of
    the dues of banks and financial institutions, but
    also made provision for ensuring that defaulting
    borrowers are not able to invoke the jurisdiction of
    civil courts for frustrating the proceedings initiated
    by the banks and financial institutions.
  47. The enactment of the Securitisation Act can be
    treated as one of the most radical legislative
    measures taken by the Government for ensuring
    that dues of secured creditors including banks,
    financial institutions are recovered from the
    defaulting borrowers without any obstruction. For
    the first time, the secured creditors have been
    empowered to take measures for recovery of their
    dues without the intervention of the courts or
    tribunals.
  48. The DRT Act facilitated establishment of twotier system of tribunals. The tribunals established at
    the first level have been vested with the jurisdiction,
    powers and authority to summarily adjudicate the
    claims of banks and financial institutions in the
    matter of recovery of their dues without being
    bogged down by the technicalities of the Code of
    Civil Procedure. The Securitisation Act drastically
    changed the scenario inasmuch as it enabled banks,
    financial institutions and other secured creditors to
    recover their dues without intervention of the courts
    or tribunals. The Securitisation Act also made
    provision for registration and regulation of
    securitisation/reconstruction companies,
    securitisation of financial assets of banks and
    financial institutions and other related provisions.
  49. The non obstante clauses contained in Section
    34(1) of the DRT Act and Section 35 of the
    Securitisation Act give overriding effect to the
    provisions of those Acts only if there is anything
    inconsistent contained in any other law or
    95
    instrument having effect by virtue of any other law.
    In other words, if there is no provision in the other
    enactments which are inconsistent with the DRT Act
    or the Securitisation Act, the provisions contained
    in those Acts cannot override other legislations.
    Section 38­C of the Bombay Act and Section 26­B of
    the Kerala Act also contain non obstante clauses
    and give statutory recognition to the priority of the
    State’s charge over other debts, which was
    recognised by Indian High Courts even before 1950.
    In other words, these sections and similar
    provisions contained in other State legislations not
    only create first charge on the property of the dealer
    or any other person liable to pay sales tax, etc. but
    also give them overriding effect over other laws.”
    This Court found no conflict in the provisions of the Central Act
    and that of the State.
  50. Learned counsel on behalf of appellants relying on the decisions
    in S.S. Dhanoa, Daman Singh, and Dalco Engineering Private Limited
    (supra), argued that the Parliament was conscious of the distinction
    between a corporation falling under Entries 43 and 44 of List I and a
    co­operative society falling under Entry 32 of List II. In S.S. Dhanoa
    (supra), this Court considered the distinction between corporation
    created by law and a body or society created by an act of individual in
    accordance with provisions of the statute and observed:
    “8. A corporation is an artificial being created by law
    having a legal entity entirely separate and distinct
    from the individuals who compose it with the
    capacity of continuous existence and succession,
    notwithstanding changes in its membership. In
    addition, it possesses the capacity as such legal
    entity of taking, holding and conveying property,
    entering into contracts, suing and being sued, and
    exercising such other powers and privileges as may
    be conferred on it by the law of its creation just as a
    96
    natural person may. The following definition of
    corporation was given by Chief Justice Marshall in
    the celebrated Dartmouth College case, 4 Wheat 518,
    636: 4 L Ed 629 (1819):
    “A corporation is an artificial being, invisible,
    intangible, and existing only in contemplation of
    law. Being the mere creature of law, it possesses
    only those properties which the charter of its
    creation confers upon it, either expressly or as
    incidental to its very existence. These are such as
    are supposed best calculated to effect the object
    for which it was created. Among the most
    important are immortality, and, if the expression
    may be allowed, individuality; properties, by
    which a perpetual succession of many persons
    are considered as the same, and may act as a
    single individual. They enable a corporation to
    manage its own affairs, and to hold property,
    without the perplexing intricacies, the hazardous
    and endless necessity, of perpetual conveyances
    for the purpose of transmitting it from hand to
    hand. It is chiefly for the purpose of clothing
    bodies of men, in succession, with these qualities
    and capacities, that corporations were invented,
    and are in use. By these means, a perpetual
    succession of individuals are capable of acting for
    the promotion of the particular object, like one
    immortal being.”
    The term ‘corporation’ is, therefore, wide enough to
    include private corporations. But, in the context of
    clause Twelfth of Section 21 of the Indian Penal
    Code, the expression ‘corporation’ must be given a
    narrow legal connotation.
  51. Corporation, in its widest sense, may mean any
    association of individuals entitled to act as an
    individual. But that certainly is not the sense in
    which it is used here. Corporation established by or
    under an Act of Legislature can only mean a body
    corporate which owes its existence, and not merely
    its corporate status, to the Act. For example, a
    Municipality, a Zilla Parishad or a Gram Panchayat
    owes its existence and status to an Act of
    Legislature. On the other hand, an association of
    persons constituting themselves into a company
    under the Companies Act or a society under the
    Societies Registration Act owes its existence not to
    the Act of Legislature but to acts of parties though,
    97
    it may owe its status as a body corporate to an Act
    of Legislature.”
    In Daman Singh (supra), a Constitution Bench of this Court
    considered Entry 43 of List I and Entry 32 of List II of the Seventh
    Schedule of the Constitution of India and observed:
    “5. What is a corporation? In Halsbury’s Laws of
    England, Fourth Edition, Volume 9, Paragraph 1201, it is
    said,
    A corporation may be defined as a body of persons
    (in the case of a corporation aggregate) or an office (in
    the case of a corporation sole) which is recognised by
    the law as having a personality which is distinct from
    the separate personalities of the members of the body
    or the personality of the individual holder for the time
    being of the office in question.
    A corporation aggregate has been defined in paragraph
    1204 as,
    [A] collection of individuals united into one body
    under a special denomination, having perpetual
    succession under an artificial form, and vested by the
    policy of the law with the capacity of acting in several
    respects as an individual, particularly of taking and
    granting property, of contracting obligations and of
    suing and being sued, of enjoying privileges and
    immunities in common and of exercising a variety of
    political rights, more or less extensive, according to
    the design of its institution, or the powers conferred
    upon it, either at the time of its creation or at any
    subsequent period of its existence.
    This Court in Board of Trustees, Ayurvedic and Unani
    Tibia College, Delhi v. State of Delhi, 1962 Supp 1 SCR
    156 was required to answer the question whether the
    Board of trustees which was originally registered under
    the Societies Registration Act, 1860 and a new Board of
    trustees which was incorporated by an Act of the
    legislature called the Tibbia College Act, 1952 by which
    the old Board was dissolved and a new Board constituted
    were corporations. The Court held that the old Board
    was not but the new Board was. Posing the question
    what is a corporation, the Court answered it with the
    statements contained in Halsbury’s Laws of England
    already extracted by us and added,
    A corporation aggregate has therefore only one
    capacity, namely, its corporate capacity. A corporation
    aggregate may be a trading corporation or a nontrading corporation. The usual examples of a trading
    corporation are (1) charter companies, (2) companies
    98
    incorporated by special Acts of Parliament, (3)
    companies registered under the Companies Act, etc.
    Non­trading corporations are illustrated by (1)
    municipal corporations, (2) district boards, (3)
    benevolent institutions, (4) universities etc. An
    essential element in the legal conception of a
    corporation is that its identity is continuous, that is,
    that the original member or members and his or their
    successors are one. In law the individual corporators,
    or members, of which it is composed are something
    wholly different from the corporation itself; for a
    corporation is a legal persona just as much as an
    individual. Thus, it has been held that a name is
    essential to a corporation; that a corporation aggregate
    can, as a general rule, only act or express its will by
    deed under its common seal; that at the present day
    in England a corporation is created by one or other of
    two methods, namely, by Royal Charter of
    incorporation from the Crown or by the authority of
    Parliament that is to say, by or by virtue of statute.
    There is authority of long standing for saying that the
    essence of a corporation consists in (1) lawful
    authority of incorporation, (2) the persons to be
    incorporated, (3) a name by which the persons are
    incorporated, (4) a place, and (5) words sufficient in
    law to show incorporation. No particular words are
    necessary for the creation of a corporation; any
    expression showing an intention to incorporate will be
    sufficient.
    The Court then noticed the various provisions of the
    Societies Registration Act, 1860 which according to them
    contained no sufficient words to indicate an intention to
    incorporate but on the contrary contained provisions
    showing that there was an absence of such intention.
    Therefore, they observed, “We have, therefore, come to
    the conclusion that the provisions aforesaid do not
    establish the main essential characteristic of a
    corporation aggregate, namely, that of an intention to
    incorporate the society”. Considering next the question
    whether the new Board was a corporation, the Court had
    no difficulty in answering the question with reference to
    sub­section (2) of Section 3 which stated that the Board
    shall be a body corporate having perpetual succession
    and common seal and shall by the said name sue and be
    sued. The Court observed, “Sub­section (2) of Section 3
    says in express terms that the new Board constituted
    under the impugned Act is given a corporate status; in
    other words, the new Board is a corporation in the full
    sense of the term”.
  52. We have already extracted Section 30 of the Punjab
    Act which confers on every registered cooperative society
    the status of a body corporate having perpetual
    99
    succession and a common seal, with power to hold
    property, enter into contracts, institute and defend suits
    and other legal proceedings and to do all things
    necessary for the purposes for which it is constituted.
    There cannot, therefore, be the slightest doubt that a
    cooperative society is a corporation as commonly
    understood. Does the scheme of the Constitution make
    any difference? We apprehend not.
  53. … According to Mr Ramamurthi the express exclusion
    of cooperative societies in Entry 43 of List I and the
    express inclusion of cooperative societies in Entry 32 of
    List II separately and apart from but along with
    corporations other than those specified in List I and
    universities, clearly indicated that the constitutional
    scheme was designed to treat cooperative societies as
    institutions distinct from corporations. On the other
    hand one would think that the very mention of
    cooperative societies both in Entry 43 of List I and Entry
    32 of List II along with other corporations gave an
    indication that the Constitution makers were of the view
    that cooperative societies were of the same genus as
    other corporations and all were corporations. In fact the
    very express exclusion of cooperative societies from Entry
    43 of List I is indicative of the view that but for such
    exclusion, cooperative societies would be comprehended
    within the meaning of expression “corporations”.”
    In Dalco Engineering Private Limited (supra), the Court followed
    the decision in S.S. Dhanoa (supra) and opined that there is a
    difference between a corporation established by law and established
    under the law. However, the question involved in the instant case is
    different.
  54. In Hindustan Lever (supra), question was considered, whether
    there was an encroachment on the field of the Parliament reserved
    under Entry 43 of List I of the Seventh Schedule of the Constitution of
    India, which empowers the Union Government to make law relating to
    ‘incorporation, regulation and winding up of trading corporations
    100
    including banks, insurance, and finance corporations’. It was held
    that the levy of stamp duty and prescribing rate of stamp duty on
    such documents is a different aspect. The Bombay Stamp Act does
    not provide for ‘incorporation, regulation and winding up of
    corporations’. The Court held:
    “42. It was next contended that provisions of
    Section 2(g)(iv) read with Section 34 of the Bombay
    Stamp Act which provide that an instrument not
    duly stamped would be inadmissible in evidence are
    repugnant to Section 394 of the Companies Act and
    that the State legislation cannot prevail over the
    provisions of the Companies Act. It was also
    contended that in the guise of stamp duty the State
    Legislature is in reality imposing a tax on the
    amalgamation of companies and has therefore
    encroached on the field of Parliament under Entry
    43 List I of the Constitution. We do not find any
    substance in this submission as well. Stamp duty is
    levied on the instrument and the measure is the
    valuation of the property transferred. There is no
    question of encroachment on the field of Parliament
    under Entry 43 List I of the Constitution which
    empowers the Union to make laws re: incorporation,
    regulation and winding up of trading corporations
    including banks, insurance and finance
    corporations but not including cooperative societies.
    The follow­up legislation under Entry 43 List I is
    totally different from the levy of stamp duty and of
    prescribing rate of stamp duty on such documents.
    The Bombay Stamp Act does not provide for any
    legislation with regard to incorporation, regulation
    and winding up of corporations. It only levies the
    stamp duty and prescribes the rate of stamp duty in
    respect of documents by compromise or
    arrangement.”
  55. In Kerala State Electricity Board (supra), a Constitution Bench,
    while considering the Doctrine of Pith and Substance and dominant
    purpose, opined:
    101
    “5. In view of the provisions of Article 254, the
    power of Parliament to legislate in regard to matters
    in List III, which are dealt with by clause (2), is
    supreme the Parliament has exclusive power to
    legislate with respect to matters in List 1. The State
    Legislature has exclusive power to legislate with
    respect to matters in List II. But this is subject to
    the provisions of clause (1) [leaving out for the
    moment the reference to clause (2)]. The power of
    Parliament to legislate with respect to matters
    included in List I is supreme notwithstanding
    anything contained in clause (3) [again leaving out
    of consideration the provisions of clause (2)]. No
    what is the meaning of the words “notwithstanding”
    in clause (1) and “subject to” in clause (3)? They
    mean that where an entry is in general terms in List
    II and part of that entry is in specific, terms in List I,
    the entry in List I takes effect notwithstanding the
    entry in List II. This is also on the principle that the
    “special” excludes the “general” and the general
    entry in List II is subject to the special entry in List
  56. For instance, though house accommodation and
    rent control might fall within either the State list or
    the concurrent list, Entry 3 in List I of Seventh
    Schedule carves out the subject of rent control and
    house accommodation in Cantonments from the
    general subject of house accommodation and rent
    control (see Indu Bhusan v. Sundari Devi, (1970) 1
    SCR 443). Furthermore, the word “notwithstanding”
    in clause (1) also means that if it is not possible to
    reconcile the two entries the entry in List I will
    prevail. But before that happens attempt should be
    made to decide in which list a particular legislation
    falls. For deciding under which entry a particular
    legislation falls the theory of “pith and substance”
    has been evolved by the courts. If in pith and
    substance a legislation falls within one list or the
    other but some portion of the subject­matter of that
    legislation incidentally trenches upon and might
    come to fall under another list, the Act as a whole
    would be valid notwithstanding such incidental
    trenching. These principles have been laid down in a
    number of decisions.
