STATE BANK OF INDIA Vs SANTOSH GUPTA AND ANR. ETC.
Bench: KURIAN JOSEPH,ROHINTON FALI NARIMAN
Case number: C.A. No.-012237-012238 / 2016
Diary number: 35157 / 2015
Advocates: SANJAY KAPUR Vs
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 12237-12238_OF 2016 [ARISING OUT OF SLP (CIVIL) NOS.30884-30885 OF 2015]
STATE BANK OF INDIA … APPELLANT
VERSUS
SANTOSH GUPTA AND ANR. ETC. ...RESPONDENTS
WITH
CIVIL APPEAL NOS. 12240-12246_OF 2016 [ARISING OUT OF SLP (CIVIL) NOS.30810-30815 & 30817 OF 2015]
[SLP (CIVIL) NOS.30810-30817 OF 2015]
STATE BANK OF INDIA AND ORS. …APPELLANTS
VERSUS
ZAFFAR ULLAH NEHRU AND ANR. ETC. …RESPONDENTS
J U D G M E N T
R.F. Nariman, J.
Leave granted.
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1. The Constitution of India is a mosaic drawn from the experience
of nations worldwide. The federal structure of this Constitution is
largely reflected in Part XI which is largely drawn from the
Government of India Act, 1935. The State of Jammu & Kashmir is a
part of this federal structure. Due to historical reasons, it is a State
which is accorded special treatment within the framework of the
Constitution of India. This case is all about the State of Jammu &
Kashmir vis`-a-vis` the Union of India, in so far as legislative relations
between the two are concerned.
2. The present appeals arise out of a judgment dated 16.7.2015
passed by the High Court of Jammu & Kashmir at Jammu, in which it
has been held that various key provisions of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (hereinafter referred to as “SARFAESI”) were
outside the legislative competence of Parliament, as they would
collide with Section 140 of the Transfer of Property Act of Jammu &
Kashmir, 1920. The said Act has been held to be inapplicable to
banks such as the State Bank of India which are all India banks.
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3. Before going into the merits of the case, it is important to note
that SARFAESI is an enactment which inter alia entitles banks to
enforce their security interest outside the court’s process by moving
under Section 13 thereof to take possession of secured assets of the
borrower and sell them outside the court process. Sections 13 (1) and
(4) and 17 are key provisions of SARFAESI relevant for the present
case and are set out herein as follows:
“Section 13. Enforcement of security interest.
(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of court or tribunal, by such creditor in accordance with the provisions of this Act.
(4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-- (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; (b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset:
PROVIDED that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt:
PROVIDED FURTHER that where the management of whole of the business or part of the business is severable,
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the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt. (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.
xxx
Section 17. Right to appeal.
(1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorised officer under this Chapter, may make an application along with such fee, as may be prescribed to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measure had been taken:
PROVIDED that different fees may be prescribed for making the application by the borrower and the person other than the borrower.
Explanation: For the removal of doubts, it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitle the person (including borrower) to make an application to the Debts Recovery Tribunal under this sub-section.
(2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor for enforcement
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of security are in accordance with the provisions of this Act and the rules made thereunder.
(3) If, the Debts Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that any of the measures referred to in sub-section (4) of section 13, taken by the secured creditor are not in accordance with the provisions of this Act and the rules made thereunder, and require restoration of the management of the business to the borrower or restoration of possession of the secured assets to the borrower, it may by order, declare the recourse to anyone or more measures referred to in sub-section (4) of section 13 taken by the secured creditors as invalid and restore the possession of the secured assets to the borrower or restore the management of the business to the borrower, as the case may be, and pass such order as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor under sub-section (4) of section 13.
(4) If, the Debts Recovery Tribunal declares the recourse taken by a secured creditor under sub-section (4) of section 13, is in accordance with the provisions of this Act and the rules made thereunder, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under sub-section (4) of section 13 to recover his secured debt.
(5) Any application made under sub-section (1) shall be dealt with by the Debts Recovery Tribunal as expeditiously as possible and disposed of within sixty days from the date of such application:
PROVIDED that the Debts Recovery Tribunal may, from time to time, extend the said period for reasons to be recorded in writing, so, however, that the total period of pendency of the application with the Debts Recovery
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Tribunal, shall not exceed four months from the date of making of such application made under sub-section (1).
(6) If the application is not disposed of by the Debts Recovery Tribunal within the period of four months as specified in sub-section (5), any party to the application may make an application, in such form as may be prescribed, to the Appellate Tribunal for directing the Debts Recovery Tribunal for expeditious disposal of the application pending before the Debts Recovery Tribunal and the Appellate Tribunal may, on such application, make an order for expeditious disposal of the pending application by the Debts Recovery Tribunal.
(7) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the