  57. It would be obvious that one part of the Act does
    deal with the constitution of the Board, the
    incorporation of the Board and the regulation of its
    activities. But the main purpose of the Act is for
    rationalising the production and supply of
    102
    electricity. The regulation contemplated in Entries
    43 and 44 is not regulation of the business of
    production, distribution and supply of electricity of
    the corporation. As the 1910 and 1948 Acts together
    form a complete code, with respect to Entry 38 in
    List 111 the Board is only an instrument fashioned
    for carrying out this object. The provision regarding
    the incorporation and regulation of the Electricity
    Board should be taken to be only incidental to the
    provision regarding production, supply and
    distribution of electricity.
  58. In Ramtanu Housing Society v. Maharashtra,
    (1970) 1 SCC 248, this Court had dealt with the
    Maharashtra Industrial Development Act, 1961 and
    the question whether the Maharashtra Development
    Corporation formed under the Act was a trading
    corporation. In holding that the legislation fell under
    Entry 24 of the State list and not under Entry 43 of
    the Union list this Court observed: [SCC pp. 324,
    325, 326, 327­328, paras 3, 4, 8, 11 & 15]
    The Act is one to make a special provision for
    securing the orderly establishment in industrial
    areas and industrial estates of industries in the
    State of Maharashtra, and to assist generally in
    the organisation thereof, and for that purpose to
    establish an Industrial Development Corporation,
    and for purposes connected with the matters
    aforesaid.
    The corporation is established for the purpose
    of securing and assisting the rapid and orderly
    establishment and organisation of industries in
    industrial areas and industrial estates in the
    State of Maharashtra.
    Broadly stated the functions and powers of the
    corporation are to develop industrial areas and
    industrial estates by providing amenities of road,
    supply of water or electricity, street lighting,
    drainage … or otherwise transfer any property
    held by the corporation on such conditions as
    may be deemed proper by the corporation ….
    The principal functions of the corporation in
    regard to the establishment, growth and
    development of industries in the State are first to
    establish and manage industrial estates at
    selected places and secondly to develop industrial
    areas selected by the State Government. When
    industrial areas are selected the necessity of
    acquisition of land in those areas is apparent. The
    103
    Act, therefore, contemplates that the State
    Government may acquire land by publishing a
    notice specifying the particular purpose for which
    such land is required …. Where the land has been
    acquired for the corporation or any local
    authority, the State Government shall, after it has
    taken possession of the land, transfer the land to
    the corporation or that local authority ….

It is in the background of the purposes of the
Act and powers and functions of the corporation
that the real and true character of the legislation
will be determined …. Industries come within
Entry 24 of the State list. The establishment,
growth and development of industries in the State
of Maharashtra does not fall within Entry 7 and
Entry 52 of the Union list. Establishment, growth
and development of industries in the State is
within the State list of industries …. Acquisition
or requisition of land falls under Entry 42 of the
concurrent list. In order to achieve growth of
industries it is necessary not only to acquire land
but also to implement the purposes of the Act.
The corporation is therefore established for
carrying out the purposes of the Act, The pith and
substance of the Act is establishment, growth and
organisation of industries, acquisition of land in
that behalf and carrying out the purposes of the
Act by setting up the corporation as one of the
limbs or agencies of the Government. The powers
and functions of the corporation show in no
uncertain terms that these are all in aid of the
principal and predominant purpose of
establishment, growth and establishment of
industries. The corporation is established for that
purpose …. We, therefore, hold that the Act is a
valid piece of legislation.

  1. In the present case the incorporation of the
    State Electricity Boards is merely for the
    rationalisation of the production and supply of
    electricity, for taking measures conducive to
    electrical development and for all matters incidental
    thereto. The incorporation of the Electricity Boards
    being incidental to the rationalisation of the
    production and supply of electricity and for being
    conducive to electrical development, the 1948 Act in
    pith and substance should be deemed to be one
    falling under Entry 38 of List III. Furthermore,
    104
    Electricity Boards are not trading corporations. They
    are public service corporations. They have to
    function without any profit motive. Their duty is to
    promote coordinated development of the generation,
    supply and distribution of electricity in the most
    efficient and economical manner with particular
    reference to such development in areas not for the
    time being served or adequately served by any
    licensee (Section 18). The only injunction is that as
    far as practicable they shall not carry on their
    operations at a loss (Section 59). They get
    subventions from the State Governments (Section
    63). In the discharge of their functions they are
    guided by directions on questions of policy given by
    State Governments (Section 78­A). There are no
    shareholders and there is no distribution of profits.
    This is another reason why the 1948 Act cannot be
    said to fall under Entry 43 of List I.
  2. The question, therefore, is whether the
    impugned legislation falls under Entry 38 of List III
    or Entries 26 and 27 of List II and if the former,
    whether it is repugnant to the existing law on the
    subject, that is, the 1910 and 1948 Acts and if that
    were so, whether that repugnancy has been cured
    by Presidential assent?
  3. Even assuming that part of the 1948 Act is
    legislation with respect to incorporation and
    regulation of a trading corporation, falling under
    Entry 43 of List I of Schedule VII, the rest of it will
    fall under Entry 38 of List III. That part of the Act
    relating to the regulation of the activities regarding
    production and distribution of electricity would, as
    we have shown, fall under the entry “Electricity”.
    The Kerala Act has nothing to do with the
    incorporation and regulation of the Electricity Board
    and, therefore, it can only relate to Entry 38 of List
    III, if at all.”
    It was held that repugnancy could only arise if both the
    legislations of Parliament and State fell within List III.
  4. In Sita Ram Sharma and Ors. (supra) the question concerning
    105
    Entry 43 of List I and Entries 35 and 42 of List III was considered. It
    was held:
    “9. The main argument is that the subject­matter of
    Section 4 falls within Item 43 of List I of the Seventh
    Schedule to the Constitution. So the State
    Legislature could not enact Section 4. The rival
    contention of Dr L.M. Singhvi, Advocate­General of
    Rajasthan, is that the subject­matter of Section 4 in
    its true nature and character falls within Items 35
    and 42 of List III of the Seventh Schedule to the
    Constitution.
  5. Item 43 of List I reads: “Incorporation,
    regulation and winding up of trading corporation,
    including banking, insurance and financial
    corporation but not including cooperative societies.”
    Item 35 of List III reads: “Mechanically propelled
    vehicles including the principles on which taxes on
    such vehicles are to be levied.” Item 42 of List III
    reads: “Acquisition and requisitioning of property.”
  6. It is not disputed by the appellant that the
    subject­matter of Chapter IV­A falls within Items 35
    and 42 of List III. It would accordingly follow that
    Section 68­A the definition clause, also is a law with
    respect to those very items. Section 4 of the
    Ordinance declares that any scheme prepared and
    published under Section 68­C by the General
    Manager of State Transport Undertaking shall be
    deemed to have been prepared or published by the
    State Transport Undertaking. It also provides that
    the scheme shall not be questioned in any court or
    before any authority merely on the ground that the
    same has been prepared or published by the
    General Manager. It may be observed that Section 4
    makes no amendment in the Road Transport
    Corporation Act. It does not directly affect the power
    of the Road Transport Corporation under Section
    19(2)(c) of the said Act. It has attempted to insert a
    new Section 68­CC in Chapter IV­A of the Motor
    Vehicles Act. By this new section it has validated the
    scheme prepared and published by the General
    Manager of a State Transport Undertaking as
    defined in Section 68­C.
    106
  7. We have little doubt in our mind that the
    subject­matter of Section 4 clearly falls within Items
    35 and 42 of List III and not within Item 43 of List I.
    The subject­matter is the conferment of power of
    acquisition of a road transport undertaking by the
    General Manager of the State Transport
    Undertaking. It has direct concern with acquisition.
    It has no concern with incorporation, regulation and
    winding up of trading corporations. The
    constitutionality of the law is to be determined by its
    real subject­matter and not by the incidental effect
    which it may have on any topic of legislation in List
    I. (See Prafulla Kumar Mukherjee v. Bank of
    Commerce Ltd., 1947 FCR 28: AIR 1947 PC 60: 74
    IA and Kannan Devan Hills Produce Company Ltd. v.
    State of Kerala, (1973) 1 SCR 356).”
    (emphasis supplied)
    It is apparent that ‘incorporation, regulation and winding up’ of
    the co­operative societies are covered under Entry 32 of List II of the
    Seventh Schedule of the Constitution of India, whereas ‘banking’ is
    covered by Entry 45 of List I. Thus, aspect of ‘incorporation,
    regulation and winding up’ would be covered under Entry 32 of List II.
    However, banking activity of such co­operative societies/banks shall
    be governed by Entry 45 of List I. The said banks are governed and
    regulated by legislation related to Entry 45 of List I, the BR Act, 1949
    as well as the Reserve Bank of India Act under Entry 38 of List I. In
    the matter of licencing and doing business, a deep and pervasive
    control is carved out under the provisions of the BR Act, 1949 and
    banking activity done by any entity, primary credit societies, is a bank
    and is required to submit the accounts to the Reserve Bank of India,
    and there is complete control under the aforesaid Act. For activity of
    banking, these banks are governed by the legislation under Entry 45
    107
    of List I. Thus, recovery being an essential part of the banking, no
    conflict has been created by providing additional procedures under
    Section 13 of the SARFAESI Act. It is open to the bank to adopt a
    procedure which it may so choose. When banking in pith and
    substance is covered under Entry 45 of List I, even incidental
    trenching upon the field reserved for State under Entry 32 List II is
    permissible.
  8. There can be various aspects of an activity. The co­operative
    societies may be formed under the provisions of the State Co­operative
    Acts. The State law provides for ‘incorporation, regulation and
    winding up’ under Entry 32 of List II, a membership registration, and
    other matters can be governed by Entry 32 of List II, and, at the same
    time, the aspects relating to the banking, licensing, accounts, etc. can
    be covered under Entry 45 List I.
  9. In State of W.B. v. Kesoram Industries Ltd. and Ors.36
    , a
    Constitution Bench considered the aspects’ theory and considered the
    field of taxation under Lists I and II and opined that there might be
    overlapping in fact, but there would be no overlapping in law. Simply
    because the methodology or mechanism adopted for assessment and
    quantification is similar, the two taxes cannot be said to be
    overlapping. It was held that Entries 52, 53, and 54 are not heads of
    taxation. The field of taxation is covered by Entries 49 and 50 of List
    36 (2004) 10 SCC 201
    108
    II. It was held that the same transaction might involve two or more
    taxable events in its different aspects. Merely because the aspects
    overlap, such overlapping does not detract from the distinctiveness of
    the aspects. There was no question of conflict solely on account of two
    aspects of the same transaction being utilized by two legislatures for
    two levies. The Court held:
    “141. As held in Goodricke Group Ltd., 1995 Supp
    (1) SCC 707 which we have held as correctly
    decided, this Court has noted the principle of law
    well established by several decisions that the
    measure of tax is not determinative of its essential
    character. The same transaction may involve two or
    more taxable events in its different aspects. Merely
    because the aspects overlap, such overlapping does
    not detract from the distinctiveness of the aspects.
    In our opinion, there is no question of conflict solely
    on account of two aspects of the same transaction
    being utilised by two legislatures for two levies both
    of which may be taxes or fees or one of which may
    be a tax and the other a fee falling within two fields
    of legislation respectively available to the two.”
    The legislation and entries are to be considered in pith and
    substance is the settled principles of law, and incidental trenching is
    permissible. Thus, we are of the opinion that section 2(c)(iv)(a) of the
    SARFAESI Act and the notification dated 28.2.2003 cannot be said to
    be ultra vires. They are within the ken of Entry 45 List I of the Seventh
    Schedule to the Constitution of India.
    EFFECT OF CONSTITUTIONAL PROVISIONS
  10. Our aforesaid conclusion finds support by the Constitutional
    provisions inserted by way of the Constitution (Ninety Seventh
    109
    Amendment) Act, 2011. Article 43B has been added concerning the
    management of co­operative societies. Article 43B is extracted
    hereunder:
    “43B. Promotion of co­operative societies.— The
    State shall endeavour to promote voluntary
    formation, autonomous functioning, democratic
    control and professional management of cooperative societies.”
  11. Article 243ZI provides that the legislature of a State may, by law,
    make provisions with respect to ‘incorporation, regulation and winding
    up’ of co­operative societies. Article 243ZI is extracted hereunder:
    “243ZI. Incorporation of co­operative societies. —
    Subject to the provisions of this Part, the Legislature
    of a State may, by law, make provisions with respect
    to the incorporation, regulation and winding up of
    co­operative societies based on the principles of
    voluntary formation, democratic member­control,
    member­economic participation and autonomous
    functioning.”
  12. The Ninety Seventh Amendment also incorporated Article 243ZL
    dealing with supersession and suspension of the board and interim
    management. Article 243ZL is extracted hereunder:
    “243ZL.—Supersession and suspension of board
    and interim management.— (1) Notwithstanding
    anything contained in any law for the time being in
    force, no board shall be superseded or kept under
    suspension for a period exceeding six months:
    Provided that the board may be superseded or
    kept under suspension in case—
    (i) of its persistent default; or
    (ii) of negligence in the performance of its duties;
    or
    (iii) the board has committed any act prejudicial
    to the interests of the co­operative society or its
    members; or
    110
    (iv) there is stalemate in the constitution or
    functions of the board; or
    (v) the authority or body as provided by the
    Legislature of a State, by law, under clause (2) of
    article 243ZK, has failed to conduct elections in
    accordance with the provisions of the State Act:
    Provided further that the board of any such cooperative society shall not be superseded or kept
    under suspension where there is no Government
    shareholding or loan or financial assistance or any
    guarantee by the Government:
    Provided also that in case of a co­operative society
    carrying on the business of banking, the provisions
    of the Banking Regulation Act, 1949 shall also
    apply:
    Provided also that in case of a co­operative
    society, other than a multi­State co­operative
    society, carrying on the business of banking, the
    provisions of this clause shall have the effect as if
    for the words “six months”, the words “one year”
    had been substituted.
    (2) In case of supersession of a board, the
    administrator appointed to manage the affairs of
    such co­operative society shall arrange for conduct
    of elections within the period specified in clause (1)
    and handover the management to be elected board.
    (3) The Legislature of a State may, by law, make
    provisions for the conditions of service of the
    administrator.”
    (emphasis supplied)
    The third proviso to Article 243ZL(1) clarifies that in case of a cooperative society carrying on the business of banking, the provisions
    of the BR Act, 1949 shall also apply besides the State Act. The fourth
    proviso to clause (1) of Article 243ZL also contains an exception with
    respect to multi­State co­operative society carrying on the business of
    banking, the provisions of this clause shall have the effect as if for the
    111
    words ‘six months’, had been substituted by words ‘one year.’ Thus,
    the constitutional provision itself makes a distinction between a cooperative bank and other co­operative societies and applied law
    enacted under Entry 45 of List I of the Seventh Schedule. It set at rest
    any controversy concerning the applicability of the BR Act, 1949 to
    banks run by co­operative societies. It also makes it clear that such
    banks are governed by Entry 45 of List I of the Seventh Schedule.
  13. A three­Judge Bench decision in Greater Bombay Coop. Bank
    Ltd. (supra) is heavily relied upon by the appellants, and due to
    conflict noted by a three­Judge Bench, the matter has been referred.
    In Greater Bombay Coop. Bank Ltd. (supra) the question arose whether
    co­operative banks constituted under the Co­operative Societies Act
    would have the right to recover the amount from debtors under the
    Co­operative Societies Act, or they could proceed under the RDB Act,
    1993, and whether pending proceedings were to be transferred to the
    Debt Relief Tribunal. In other words, whether the tribunals and the
    authorities constituted under the Maharashtra Co­operative Societies
    Act, 1960 and the Multi­State Co­operative Societies Act, 2002,
    continue to have jurisdiction to entertain applications/disputes
    submitted before them by the co­operative banks incorporated under
    the 1960 Act and 2002 Act for recovery of debts after the
    establishment of a Debts Recovery Tribunal under the RDB Act, 1993.
    112
    The High Court opined that after the establishment of Debts Recovery
    Tribunal under the 1993 Act, the courts and authorities under the
    1960 Act as well as the 2002 Act would cease to have jurisdiction to
    entertain the applications submitted by the co­operative banks for
    recovery of their dues. However, at the same time, the High Court
    upheld the competence of the State legislature to enact the
    Maharashtra Co­operative Societies Act, 1960.
  14. In another matter, namely A.P. State Coop. Bank v. Samudra
    Shrimp (P) Ltd., the High Court of Andhra Pradesh, struck down
    Sections 61 and 71 of the APCS Act, 1964 on the ground of
    constitutional incompetence. It was held that subject matter was
    excluded from the State legislative field in Entry 32 of List II of the
    Seventh Schedule, and the recovery of monies fell within the core and
    substantive area of banking in Entry 45 of List I of the Seventh
    Schedule of the Constitution. A co­operative bank, as defined in
    Section 56(cci) of the BR Act, 1949, is a bank and a banking company
    within the meaning of Section 2 (d) & (e) of the RDB Act, 1993. The
    Debts Recovery Tribunal constituted under the Act of 1993 had
    exclusive jurisdiction.
  15. In Greater Bombay Coop. Bank Ltd. (supra) as to the scope of
    Entries 43, 44 and 45 of List I and Entry 32 of List II of the Seventh
    Schedule of the Constitution of India, it was observed:
    113
    “88. Entry 43 of List I speaks of banking, insurance
    and financial corporations, etc. but expressly
    excludes cooperative societies from its ambit. The
    constitutional intendment seems to be that the
    cooperative movement was to be left to the States to
    promote and legislate upon and the banking
    activities of cooperative societies were also not to be
    touched unless Parliament considered it imperative.
    The BR Act deals with the regulation of the banking
    business. There is no provision whatsoever relating
    to proceedings for recovery by any bank of its dues.
    Recovery was initially governed by the Code of Civil
    Procedure by way of civil suits and after the RDB
    Act came into force, the recovery of the dues of the
    banks and financial institutions was by filing
    applications to the Tribunal. The Tribunal has been
    established with the sole object to provide speedy
    remedy for recovery of debts of the banks and
    financial institutions since there has been
    considerable difficulties experienced therefor from
    normal remedy of civil court.
  16. In R.C. Cooper v. Union of India, (1970) 1 SCC
    248, this Court observed that power to legislate for
    setting up corporations to carry on banking and
    other business and to acquire, hold and dispose of
    property and to provide for administration of the
    corporations is conferred upon Parliament by
    Entries 43, 44 and 45 of the Constitution. Therefore,
    the express exclusion of cooperative societies in
    Entry 43 of List I and the express inclusion of
    cooperative societies in Entry 32 of List II separately
    and apart from but along with corporations other
    than those specified in List I and universities,
    clearly indicated that the constitutional scheme was
    designed to treat cooperative societies as
    institutions distinct from corporations. Cooperative
    societies, incorporation, regulation and winding up
    are State subjects in the ambit of Entry 32 of List II
    of the Seventh Schedule to the Constitution of India.
    Cooperatives form a specie of genus “corporation”
    and as such cooperative societies with objects not
    confined to one State are read in with the Union List
    as provided in Entry 44 of List I of the Seventh
    Schedule of the Constitution; the MSCS Act, 2002
    governs such multi­State cooperatives. Hence, the
    cooperative banks performing functions for the
    public with a limited commercial function as
    opposed to corporate banks cannot be covered by
    114
    Entry 45 of List I dealing with “banking”. The
    subject of cooperative societies is not included in the
    Union List rather it is covered under Entry 32 of List
    II of the Seventh Schedule appended to the
    Constitution.”
    The Court distinguished the decision in Delhi High Court Bar
    Association (supra) thus:
    “95. Union of India v. Delhi High Court Bar Assn.,
    (2002) 4 SCC 275, relied upon on behalf of the
    respondents in support of the judgments and orders
    of the High Court of Bombay and the High Court of
    Andhra Pradesh, does not consider the issue of
    cooperative banks’ adjudication and recovery
    provisions under Entry 32 of List II. The Court was
    only considering Entry 45, List I vis­à­vis Entry II­A,
    List III “administration of justice”. As such, the
    decision of this case is of no assistance or of help to
    the proposition of law involved in the present cases.”
  17. In Greater Bombay Coop. Bank Ltd. (supra), the Court relied
    upon the decisions in Sant Sadhu Singh v. State of Punjab37
    , and
    Nagpur District Central Cooperative Bank Ltd. v. Divisional Joint
    Registrar, Cooperative Societies38. In Sant Sadhu Singh (supra), the
    amendment made to the Punjab Co­operative Societies Act, 1961,
    which curtailed the rights and powers of the shareholders in managing
    the co­operative society, was under challenge. Thus, the question
    involved was related to the management aspect of the bank governed
    by the Co­operative Societies Act for which State had the exclusive
    legislative competence under Entry 32 of List II. Whereas in Nagpur
    District Central Cooperative Bank Ltd. (supra), the question arose
    37 AIR 1970 P&H 528
    38 AIR 1971 Bom 365
    115
    whether Registrar had the power under Section 78 of the Maharashtra
    Co­operative Societies Act to issue show cause notice to any
    committee of the society or any member of such committee including
    the Directors in respect of any default or negligence in the
    performance of the duties imposed on it or him by the Act or the rule
    or the bye­laws and power of the Registrar to remove the Committee or
    the members thereof if any such action is called for. The argument
    was rejected that the co­operative societies indulged in the banking
    business, hence, the State did not have the legislative competence
    under Entry 32 of List II, and only the Parliament had the legislative
    competence under Entry 45 of List I. The question involved as to
    management was clearly covered under Entry 32 of List II. It was with
    respect to incorporation, management, and winding up of a society.
    Thus, both the abovementioned decisions could not be said to be
    applicable with regard to the aspect of banking and were wrongly
    relied upon while forming an opinion in Greater Bombay Coop. Bank
    Ltd. (supra).
  18. At the same time, we are unable to accept the argument raised
    on behalf of the respondents. The SARFAESI Act is relatable to Entry 6
    of List III considering the provisions contained in Sections 69 and 69A
    of the Transfer of Property Act, 1882. We are of the opinion that it
    relates to Entry 45 of List I of the Seventh Schedule of the
    Constitution of India.
    116
  19. Learned Counsel for the appellants has also placed reliance on
    Virendra Pal Singh (supra), in which the provisions relating to the
    recruitment, emoluments, terms, and conditions of service, including
    disciplinary control of employees working in the co­operative societies
    involved in the banking were considered. Thus, the question of
    management/regulation of the co­operative societies was involved. The
    aspect of the banking business of the co­operative banks was not
    involved. A question was raised as to the legislative competence of the
    State to enact. In that context, the Court held that, in pith and
    substance, the U.P. Co­operative Societies Act dealt with
    incorporation, management and winding up and that if it incidentally
    trenches upon banking, would not take the legislation beyond the
    competence of the State Legislature. For the proper financing and
    effective functioning of co­operative societies, there must also be cooperative societies that do banking business to facilitate the working
    of other co­operative societies merely because they do banking
    business, they do not cease to be co­operative societies. It was opined:
    “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 MoneyLenders Act fell within Entry 27 in List II of the
    Seventh Schedule to the Government of India Act,
    1935, which was “money­lending”, in respect of
    which the provincial legislature was competent to
    117
    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 Money­Lenders 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 money­lending. 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 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 and Sant Sadhu Singh
    v. State of Punjab, AIR 1970 P & H 528.”
    In the aforesaid decision, it was held that under the U.P. Cooperative Societies Act, the State was competent under Entry 32 of
    118
    List II to deal with incorporation, regulation and winding up of cooperative banks. However, the main aspect of the activity of the cooperative bank relating to banking was covered by the BR Act, 1949,
    and the Reserve Bank of India Act, which legislations are related to
    Entries 45 and 38 of List I of the Seventh Schedule. The aspects of
    ‘incorporation, regulation and winding up’ are covered under Entry 32
    of List II of the Seventh Schedule. In our opinion, the activity of
    banking by such bankers is covered by Entry 45 of List I considering
    the Doctrine of Pith and Substance, and also considering the
    incidental encroachment on the field reserved for State is permissible.
  20. The concept of regulating non­banking affairs of society and
    regulating the banking business of society are two different aspects
    and are covered under different Entries, i.e., Entry 32 of List II and
    Entry 45 of List I, respectively. The law dealing with regulation of
    banking is traceable to Entry 45 of List I and only the Parliament is
    competent to legislate. The Parliament has enacted the SARFAESI
    Act. It does not intend to regulate the incorporation, regulation, or
    winding up of a corporation, company, or co­operative bank/cooperative society. It provides for recovery of dues to banks, including
    co­operative banks, which is an essential part of banking activity. The
    Act in no way trenches on the field reserved under Entry 32 of List II
    and is a piece of legislation traceable to Entry 45 of List I. The
    119
    decision in Virendra Pal Singh (supra) has been rendered regarding
    service regulations. It does not apply to the instant case concerning
    the regulation of ‘banking’ covered under Entry 45 of List I. The Court
    did not deal with the aspect of the regulation of banking in the said
    decision as it was not required to be decided. Thus, the ratio of the
    decision operates in a different field. Moreover, the U.P. Co­operative
    Services Act was saved on the ground of incidental trenching on the
    subject of another list, i.e., Entry 45 List I, which is permissible.
    IN REFERENCE QUESTION NO.2:
  21. The next question is of the effect of Section 56(a) on the
    definition of ‘banking company’ as defined in Section 5(1)(b) of the BR
    Act, 1949. It is necessary to consider the definition of ‘banking’ as
    contained in the SARFAESI Act. The term ‘bank’ has been defined in
    Section 2(1)(c) to mean ‘banking company’, a corresponding new bank,
    a subsidiary bank or a multi­State co­operative bank or such other
    bank which the Central Government may by notification specify for
    the Act. The term ‘banking company’ under Section 2(d) shall have
    the meaning assigned to it in Section 5(c) of the BR Act, 1949. Thus,
    the definition of ‘banking company’ stands incorporated in Section 2(1)
    (d) of the SARFAESI Act, which came into force on 21.6.2002. Section
    56(a) was incorporated in the BR Act, 1949 by Act No.23 of 1965,
    w.e.f. 1.3.1966. On that date, Section 56(a) became part of the
    statute. Section 5(c) of the BR Act, 1949 defines ‘banking company’
    120
    means any company which transacts the business of banking. By
    virtue of Section 56(a), a reference to a ‘banking company’ or ‘the
    company’ or ‘such company’ shall be construed as references to a cooperative bank for the application of the Act to the co­operative banks.
    Section 5(c) was not amended, and other provisions were also not
    amended where they were placed. However, amendments were
    incorporated by a different Chapter V by way of various provisions
    incorporated in Section 56 as it was necessary to retain certain
    provisions in the existing form as they applied to other banks and
    companies considering that the amendments and certain
    modifications which were necessary and were extensively required.
    The provisions in amended form in their application to the cooperative banks were separately provided. When the BR Act, 1949
    was applied to the co­operative bank, all the provisions under the Act
    concerning ‘incorporation, regulation and winding up’ were omitted
    insofar as the Act of 1949 is applied to co­operative banks, though
    they continue to exist in the Act for other entities but not concerning
    co­operative banks. It was mentioned in the advice given to the
    President under Article 117 that these matters were specifically not
    covered under Entry 45 of List I of the Seventh Schedule and formed
    the subject­matter of Entry 32 of List II. Thus, when we apply the
    provisions of the Act of 1949 to a co­operative bank, the definition of
    ‘banking company’ has to be read to include a co­operative bank.
    121
    Section 56(a) becomes part of Section 5(c), although it is located in a
    separate place. As only Part V of the Act applies to the co­operative
    banks, Section 56(a) amends the definition of the ‘banking company,’
    and it becomes an integral part of Section 5(c), as the full effect is
    required to be given.
  22. The aspect of incorporation by reference of earlier Act into later
    has been dealt with in the ‘Principles of Statutory Interpretation’, 12th
    Edition 2010 by Justice G.P. Singh at pages 318­320 thus:
    “Incorporation of an earlier Act into a later Act is a
    legislative device adopted for the sake of
    convenience in order to avoid verbatim reproduction
    of the provisions of the earlier Act into the later.39
    When an earlier Act or certain of its provisions are
    incorporated by reference into a later Act, the
    provisions so incorporated become part and parcel
    of the later Act as if they had been “bodily
    transposed into it”.40 The effect of incorporation is
    admirably stated by LORD ESHER, M.R.: “If a
    subsequent Act brings into itself by reference some
    of the clauses of a former Act, the legal effect of that,
    as has often been held, is to write those sections
    into the new Act as if they had been actually written
    in it with the pen, or printed in it.”
    41 The result is to
    constitute the later Act along with the incorporated
    39 Mary Roy v. State of Kerala, (1986) 2 SCC 209, p. 216 : AIR 1986 SC 1011;
    Nagpur Improvement Trust v. Amrik Singh, AIR 2002 SC 3499, p. 3512 : (2002) 7
    SCC 657.
    40 Ramsarup v. Munshi, AIR 1963 SC 553, p. 558 : 1963 (3) SCR 858 ; Nagpur
    Improvement Trust v. Amrik Singh, AIR 2002 SC 3499, p. 3512 : (2002) 7 SCC 657.
    41 Re, Wood’s Estate, Ex parte, Works and Buildings Commrs., (1886) 31 Ch D
    607, p. 615; Ram Kripal Bhagat v. State of Bihar, AIR 1970 SC 951, p. 957 : (1969)
    3 SCC 471; Bolani Ores Ltd. v. State of Orissa, AIR 1975 SC 17, p. 29 : 1975 (2)
    SCR 138 : (1974) 2 SCC 777 ; Mahindra and Mahindra Ltd. v. Union of India, AIR
    1979 SC 798, pp. 810, 811 : (1979) 2 SCC 529 ; Onkarlal Nandlal v. State of
    Rajasthan, (1985) 4 SCC 404, p. 415 : AIR 1986 SC 2146; Surana Steels Pvt. Ltd.
    v. Dy. Commissioner of Income­tax, AIR 1999 SC 1455, p. 1459 : (1999) 4 SCC 306
    (p. 233 of 7th edition of this book is approvingly quoted).
    122
    provisions of the earlier Act, an independent
    legislation which is not modified or repealed by a
    modification or repeal of the earlier Act.42 As
    observed by BRETT, J.: “Where a statute is
    incorporated, by reference, into a second statute,
    the repeal of the first statute by a third does not
    affect the second.”43 To the same effect is the
    statement by SIR GEORGE LOWNDES: “It seems to
    be no less logical to hold that where certain
    provisions from an existing Act have been
    incorporated into subsequent Act, no addition to the
    former Act, which is not expressly made applicable
    to the subsequent Act, can be deemed to be
    incorporated in it, at all events if it is possible for
    the subsequent Act to function, effectually without
    the addition.44 Ordinarily if an Act is incorporated in
    a later Act, the intention is to incorporate the earlier
    Act, with all the amendments made in it up to the
    date of incorporation.45 The rule that the repeal or
    amendment of the Act which is incorporated by
    reference in a later Act is not applicable for
    purposes of the later Act is subject to qualifications
    and exceptions.46 A distinction is in this context
    drawn between incorporation and mere reference of
    an earlier Act into a later Act.47 Further, a
    42 Narottamdas v. State of M.P., AIR 1964 SC 1667, p. 1670 : (1964) 7 SCR 820;
    Bolani Ores Ltd. v. State of Orissa, supra; Mahindra and Mahindra Ltd. v. Union of
    India, supra; Nagpur Improvement Trust v. Amrik Singh, supra ; Sneh Enterprises
    v. Commr. of Customs, (2006) 7 SCC 714 (para 13) : (2006) 8 JT 587 : (2006) 7 SLT
    615 (passage from 10th edition of this book is approvingly quoted).
    43 Clarke v. Bradlaugh, (1881) 8 QBD 63, p. 69; referred to in Ramsarup v.
    Munshi, AIR 1963 SC 553, p. 558 : (1963) 3 SCR 858; Collector of Customs,
    Madras v. Nathelal Sampathu Chetty, AIR 1962 SC 316, p. 334 : (1962) 3 SCR 786.
    See further Jethanand Betab v. State of Delhi, AIR 1960 SC 89, pp. 91, 92 : (1960)
    1 SCR 755; Bolani Ores Ltd. v. State of Orissa, supra; Mahindra and Mahindra Ltd.
    v. Union of India, supra; Nagpur Improvement Trust v. Amrik Singh, supra .
    44 Secretary of State v. Hindustan Co­operative Insurance Society Ltd., AIR 1931
    PC 149, p. 152. Referred to in Chairman of the Municipal Commrs. of Howrah v.
    Shalimar Wood Products (Private) Ltd., AIR 1962 SC 1691, p. 1694 : 1963 (1) SCR
    47; Bolani Ores Ltd. v. State of Orissa, AIR 1975 SC 17, p. 29 : 1974 (2) SCC 777 ;
    Mahindra and Mahindra Ltd. v. Union of India, AIR 1979 SC 798, pp. 810, 811 :
    (1979) 2 SCC 529.
    45 State of Maharashtra v. Madhavrao Damodar Patil, AIR 1968 SC 1395, p. 1400 :
    1968 (3) SCR 712.
    46 See text and notes 9­41, pp. 324­332.
    47 See text and notes 14­21, pp. 326­328.
    123
    distinction is also drawn when what is referred to is
    not an earlier Act or any provision from it but law on
    a subject in general.48 There is, however, no
    controversy on the point that when any Act or rules
    are adopted in any later Act or rules, such adoption
    normally whether by incorporation or mere
    reference takes in all the amendments in the earlier
    Act or rules till the date of adoption.49

    The present one is a case of incorporation by reference in the
    same Act by a subsequent amendment in the application to cooperative banks. When we apply the provisions of Section 5(c) to the
    co­operative banks, we have to read the co­operative banks as part
    and parcel of said definition as mandated statutorily. In case a
    company is not taken as a reference to the co­operative
    societies/banks in Section 5(c), several problems as to the
    interpretation of Section 56 would arise. It would have become
    necessary to amend all the provisions wherever words ‘banking
    company’ occur in the BR Act, 1949 in the application to co­operative
    banks.
  23. With respect to legislative device of incorporation by reference in
    Mary Roy, etc. v. State of Kerala and Ors.50
    , the Court held:
    “7. … The legislative device of incorporation by
    reference is a well­known device where the
    legislature instead of repeating the provisions of a
    particular statute in another statute incorporates
    48 See text and notes 10­13, pp. 325, 326.
    49 Rajasthan State Road Transport Corporation Jaipur v. Poonam Pahwa, AIR 1997
    SC 2951, p. 2957 : 1997 (6) SCC 100. Also see text and note 80, supra.
    [For convenience, citations have been renumbered.]
    50 AIR 1986 SC 1011: (1986) 2 SCC 209
    124
    such provisions in the latter statute by reference to
    the earlier statute. It is a legislative device adopted
    for the sake of convenience in order to avoid
    verbatim reproduction of the provisions of an earlier
    statute in a later statute. But when the legislature
    intends to adopt this legislative device the language
    used by it is entirely distinct and different from the
    one employed in S.29 sub­sec.(2) of the Indian
    Succession Act, 1925. The opening part of S.29 subsec. (2) is intended to be a qualificatory or excepting
    provision and not a provision for incorporation by
    reference. We have no hesitation in rejecting this
    contention urged on behalf of the respondents.”
  24. In U.P. Avas Evam Vikas Parishad v. Jainul Islam and Anr.51
    , it
    was observed:
    “The determination if a legislation was by way of
    incorporation or reference is more a matter of
    construction by the Courts keeping in view the
    language employed by the Act, the purpose of
    referring or incorporating provision of an existing
    Act and the effect of it on the day­to­day working.
    Reason for it is the Courts prime duty to assume
    that any law made by the Legislature is enacted to
    serve public interest.”
  25. In Portsmouth Corporation v. Smith52
    , it was opined:
    “Where a single section of an Act of Parliament is
    introduced into another Act, I think, it must be read
    in the sense which it bore in the original Act from
    which it is taken, and that consequently it is
    perfectly legitimate to refer to all the rest of that Act
    in order to ascertain what the section meant,
    though those other sections are not incorporated in
    the new Act.”
    Lord Blackburn further observed thus:
    “I do not mean that if there was in the original Act a
    section not incorporated, which came by way of a
    proviso or exception on that which is incorporated,
    that should be referred to, but all others, including
    the interpretation clause, if there be one, may be
    51 AIR 1998 SC 1028
    52 (1885) 10 AC 364
    125
    referred to. It is dangerous mode of draftsmanship
    to incorporate a section from a former Act, for
    unless the draftsman has a much clearer
    recollection of the whole of the former Act than can
    always be excepted, there is great risk that
    something may be expressed which was not
    intended.””
  26. In Surana Steels Pvt. Ltd. v. Dy. Commissioner of Income Tax and
    Ors.53
    , it was held that provision is bodily listed and stands
    incorporated and plain rule of interpretation to be applied:
    “12. Once we have ascertained the object behind the
    legislation and held that the provisions of Section
    205 quoted hereinabove stand bodily lifted and
    incorporated into the body of Section 115J of the
    Income Tax Act, all that we have to do is to read the
    provisions plainly and apply rules of interpretation if
    any ambiguity survives. Section 205(1) first proviso
    Clause (b), of the Companies Act brings out the
    unabsorbed portion of the amount of depreciation
    already provided for computing the loss for the year.
    The words “the amount provided for depreciation”
    and “arrived at in both cases after providing for
    depreciation” make it abundantly clear that in this
    clause “loss” refers to the amount of loss arrived at
    after taking into account the amount of depreciation
    provided in the profit and loss account.”
    (emphasis supplied)
  27. In Secretary of State v. Hindustan Cooperative Insurance Society
    Ltd.54
    , the Privy Council held:
    “……….In this country it is accepted that where a
    statute is incorporated by reference into a second
    statute, the repeal of the first statute does not affect
    the second: see the cases collected in “Craies on
    Statute Law”. This doctrine finds expression in a
    common form section which regularly appears in the
    Amending and Repealing Acts which are passed
    53 (1999) 4 SCC 306
    54 AIR 1931 PC 149
    126
    from time to time in India. The section runs.
    “The repeal by this Act of any enactment shall not
    affect any Act in which such enactment has been
    applied, incorporated or referred to;”
    The independent existence of the two Acts is
    therefore recognized, despite the death of the parent
    Act, its offspring survives in the incorporating Act.
    Though no such saving clause appears in the
    General Clauses Act, their lordships think that the
    principle involved is as applicable in India as it is in
    this country.
    It seems to be no less logical to hold that where
    certain provisions from an existing Act have been
    incorporated into a subsequent Act which is not
    expressly made applicable to the subsequent Act,
    can be deemed to be incorporated in it, at all events
    if it is possible for the subsequent Act to function
    effectually without the addition.”
  28. In Ram Sarup and Ors. v. Munshi and Ors.55
    , it was opined:
    “(11) The problem here raised is dependent upon
    the construction which the several provisions
    which we have set out earlier would bear after the
    repeal of the Punjab Alienation of Land Act, 1900.
    One thing is clear and that is that the authority
    which enacted the repeal of the Punjab Alienation
    of Land Act did not consider that Punjab Act 1 of
    1913 had itself to be repealed. We shall now
    consider the effect of the repeal of the Punjab
    Alienation of Land Act with reference to each of the
    provisions:—
    (1) Definition of ‘agricultural land’ under S. 3(1):
    Where the provisions of an Act are incorporated
    by reference in a later Act the repeal of the earlier
    Act has, in general, no effect upon the construction
    or effect of the Act in which its provisions have
    been incorporated. The effect of incorporation is
    stated by Brett, L.J. in Clarke v Bradlugh, (1881) 8
    QBD 63:
    “Where a statute is incorporated, by
    reference, into a second statute the repeal of the
    55 AIR 1963 SC 553
    127
    first statute by a third does not affect the
    second.”
    In the circumstances, therefore, the repeal of the
    Punjab Alienation of Land Act of 1900 has no effect
    on the continued operation of the Pre­emption Act
    and the expression ‘agricultural land’ in the later
    Act has to be read as if the definition in the
    Alienation of Land Act had been bodily transposed
    into it. Section 2 of the Punjab Alienation of Land
    Act, 1900, as amended by Act 1 of 1907 defined
    ‘land’ as follows:
    “The expression ‘land’ means land which is
    not occupied as the site of any building in a
    town or village and is occupied or let for
    agricultural purposes or for purposes
    subservient to agriculture or for pasture, and
    includes…………………………………………..
    ………………………..”
    It is not in dispute that the land concerned in
    the claim for pre­emption made in the appeal
    satisfies this definition.”
  29. It is apparent that in order to avoid verbatim reproduction of the
    earlier provisions, which did not apply to a co­operative bank, a device
    was carved out in Section 56(a) to read ‘company’ as ‘banking
    company’ or ‘the company’ or ‘such company’ as references to a cooperative bank. If the definition in Section 5(c) and interpretation
    clause are not read as incorporated and having been amended, the
    interpretation clause and the entire amendment of Part V will become
    unworkable. It was not practical to amend the entire Act of 1949 as it
    dealt with ‘incorporation, regulation and winding up’ of other entities
    relatable to List I, as such the provisions were required to be retained,
    and such matters concerning co­operative societies/banks, relatable
    128
    subject­matter under Entry 32 of List I of the Seventh Schedule of the
    Constitution of India, were to be excluded. As various provisions were
    to be omitted in their application to the co­operative societies and
    other provisions were to apply in a modified form, the amendments
    were made in the provisions in their application to the co­operative
    banks by providing a separate Chapter. Thus, it was not considered
    necessary nor would have been appropriate to amend the definition of
    Section 5(c) where it existed, in fact it was so amended in Section
    56(a). Entire Chapter V was enacted concerning the application of the
    Act to the co­operative banks and has to be given full effect. Merely
    because the procedure for recovery of dues is provided in the Cooperative Societies Act, could not have come in the way of
    interpretation of that expression ‘co­operative bank’ which was
    included in the definition and interpretation clause of Section 5 of the
    BR Act, 1949. It was open to the Parliament to deal with the subject
    of ‘banking’ in Entry 45 of List I and this Court in Greater Bombay
    Coop. Bank Ltd. (supra) itself opined that the BR Act, 1949 applies to
    co­operative banks which is the enactment related to Entry 45 of List I
    and third proviso to Article 243­ZL(1) of the Constitution of India also
    provides that the BR Act shall also apply. Thus, the Parliament
    considered it appropriate to provide additional remedy for speedy
    recovery which is an alternative even if there is an incidental
    encroachment on the field reserved for the State under Entry 32 of
    129
    List II, as in pith and substance, the ‘banking’ is part of Entry 45 of
    List I and recovery procedure is covered within the ken of Entry 45 of
    List I. Thus, considering the Doctrine of Pith and Substance and
    incorporation by amendment made, we are of the considered opinion
    that co­operative banks are included in the definition of ‘bank’ and
    ‘banking company’ under Section 2(1)(c) and 2(1)(d) of the SARFAESI
    Act.
  30. In Greater Bombay Coop. Bank Ltd. (supra) concerning the BR
    Act, 1949, it was held:
    “39. Chapter V of the BR Act was inserted by Act 23
    of 1965 w.e.f. 1­3­1966. Section 56 of the Act
    provides that the provisions of this Act, as in force
    for the time being, shall apply to, or in relation to,
    banking companies subject to the following
    modifications, namely:
    “56. (a) throughout this Act, unless the context
    otherwise, requires,—
    (i) references to a ‘banking company’ or ‘the
    company’ or ‘such company’ shall be construed as
    references to a cooperative bank;
    (ii)* * *”
    The purpose and object of modifications were to
    regulate the functioning of the cooperative banks in
    the matter of their business in banking. The
    provisions of Section 56 itself start with the usual
    phrase “unless the context otherwise requires” is to
    make the regulatory machinery provided by the BR
    Act to apply to cooperative banks also. The object
    was not to define a cooperative bank to mean a
    banking company, in terms of Section 5(c) of the BR
    Act. This is apparent from the fact that instead of
    amending the original clause (c) of Section 5
    separate clause (cci) was added to cover the
    “cooperative bank” to mean “a State cooperative
    bank, a Central cooperative bank and a primary
    cooperative bank”. In clause (ccv) “primary
    130
    cooperative bank” means “a cooperative society,
    other than a primary agricultural credit society”.
    The primary object or principal business of the
    “cooperative bank” should be the transaction of
    banking business.
  31. The modifications given in clause (a) of Section
    56 are apparently suitable to make the regulatory
    machinery provided by the BR Act to apply to
    cooperative banks also in the process of bringing the
    cooperative banks under the discipline of Reserve
    Bank of India and other authorities. A cooperative
    bank shall be construed as a banking company in
    terms of Section 56 of the Act. This is because the
    various provisions for regulating the banking
    companies were to be made applicable to
    cooperative banks also. Accordingly, Section 56
    brought cooperative banks within the machinery of
    the BR Act but did not amend or expand the
    meaning of “banking company” under Section 5(c).
    On a plain reading of every clause of Section 56 of
    the BR Act, it becomes clear that what is contained
    therein is only for the purpose of application of
    provisions that regulate banking companies to
    cooperative societies. According to the expression
    “cooperative societies” used in Section 56 means a
    “cooperative society”, the primary object or principal
    business of which is the transaction of banking
    business. In other words, first it is a cooperative
    society, but carrying on banking business having
    the specified paid­up share capital. Other definitions
    also make it clear that the entities are basically
    cooperative societies.”
    (a) Concerning the SARFAESI Act, following observations were
    made:
    “41. Parliament had enacted the Securitisation and
    Reconstruction of Financial Assets and Enforcement
    of Security Interest Act, 2002 (“the Securitisation
    Act”) which shall be deemed to have come into force
    on 21­6­2002. In Section 2(d) of the Securitisation
    Act same meaning is given to the words “banking
    company” as is assigned to it in clause (e) of Section
    5 of the BR Act. Again the definition of “banking
    company” was lifted from the BR Act but while
    defining “bank”, Parliament gave five meanings to it
    131
    under Section 2(c) and one of which is “banking
    company”. The Central Government is authorised by
    Section 2(c)(v) of the Act to specify any other bank
    for the purpose of the Act. In exercise of this power,
    the Central Government by notification dated 28­1­
    2003, has specified “cooperative bank” as defined in
    Section 5(cci) of the BR Act as a “bank” by lifting the
    definition of “cooperative bank” and “primary
    cooperative bank” respectively from Section 56,
    clauses 5(cci) and (ccv) of Part V. Parliament has
    thus consistently made the meaning of “banking
    company” clear beyond doubt to mean “a company
    engaged in banking, and not a cooperative society
    engaged in banking” and in Act 23 of 1965, while
    amending the BR Act, it did not change the
    definition in Section 5(c) or even in Section 5(d) to
    include cooperative banks; on the other hand, it
    added a separate definition of “cooperative bank” in
    Section 5(cci) and “primary cooperative bank” in
    Section 5(ccv) of Section 56 of Part V of the BR Act.
    Parliament while enacting the Securitisation Act
    created a residuary power in Section 2(c)(v) to
    specify any other bank as a bank for the purpose of
    that Act and in fact did specify “cooperative banks”
    by notification dated 28­1­2003.
  32. The context of the interpretation clause plainly
    excludes the effect of a reference to banking
    company being construed as reference to a
    cooperative bank for three reasons: firstly, Section 5
    is an interpretation clause; secondly, substitution of
    “cooperative bank” for “banking company” in the
    definition in Section 5(c) would result in an
    absurdity because then Section 5(c) would read
    thus: “cooperative bank” means any company,
    which transacts the business of banking in India;
    thirdly, Section 56(c) does define “cooperative bank”
    separately by expressly deleting/inserting clause
    (cci) in Section 5. Parliament in its wisdom had not
    altered or modified the definition of “banking
    company” in Section 5(c) of the BR Act by Act 23 of
    1965.
  33. As noticed above, “cooperative bank” was
    separately defined by the newly inserted clause (cci)
    and “primary cooperative bank” was similarly
    separately defined by clause (ccv). The meaning of
    “banking company” must, therefore, necessarily be
    132
    strictly confined to the words used in Section 5(c) of
    the BR Act. If the intention of Parliament was to
    define the “cooperative bank” as “banking
    company”, it would have been the easiest way for
    Parliament to say that “banking company” shall
    mean “banking company” as defined in Section 5(c)
    and shall include “cooperative bank” and “primary
    cooperative bank” as inserted in clauses (cci) and
    (ccv) in Section 5 of Act 23 of 1965.”
    (b) Concerning incorporation by reference to Section 56 (a) of the BR
    Act, 1949, it was opined:
    “70. The dues of cooperatives and recovery
    proceedings in connection therewith are covered by
    specific Acts, such as the MCS Act, 1960 and the
    APCS Act, 1964, which are comprehensive and selfcontained legislations. Similarly, for multi­State
    cooperatives there is a specific enactment in the
    form of the MSCS Act, 2002 comprehensively
    providing the legal framework in respect to issues
    pertaining to such cooperatives. Therefore, when
    there is an admittedly existing legal framework
    specifically dealing with issues pertaining to
    cooperatives and especially when the cooperative
    banks are, in any case, not covered by the
    provisions of the RDB Act specifically, there is no
    justification of covering the cooperative banks under
    the provisions of the RDB Act by invoking the
    doctrine of incorporation.”
    (c) Regarding the definition of ‘banking company’ in the BR Act,
    1949, it was observed:
    “73. The RDB Act was passed in 1993 when
    Parliament had before it the provisions of the BR Act
    as amended by Act 23 of 1965 by addition of some
    more clauses in Section 56 of the Act. Parliament
    was fully aware that the provisions of the BR Act
    apply to cooperative societies as they apply to
    banking companies. Parliament was also aware that
    the definition of “banking company” in Section 5(c)
    had not been altered by Act 23 of 1965 and it was
    kept intact, and in fact additional definitions were
    133
    added by Section 56(c). “Cooperative bank” was
    separately defined by the newly inserted clause (cci)
    and “primary cooperative bank” was similarly
    separately defined by clause (ccv). Parliament was
    simply assigning a meaning to words; it was not
    incorporating or even referring to the substantive
    provisions of the BR Act. The meaning of “banking
    company” must, therefore, necessarily be strictly
    confined to the words used in Section 5(c) of the BR
    Act. It would have been the easiest thing for
    Parliament to say that “banking company” shall
    mean “banking company” as defined in Section 5(c)
    and shall include “cooperative bank” as defined in
    Section 5 (cci) and “primary cooperative bank” as
    defined in Section 5(ccv). However, Parliament did
    not do so. There was thus a conscious exclusion
    and deliberate omission of cooperative banks from
    the purview of the RDB Act. The reason for
    excluding cooperative banks seems to be that
    cooperative banks have comprehensive, selfcontained and less expensive remedies available to
    them under the State Cooperative Societies Acts of
    the States concerned, while other banks and
    financial institutions did not have such speedy
    remedies and they had to file suits in civil courts.
  34. As already pointed out, the RDB Act is
    consistent with the general banks and their
    creditors/loanees while the MCS Act, 1960, the
    APCS Act, 1964 and the MSCS Act, 2002 are
    concerned with the regulation of societies only. The
    language of the sections in these enactments
    defining “banking company” is plain, clear and
    explicit. It does not admit any doubtful
    interpretation as the intention of the legislature is
    clear as aforesaid. It is well settled that the language
    of the statutes is to be properly understood. The
    usual presumption is that the legislature does not
    waste its words and it does not commit a mistake. It
    is presumed to know the law, judicial decisions and
    general principles of law. The elementary rule of
    interpretation of the statute is that the words used
    in the section must be given their plain grammatical
    meaning. Therefore, we cannot afford to add any
    words to read something into the section, which the
    legislature had not intended.
    134
  35. Finally, it could not be said that amendments in
    Chapter V, Section 56 of the BR Act by Act 23 of
    1965 inserting “cooperative bank” in clause (cci) and
    “primary cooperative bank” in clause (ccv) either
    expressly or by necessary intendment (sic make the
    RDB Act) apply to the cooperative banks transacting
    business of banking.”
    (d) The questions were answered thus:
    “97. For the reasons stated above and adopting
    pervasive and meaningful interpretation of the
    provisions of the relevant statutes and Entries 43,
    44 and 45 of List I and Entry 32 of List II of the
    Seventh Schedule of the Constitution, we answer
    the reference as under:
    “Cooperative banks” established under the
    Maharashtra Cooperative Societies Act, 1960 (the
    MCS Act, 1960), the Andhra Pradesh Cooperative
    Societies Act, 1964 (the APCS Act, 1964), and the
    Multi­State Cooperative Societies Act, 2002 (the
    MSCS Act, 2002) transacting the business of
    banking, do not fall within the meaning of
    “banking company” as defined in Section 5(c) of
    the Banking Regulation Act, 1949 (the BR Act).
    Therefore, the provisions of the Recovery of Debts
    Due to Banks and Financial Institutions Act,
    1993 (the RDB Act) by invoking the doctrine of
    incorporation are not applicable to the recovery of
    dues by the cooperatives from their members.”
    No doubt about it that certain observations made in the
    aforesaid decision support the case set up by the appellants.
  36. Before we deal with the decision, in Greater Bombay Coop. Bank
    Ltd. (supra), it was noted that ‘co­operative bank’ was defined in
    Section 56(cci) of the BR Act, 1949; thus, the object was not to define
    co­operative bank to mean banking company; that is why the original
    Section 5(c) was not amended. Another ground employed concerning
    the definition of the ‘co­operative bank’ was that the modifications
    135
    made by way of Section 56 were apparently suitable to make the
    regulatory machinery provided by the BR Act, 1949, to apply to cooperative banks also. It was opined that a co­operative bank to be
    construed as a banking company in terms of Section 56 of the BR Act,
    1949, because various provisions were made applicable to co­operative
    banks also. At the same time, it was held that Section 56 brought cooperative banks within the machinery of the BR Act, 1949, but it did
    not amend or expand the meaning of ‘banking company’ under Section
    5(c). It was further observed that the entities doing banking are
    basically co­operative societies. Regarding the SARFAESI Act, it was
    observed in paragraph 41 of the decision quoted above that meaning
    of ‘banking company’ is a company engaged in banking and not a ‘cooperative society’ engaged in banking. The Parliament did not alter or
    modify the meaning of ‘banking company’ under Section 5(c) of the BR
    Act, 1949 by Act No.23 of 1965. The meaning of ‘banking company’
    has to be confined to the words used in Section 5(c) of the BR Act,
  37. It was emphasised that there was already a procedure
    prescribed for recovery of dues by banks under the Co­operative
    Societies Act. The RDB Act, 1993, refers to the transfer of ‘every suit
    or other proceeding pending before any court.’ The word ‘court’ in the
    context of the RDB Act, 1993, signifies ‘civil court.’ It is clear that the
    Registrar or an officer designated by him or an arbitrator under
    Sections 61, 62, 70, and 71 of the Andhra Pradesh Co­operative
    136
    Societies Act, 1964 and under Section 91 and other provisions of
    Maharashtra Co­operative Societies Act, 1960 are not ‘civil courts.’
    Thus, it was opined that the RDB Act, 1993 is consistent with the
    general banks and their creditors/loaners where the Maharashtra Cooperative Societies Act, 1960; the Andhra Pradesh Co­operative
    Societies Act, 1964 and the MSCS Act are concerned with the
    regulation of co­operative societies only. Due to the amendments in
    Chapter V of the BR Act, 1949 inserting ‘co­operative bank’ in clause
    (cci) to Section 56 and ‘primary co­operative bank’ in clause (ccv) to
    Section 56 it could not be said that RDB Act, 1993 applies to the cooperative banks transacting the business of banking.
  38. In Greater Bombay Coop. Bank Ltd. (supra), the provisions of the
    BR Act, 1949 were simply noted; there was no in­depth consideration
    of the various provisions and, more particularly of those contained in
    Section 56 of the Act. The main issue was whether the court had
    jurisdiction or Debts Recovery Tribunal to recover the amount from
    the debtor. In that connection, the question of application of RDB Act,
    1993 to the co­operative societies constituted under MSCS Act as well
    as State Co­operative Acts arose and also whether the State legislature
    was competent to enact legislation concerning co­operative societies
    incidentally transacting the business of banking in the light of Entry
    32 of List II. The findings were recorded on various aspects with which
    we are unable to agree. The discussion on various issues was not in­
    137
    depth, could not be said to be binding. We have dealt with the various
    questions with the help of various decisions of this Court, and we find
    ourselves unable to agree with the conclusions recorded therein. The
    co­operative banks are doing the banking business, it could not be
    said to be an incidental activity but main and only activity. We are
    unable to subscribe to the view taken in Greater Bombay Coop. Bank
    Ltd. (supra) as the provisions were not correctly appreciated.
  39. The reason is given in Greater Bombay Coop. Bank Ltd. (supra)
    that comprehensive machinery is provided in the State Act, could not
    have come in the way of Parliament enacting a law as to recovery
    within the purview of ‘banking’ in Entry 45 of List I as the same is its
    essential part. Even incidental trenching upon other fields cannot
    invalidate legislation. Equally futile is the argument that the
    Parliament did not amend Section 5(c) of the BR Act, 1949; in fact, the
    Parliament did so under Section 56(a) concerning its application to cooperative banks. A large number of provisions added in Chapter V by
    way of amending Section 56 cannot be ignored and set at naught. The
    extensive amendments made in Part V of the BR Act, 1949, have to be
    given full effect. In case co­operative banks are kept outside the
    purview of the BR Act, 1949, and other legislation under Entry 45 and
    RBI Act, no licence can be granted, and they cannot do banking as
    that is not permissible without compliance of various provisions as
    provided in the BR Act, 1949. They would have to close down and
    138
    stop the business forthwith.
  40. The co­operative banks, which are governed by the BR Act,
    1949, are involved in banking activities within the meaning of Section
    5(b) thereof. They accept money from the public, repayable on
    demand or otherwise and withdrawal by cheque, draft, order or
    otherwise. Merely by the fact that lending of money is limited to
    members, they cannot be said to be out of the purview of banking.
    They perform commercial functions. A society shall receive deposits
    and loans from members and other persons. They give loans also, and
    it is their primary function. Thus, they are covered under ‘banking’ in
    Entry 45 of List I.
    IN REFERENCE QUESTION NOS. 3(a) AND 3(b)
  41. Learned Counsel appearing on behalf of appellants argued that
    securitisation is not a banking business. The SARFAESI Act is to
    regulate securitisation and reconstruction of financial assets.
    Emphasis was laid on the financial assets and financial assistance.
    The definition of ‘debt’ in Section 2(1)(ha) of the SARFAESI Act is the
    same as defined in Section 2(g) of the RDB Act, 1993, the ‘debt’ is
    defined as any liability which is claimed as due during any business
    activity undertaken by the bank or the financial institution. In our
    opinion, the submission ignores and overlooks the purpose of the
    SARFAESI Act, i.e., enforcement of security interest, and that is
    139
    precisely sought to be achieved by Section 13 without the intervention
    of the court. Since the activity of a co­operative bank is banking
    regulated by the law enacted within the relatable Entry 45 of List I, we
    find no reason as to why the Parliament lacked the competence to
    enact the SARFAESI Act and to provide a procedure for the speedy
    recovery of dues. The SARFAESI Act also covers the activities
    undertaken by the co­operative banks. The co­operative banks are
    doing banking business under Section 5(b) of the BR Act, 1949, and
    the exclusion of the co­operative societies from Entry 43 of List I, does
    not have any bearing regarding the interpretation of Entry 45 of List I.
  42. Even assuming for the time being that definition of ‘bank’ in
    Section 5(c) of the BR Act, 1949 did not cover the co­operative banks;
    the expression ‘bank’ has been defined in the SARFAESI Act under
    Section 2(1)(c), and the provisions contained in Section 2(1)(c)(v)
    authorises the Central Government to specify ‘such other bank’ for
    that Act. Thus, the notification issued on 28.1.2003 notifying ‘cooperative bank’ as the ‘bank’ is covered by Entry 45 of List I as they
    are regulated by the BR Act, 1949, and the RBI Act. For the ‘banking’
    activity under Entry 45 of List I, the Parliament had the power to
    enact such a provision defining ‘bank’ to authorise and prescribe the
    recovery procedure for such a bank as provided in Section 13 of the
    SARFAESI Act; However, we are of the view that co­operative
    societies/banks stand included by incorporation in Section 5(1)(c) of
    140
    the BR Act and the notification was issued ex abundanti cautela. By
    virtue of Section 56(a), co­operative banks, as defined in Section
    56(cci) of the BR Act, 1949, are included in Section 5(1)(c). Similarly,
    multi­State co­operative banks were also covered.
  43. The earlier procedure for recovery of dues was differently
    provided for general banks and the co­operative banks through the
    Civil Court or Tribunal. In the SARFAESI Act, a procedure has been
    prescribed under Section 13 without the intervention of the
    court/tribunal to keep pace with the time. Thus, the malady of
    inordinate delay with which the order of civil court suffered as well as
    of the co­operative tribunals or summary procedure under the Cooperative Societies Act, was sought to be redressed. Apart from that,
    it is permissible for the Parliament to enact the law to provide recovery
    procedures for bank dues that have been done by providing speedy
    recovery of secured interest without intervention of the court/tribunal.
  44. In Soma Suresh Kumar v. Government of Andhra Pradesh and
    Ors.56
    , it was observed that there were several occasions when the laws
    enacted by the State as well as by the banking regulation carved out
    by Central Government acted in their field. This Court considered the
    Andhra Pradesh Protection of Depositors of Financial Establishments
    Act, 1999, and the effects of the BR Act, 1949. It was held that ambit
    56 (2013) 10 SCC 677
    141
    of respective Acts and field covered is required to be considered and it
    was permissible for the State legislature also to enact the provisions
    notwithstanding the BR Act, 1949 with respect to the matters which
    were not covered by the said Act to protect the interest of the
    investors. It was held that Andhra Pradesh Protection of Depositors of
    Financial Establishments Act, 1999, did not create any repugnancy to
    any Central law. It was observed:
    “6. Further, it is also pointed out that the Banking
    Regulations Act, enacted by the Central
    Government, to regulate the operation of banking
    companies or organisations, enables RBI to give
    licence to banking companies to carry out the
    functions of the Bank. It was pointed out that it
    covered different areas which are not common to the
    area covered by the Andhra Act. Further, it was
    pointed out that both the Acts have applicability to
    different aspects of refund to the depositors. The
    Banking Regulations Act, it is pointed out, was
    enacted to regulate the functioning of the banking
    companies, including Vasavi Cooperative Urban
    Bank Ltd. and that the petitioners have approached
    this Court challenging the validity of the Act so as to
    wriggle out of the clutches of law.”
  45. In K.K. Baskaran v. State Represented by its Secretary, Tamil
    Nadu, and Ors.57
    , the question arose concerning T.N. Protection of
    Interests of Depositors (in Financial establishments) Act, 1997. The
    said Act provided for a remedy to evils caused by fraudulent activities
    of financial establishments for which no redressal mechanism was
    provided in Central enactments. It was held that T.N. Protection of
    Interests of Depositors (in Financial establishments) Act, 1997, did not
    57 (2011) 3 SCC 793
    142
    entrench the field occupied by Section 58­A of Companies Act, 1956
    as the object of the 1997 Act was completely different. The Doctrine of
    Pith and Substance and its effect on the overlapping of fields occupied
    by Central and State Lists was considered. The relevant discussion is
    extracted hereunder:
    “18. It often happens that a legislation overlaps both
    List I as well as List II of the Seventh Schedule. In
    such circumstances, the doctrine of pith and
    substance is applied. We are of the opinion that in
    pith and substance the impugned State Act is
    referable to Entries 1, 30 and 31 of List II of the
    Seventh Schedule and not Entries 43, 44 and 45 of
    List I of the Seventh Schedule.
  46. It is well settled that incidental trenching in
    exercise of ancillary powers into a forbidden
    legislative territory is permissible vide the
    Constitution Bench decision of this Court in State of
    W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201
    [vide SCC paras 31(4), (5) & (6) and 129(5)]. Sharp
    and distinct lines of demarcation are not always
    possible and it is often impossible to prevent a
    certain amount of overlapping vide ITC Ltd. v. State
    of Karnataka, 1985 Supp SCC 476 (SCC para 17).
    We have to look at the legislation as a whole and
    there is a presumption that the legislature does not
    exceed its constitutional limits.
  47. The doctrine of pith and substance means that
    an enactment which substantially falls within the
    powers expressly conferred by the Constitution
    upon a legislature which enacted it cannot be held
    to be invalid merely because it incidentally
    encroaches on matters assigned to another
    legislature. The Court must consider what
    constitutes in pith and substance the true subjectmatter of the legislation. If on such examination it is
    found that the legislation is in substance one on a
    matter assigned to the legislature then it must be
    held to be valid even though it incidentally trenches
    on matters beyond its legislative competence, vide
    143
    Union of India v. Shah Goverdhan L. Kabra Teachers’
    College, (2002) 8 SCC 228 (SCC para 7).
  48. For applying the doctrine of pith and substance
    regard is to be had to the enactment as a whole, its
    main objects and the scope and effect of its
    provisions vide Special Reference No. 1 of 2001, In
    re, (2004) 4 SCC 489 (SCC para 15). For this
    purpose the language of the entries in the Seventh
    Schedule should be given the widest scope of which
    the meaning is fairly capable, vide State of W.B. v.
    Kesoram Industries Ltd., (2004) 10 SCC 201, [SCC
    para 31(4)], Union of India v. Shah Goverdhan L.
    Kabra Teachers’ College, (2002) 8 SCC 228 (SCC
    para 6) and ITC Ltd. v. State of Karnataka, 1985
    Supp SCC 476 (SCC para 17).”
  49. In M/s. Ujagar Prints and Ors. (II) v. Union of India and Ors.58
    , it
    was laid down that entries in the State legislature should be liberally
    construed and the Doctrine of Pith and Substance was considered
    thus:
    “48. Entries to the legislative lists, it must be
    recalled, are not sources of the legislative power but
    are merely topics or fields of legislation and must
    receive a liberal construction inspired by a broad
    and generous spirit and not in a narrow pedantic
    sense. The expression “with respect to” in Article
    246 brings in the doctrine of “Pith and Substance”
    in the understanding of the exertion of the
    legislative power and wherever the question of
    legislative competence is raised the test is whether
    the legislation, looked at as a whole, is substantially
    “with respect to” the particular topic of legislation. If
    the legislation has a substantial and not merely a
    remote connection with the entry, the matter may
    well be taken to be legislation on the topic.”
  50. In Keshavlal Khemchand and Sons Private Limited and Ors. v.
    58 (1989) 3 SCC 488
    144
    Union of India and Ors.59
    , the object of the SARFAESI Act was
    explained thus:
    “30. The person advancing the money is generally
    called a creditor and the person receiving the money
    is generally called a borrower. The most simple form
    of a loan transaction is a contract by which the
    borrower agrees to repay the amount borrowed on
    demand by the creditor with such interest as
    stipulated under the agreement. Such a loan
    transaction may be attended by any arrangement of
    a security like a mortgage or pledge, etc. depending
    upon the agreement of the parties.
  51. The Act provides for a mode of speedy recovery
    of the monies due from the borrowers to one class of
    creditors who are banks and financial institutions
    (creditors). Advances/Loans made by creditors to
    businessmen and industrialists are generally not
    repayable on demand but repayable in accordance
    with a fixed time schedule agreed upon by the
    parties known as “term loans”:
    “Term loans.—A loan may be made for a specified
    period (a term loan). In such a case repayment is
    due at the end of the specified period and, in the
    absence of any express provision or implication to
    the contrary, no further demand for repayment is
    necessary.”
    — Chitty on Contracts, Vol. II, 30th Edn., p. 913.
    In other words, such loans are repayable in
    instalments over a period of time the terms of which
    are evidenced by a written agreement between the
    parties. A default in the repayment (in terms of the
    agreed schedule) generally provides a cause of
    action for the creditor to initiate legal proceedings
    for the recovery of the entire amount due and
    outstanding from the borrower. Normally such term
    loans are also accompanied by some “security
    interest” in a “secured asset” of the borrower. Such
    a recovery is to be made normally by instituting a
    suit for recovery of the amounts by enforcing the
    “security interest”. The Recovery of Debts Due to
    Banks and Financial Institutions Act, 1993 created
    an exclusive forum for a speedy ascertainment of
    the amounts actually due from the defaulting
    59 (2015) 4 SCC 770
    145
    borrower and also provided for a mechanism for
    speedy recovery of the amounts so ascertained from
    such borrowers.
  52. Since such a system was also found to be
    inadequate for the speedy recovery of the monies
    due from the borrowers to the creditors, Parliament
    made the Act under which the process of
    ascertainment of the amounts due from a borrower
    by an independent adjudicatory body is dispensed
    with. The secured creditor is made the sole judge of
    the amount due and outstanding from a borrower
    subject to an appeal under Section 17 of the Act. Be
    that as it may, such an ascertainment of amount
    due and outstanding is not the only criterion on the
    basis of which the secured creditor is entitled to
    initiate proceedings under Section 13(4) of the Act,
    but the secured creditor is also required to classify
    the account of the borrower (asset of the creditor) as
    an NPA. Dehors the Act, when the borrower of a
    term loan defaults in the repayment, the creditor
    can initiate legal proceeding straightaway for
    recovery of the amounts due and outstanding from
    the borrower. The Act places an additional legal
    obligation on the creditor to examine and decide
    whether the account of the borrower has become an
    NPA before initiating action under the Act.”
  53. The Bombay High Court in The Majoor Sahakari Bank Ltd.
    (supra) considered the question whether co­operative society carrying
    on the banking business, considering its activity, could be termed as
    industry to which Bombay Industrial Disputes Act would apply.
    Though co­operative society was doing the business of banking, it was
    submitted that nonetheless, it was a co­operative society to which the
    provisions of the Bombay Industrial Disputes Act could not apply.
    Considering the activity and definition of the ‘company’ as defined in
    Halsbury’s Laws of England as an association of a number of
    146
    individuals formed with a common purpose. The High Court opined
    that in the wide and proper legal sense, the petitioners were a
    company although they may choose to call themselves a society or
    even if Co­Operative Societies Act requires that they should call
    themselves a society. However, in the eye of the law, they are a
    company when they were doing the business of banking. Though
    registered as a co­operative society, the provisions of industrial law
    were held to be applicable. The High Court also observed that there
    was no special charm or magic in a company registered under the
    Companies Act or the Co­operative Societies Act as far as the result of
    registration is concerned. The High Court observed:
    “(4) Now turning to the language of the notification
    what is urged by Mr. Parpia is that the notification
    only contemplates the Indian Companies Act and
    Acts similar to that Act. In our opinion, there is no
    reason why such a limited interpretation should be
    put upon the general words used in the notification.
    If the intention of the State Government was, that
    the notification should only apply to the companies
    registered under the Indian Companies Act or Acts
    corresponding to Indian Companies Act nothing was
    easier than for the Government to have stated so. If
    the intention was to exclude the banking companies
    registered under the Co­operative Societies Act that
    also could have been set out in the notification
    itself. Neither counsel has been able to draw our
    attention to any Indian Legislation under which an
    association doing banking business can be
    registered other than the Indian Companies Act and
    the Co­operative Societies Act. Therefore, nothing
    was simpler or easier than for the State Government
    to have stated “doing business of Banking
    Companies registered under enactments other than
    the Co­operative Societies Act”. When a Court is
    called upon to interpret a notification which is
    capable of more than one meaning it is not amiss to
    consider the reason and principle underlying the
    147
    notification. There is no reason or principle why a
    co­operative society doing banking business should
    be put on a different footing with regard to
    industrial law from other companies doing identical
    business. There is no reason why a co­operative
    banking society should treat its employees otherwise
    than as laid down under the industrial law. If we
    were satisfied that there was some reason or
    principle which would lead us to put upon this
    notification the interpretation which Mr. Parpia
    suggests we might have put such an interpretation
    on the notification, but all the considerations are in
    favour of the interpretation suggested by Mr. Rane.
    There is nothing in the notification which prevents
    us from giving the interpretation which we have
    ultimately decided to give to this notification.
    Therefore, we are of the opinion that the petitioners
    are doing business of Banking and are registered
    under an enactment relating to companies, which is
    the Co­operative Societies Act. The learned Judge
    was right in taking the view that he had jurisdiction
    to deal with the matter. The petition fails and is
    dismissed with costs.”
  54. In Jayant Verma and Ors. v. Union of India and Ors.60
    , the
    question arose concerning the applicability of Section 21A of the B.R.
    Act, 1949. In that context, the provisions of the B.R. Act, 1949, were
    considered and it was held that enactment to be relatable to Entry 45
    of List I and has to be given a wide meaning. It was observed:
    “16. 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
    60 (2018) 4 SCC 743
    148
    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 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 List I Entry 45 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
    List I Entry 45.”
    (emphasis supplied)
  55. In Federation of Hotel & Restaurant Association of India, etc. v.
    Union of India and Ors.61
    , the question of overlapping of the law was
    considered with respect to a subject which might incidentally affect
    another subject in some way or the other and held that that is not the
    same thing as the law being on the latter subject. The same
    transaction may involve two or more taxable events in its different
    aspects.
  56. In Apex Cooperative Bank of Urban Bank of Maharashtra & Goa
    Ltd. (supra) the question arose concerning licensing of co­operative
    societies by the Reserve Bank of India to carry on banking business
    under the provisions of the BR Act, 1949. It was held that cooperative banks, which are not State co­operative banks or Central cooperative banks or primary co­operative banks as defined in Section
    56(cci) of B.R. Act, 1949, were not eligible for licensing. The grant of
    licence by Reserve Bank of India to co­operative banks, which were
    61 (1989) 3 SCC 634
    149
    not registered under the Multi­State Co­operative Societies Act, 1984,
    was not justified. The powers of Reserve Bank of India under the
    Multi­State Co­operative Societies Act were exercisable only for cooperative banks, not to any other co­operative societies not doing
    business of banking. It was opined:
    “25. Another aspect which must be noticed is that
    in the Constitution of India, the subject pertaining
    to co­operative societies is in the State List i.e. Entry
    32 of List II of Schedule VII. The Union List has
    Entry 44 of List I of Schedule VII which deals with
    corporations. In this case we are not concerned with
    the validity of a Central legislation and thus do not
    deal with that aspect. For purpose of the judgment
    we will take it that a co­operative society with
    objects not confined to one State would fall within
    the term corporation, and thus a Central legislation
    may be saved. However, from the constitutional
    provisions it is clear that matters pertaining to cooperative societies are in the State List. Thus many
    States have enacted laws relating to co­operative
    societies. We have not seen other Acts. However, as
    this case concerns a society in Maharashtra, the
    Maharashtra Cooperative Societies Act was shown
    to us. Significantly, this law does not define a cooperative society. It did not need to, as a society
    registered under it would be automatically covered.
    The need to define a co­operative society arises only
    in a Central legislation which does not cover all cooperative societies and thus needs to indicate to
    which society it applies.”
  57. In Bharat Coop. Bank (Mumbai) Ltd. v. Coop. Bank Employees
    Union62
    , the question arose concerning the Industrial Disputes Act,
    1947 and the B.R. Act, 1949. There was a reference in Section 2(bb)
    of Industrial Disputes Act, 1947, to the definition of ‘banking
    company’ as defined in Section 5 of the B.R. Act, 1949. It was held
    62 (2007) 4 SCC 685
    150
    that same was instance of legislation by incorporation and not
    legislation by reference. It was further opined that amendment to BR
    Act, 1949 after Section 5 was incorporated in Section 2(bb), would not
    have any effect on the expression ‘banking company’. This Court
    further held that the I.D. Act was a complete and self­contained code
    in itself, and its working was not dependent on the BR Act, 1949.
  58. In Reserve Bank of India v. M. Hanumaiah and Ors.63
    , the
    question arose of supersession of the Committee of the management of
    Co­operative Bank. There was a written requisition from the Reserve
    Bank of India to the Registrar, Co­operative Societies, to supersede the
    management under Section 30(5) of the Karnataka Co­operative
    Societies Act, 1959. It was held that principles of natural justice were
    not applicable, and the Committee of the management had no right of
    hearing. Thus, there are various instances where the Central
    legislation has controlled co­operative societies’ aspects relating to
    banking.
  59. In State of Gujarat and Anr. v. Shri Ambica Mills Ltd.,
    Ahmedabad, and Anr.64
    , the definition clause in a provision when it is
    under inclusion and over­inclusive was considered, thus:
    “54. A reasonable classification is one which
    includes all who are similarly situated and none
    who are not. The question then is: what does the
    63 (2008) 1 SCC 770
    64 (1974) 4 SCC 656
    151
    phrase “similarly situated” mean? The answer to the
    question is that we must look beyond the
    classification to the purpose of the law. A reasonable
    classification is one which includes all persons who
    are similarly situated with respect to the purpose of
    the law. The purpose of a law may be either the
    elimination of a public mischief or the achievement
    of some positive public good.
  60. A classification is under­inclusive when all who
    are included in the class are tainted with the
    mischief but there are others also tainted whom the
    classification does not include. In other words, a
    classification is bad as under­inclusive when a State
    benefits or burdens persons in a manner that
    furthers a legitimate purpose but does not confer
    the same benefit or place the same burden on
    others who are similarly situated. A classification is
    over­inclusive when it includes not only those who
    are similarly situated with respect to the purpose
    but others who are not so situated as well. In other
    words, this type of classification imposes a burden
    upon a wider range of individuals than are included
    in the class of those attended with mischief at which
    the law aims. Herod ordering the death of all male
    children born on a particular day because one of
    them would some day bring about his downfall
    employed such a classification.”
  61. In Girnar Traders (3) v. State of Maharashtra and Ors.65
    , the
    question of incorporation by reference and Doctrine of Pith and
    Substance were considered thus:
    “87. However, since this aspect was argued by the
    learned counsel appearing for the parties at great
    length, we will proceed to discuss the merit or
    otherwise of this contention without prejudice to the
    above findings and as an alternative plea. These
    principles have been applied by the courts for a
    considerable period now. When there is general
    reference in the Act in question to some earlier Act
    but there is no specific mention of the provisions of
    the former Act, then it is clearly considered as
    legislation by reference. In the case of legislation by
    65 (2011) 3 SCC 1
    152
    reference, the amending laws of the former Act
    would normally become applicable to the later Act;
    but, when the provisions of an Act are specifically
    referred and incorporated in the later statute, then
    those provisions alone are applicable and the
    amending provisions of the former Act would not
    become part of the later Act. This principle is
    generally called legislation by incorporation. General
    reference, ordinarily, will imply exclusion of specific
    reference and this is precisely the fine line of
    distinction between these two doctrines. Both are
    referential legislations, one merely by way of
    reference and the other by incorporation. It,
    normally, will depend on the language used in the
    later law and other relevant considerations. While
    the principle of legislation by incorporation has welldefined exceptions, the law enunciated as of now
    provides for no exceptions to the principle of
    legislation by reference. Furthermore, despite strict
    application of doctrine of incorporation, it may still
    not operate in certain legislations and such
    legislation may fall within one of the stated
    exceptions.
  62. In this regard, the judgment of this Court in
    M.V. Narasimhan, (1975) 2 SCC 377, can be usefully
    noticed where the Court after analysing various
    judgments, summed up the exceptions to this rule
    as follows: (SCC p. 385, para 15)
    “(a) where the subsequent Act and the previous
    Act are supplemental to each other;
    (b) where the two Acts are in pari materia;
    (c) where the amendment in the previous Act, if
    not imported into the subsequent Act also,
    would render the subsequent Act wholly
    unworkable and ineffectual; and
    (d) where the amendment of the previous Act,
    either expressly or by necessary intendment,
    applies the said provisions to the subsequent
    Act.”
  63. Having perused and analysed the various
    judgments cited at the Bar we are of the considered
    view that this rule is bound to have exceptions and
    it cannot be stated as an absolute proposition of law
    that wherever legislation by reference exists,
    subsequent amendments to the earlier law shall
    stand implanted into the later law without analysing
    153
    the impact of such incorporation on the object and
    effectuality of the later law. The later law being the
    principal law, its object, legislative intent and
    effective implementation shall always be of
    paramount consideration while determining the
    compatibility of the amended prior law with the later
    law as on relevant date.
  64. The doctrine of pith and substance can be
    applied to examine the validity or otherwise of a
    legislation for want of legislative competence as well
    as where two legislations are embodied together for
    achieving the purpose of the principal Act. Keeping
    in view that we are construing a federal
    Constitution, distribution of legislative powers
    between the Centre and the State is of great
    significance. Serious attempt was made to convince
    the Court that the doctrine of pith and substance
    has a very restricted application and it applies only
    to the cases where the court is called upon to
    examine the enactment to be ultra vires on account
    of legislative incompetence.
  65. We are unable to persuade ourselves to accept
    this proposition. The doctrine of pith and substance
    finds its origin from the principle that it is necessary
    to examine the true nature and character of the
    legislation to know whether it falls in a forbidden
    sphere. This doctrine was first applied in India in
    Prafulla Kumar Mukherjee v. Bank of Commerce Ltd.,
    (1946­47) 74 IA 23 : AIR 1947 PC 60. The principle
    has been applied to the cases of alleged repugnancy
    and we see no reason why its application cannot be
    extended even to the cases of present kind which
    ultimately relates to statutory interpretation
    founded on source of legislation.”
  66. We find that ‘banking’ relating to co­operatives can be included
    within the purview of Entry 45 of List I, and it cannot be said to be
    over inclusion to cover provisions of recovery by co­operative banks in
    the SARFAESI Act. It cannot be said to be over­inclusion on the anvil
    of the principles laid down by this Court.
    154
  67. Learned Counsel on behalf of appellants argued that notification
    dated 28.1.2003 is ultra vires and beyond the purview of the parent
    statute, i.e., the SARFAESI Act. The amendment is colourable
    legislation, and it encroaches upon a field outside its scope and is also
    an indirect method of achieving the result of bringing ‘co­operative
    banks’ within the purview of the SARFAESI Act and RDB Act, 1993
    and is an attempt to regulate entities expressly excluded by Entry 43
    of List I. Reliance has been placed on K.C. Gajapati Narayan Deo
    (supra), in which it was held:
    “(9) It may be made clear at the outset that the
    doctrine of colourable legislation does not involve
    any question of ‘bona fides’ or ‘mala fides’ on the
    part of the legislature. The whole doctrine resolves
    itself into the question of competency of a particular
    legislature to enact a particular law. If the
    legislature is competent to pass a particular law, the
    motives which impelled it to act are really irrelevant.
    On the other hand, if the legislature lacks
    competency, the question of motive does not arise at
    all. Whether a statute is constitutional or not is thus
    always a question of power Vide Cooley’s
    Constitutional Limitations, Vol. 1, p.379. A
    distinction, however, exists between a legislature
    which is legally omnipotent like the British
    Parliament and the laws promulgated by which
    could not be challenged on the ground of
    incompetence, and a legislature which enjoys only a
    limited or a qualified jurisdiction.
    If the Constitution of a State distributes the
    legislative powers amongst different bodies, which
    have to act within their respective spheres marked
    out by specific legislative entries, or if there are
    limitations on the legislative authority in the shape
    of fundamental rights, questions do arise as to
    whether the legislature in a particular case has or
    has not, in respect to the subject­matter of the
    155
    statute or in the method of enacting it, transgressed
    the limits of its constitutional powers. Such
    transgression may be patent, manifest or direct, but
    it may also be disguised, covert and indirect and it
    is to this latter class of cases that the expression
    “colourable legislation” has been applied in certain
    judicial pronouncements. The idea conveyed by the
    expression is that although apparently a legislature
    in passing a statute purported to act within the
    limits of its powers, yet in substance and in reality it
    transgressed these powers, the transgression being
    veiled by what appears, on proper examination, to
    be a mere pretence or disguise. As was said by Duff,
    J. in — ‘Attorney­General for Ontario v. Reciprocal
    Insurers’, 1924 A C 328 at p. 337 (B):
    “Where the law making authority is of a limited or
    qualified character it may be necessary to
    examine with some strictness the substance of
    the legislation for the purpose of determining
    what is that the legislature is really doing.”
    In other words, it is the substance of the Act that
    is material and not merely the form or outward
    appearance, and if the subject­matter in substance
    is something which is beyond the powers of that
    legislature to legislate upon, the form in which the
    law is clothed would not save it from condemnation.
    The legislature cannot violate the constitutional
    prohibitions by employing an indirect method. In
    cases like these, the enquiry must always be as to
    the true nature and character of the challenged
    legislation and it is the result of such investigation
    and not the form alone that will determine as to
    whether or not it relates to a subject which is within
    the power of the legislative authority — ‘Vide 1924 A
    C 328 p. 337 (B)’. For the purpose of this
    investigation the court could certainly examine the
    effect of the legislation and take into consideration
    its object, purpose or design — ‘Vide AttorneyGeneral for Alberta v. Attorney­General for Canada’,
    1939 A C 117 at p. 130 (C). But these are only
    relevant for the purpose of ascertaining the true
    character and substance of the enactment and the
    class of subjects of legislation to which it really
    belongs and not for finding out the motives which
    induced the legislature to exercise its powers.
    156
    It is said by Lefroy in his well­known work on
    Canadian Constitution that even if the legislature
    avow on the face of an Act that it intends thereby to
    legislate in reference to a subject over which it has
    no jurisdiction, yet if the enacting clauses of the Act
    bring the legislation within its powers, the Act
    cannot be considered ‘ultra vires’ See Lefroy on
    Canadian Constitution page 75.”
    (emphasis supplied)
    By applying the aforesaid principle, the provision in
    question/notification cannot be said to be colourable legislation.
  68. In State of Tamil Nadu and Ors. v. K. Shyam Sunder and Ors.66
    ,
    the concept of colourable legislation was considered and it was
    observed that the doctrine of malafides does not involve any question
    of bonafide or malafide on the part of the legislature, and the Court is
    concerned with a limited issue of competence of the particular
    legislature to enact a particular law. The motive of the legislature
    while enacting a law is inconsequential. It was observed:
    “37. It has consistently been held by this Court that
    the doctrine of mala fides does not involve any
    question of bona fide or mala fide on the part of
    legislature as in such a case, the Court is concerned
    to a limited issue of competence of the particular
    legislature to enact a particular law. If the
    legislature is competent to pass a particular
    enactment, the motives which impelled it to an act
    are really irrelevant. On the other hand, if the
    legislature lacks competence, the question of motive
    does not arrive at all. Therefore, whether a statute is
    constitutional or not is, thus, always a question of
    power of the legislature to enact that statute. Motive
    of the legislature while enacting a statute is
    inconsequential: “Malice or motive is beside the
    point, and it is not permissible to suggest
    parliamentary incompetence on the score of mala
    66 (2011) 8 SCC 737
    157
    fides.” The legislature, as a body, cannot be accused
    of having passed a law for an extraneous purpose.
    This kind of “transferred malice” is unknown in the
    field of legislation. (See K.C. Gajapati Narayan Deo v.
    State of Orissa, AIR 1953 SC 375, STO v. Ajit Mills
    Ltd., (1977) 4 SCC 98, SCC p. 108, para 16, K.
    Nagaraj v. State of A.P., (1985) 1 SCC 523, Welfare
    Assn., A.R.P. v. Ranjit P. Gohil, (2003) 9 SCC 358
    and State of Kerala v. Peoples Union for Civil
    Liberties, (2009) 8 SCC 46).”
    We find that the SARFAESI Act qualifies the test of legislative
    competence, as well as the definition, cannot be said to be colourable
    piece or over­inclusive or beyond the competence of the Parliament.
  69. Resultantly, we answer the reference as under:
    (1)(a) The co­operative banks registered under the State
    legislation and multi­State level co­operative societies registered
    under the MSCS Act, 2002 with respect to ‘banking’ are governed
    by the legislation relatable to Entry 45 of List I of the Seventh
    Schedule of the Constitution of India.
    (b) The co­operative banks run by the co­operative societies
    registered under the State legislation with respect to the aspects
    of ‘incorporation, regulation and winding up’, in particular, with
    respect to the matters which are outside the purview of Entry 45
    of List I of the Seventh Schedule of the Constitution of India, are
    governed by the said legislation relatable to Entry 32 of List II of
    the Seventh Schedule of the Constitution of India.
    158
    (2) The co­operative banks involved in the activities related to
    banking are covered within the meaning of ‘Banking Company’
    defined under Section 5(c) read with Section 56(a) of the Banking
    Regulation Act, 1949, which is a legislation relatable to Entry 45
    of List I. It governs the aspect of ‘banking’ of co­operative banks
    run by the co­operative societies. The co­operative banks cannot
    carry on any activity without compliance of the provisions of the
    Banking Regulation Act, 1949 and any other legislation applicable
    to such banks relatable to ‘Banking’ in Entry 45 of List I and the
    RBI Act relatable to Entry 38 of List I of the Seventh Schedule of
    the Constitution of India.
    (3)(a) The co­operative banks under the State legislation and
    multi­State co­operative banks are ‘banks’ under section 2(1)(c) of
    Securitisation and Reconstruction of Financial Assets and
    Enforcement of Security Interest Act, 2002. The recovery is an
    essential part of banking; as such, the recovery procedure
    prescribed under section 13 of the SARFAESI Act, a legislation
    relatable to Entry 45 List I of the Seventh Schedule to the
    Constitution of India, is applicable.
    (3)(b) The Parliament has legislative competence under Entry 45 of
    List I of the Seventh Schedule of the Constitution of India to
    provide additional procedures for recovery under section 13 of the
    159
    Securitisation and Reconstruction of Financial Assets and
    Enforcement of Security Interest Act, 2002 with respect to cooperative banks. The provisions of Section 2(1)(c)(iva), of
    Securitisation and Reconstruction of Financial Assets and
    Enforcement of Security Interest Act, 2002, adding “ex abundanti
    cautela”, ‘a multi­State co­operative bank’ is not ultra vires as well
    as the notification dated 28.1.2003 issued with respect to the cooperative banks registered under the State legislation.
    The civil appeals, writ petitions and the pending applications, if
    any, are disposed of accordingly. No costs.
    …………………………J.
    (Arun Mishra)
    ………………………….J.
    (Indira Banerjee)
    ………………………….J.
    (Vineet Saran)
    ………………………….J.
    (M.R. Shah)
    New Delhi; ………………………….J.
    May 05, 2020. (Aniruddha Bose)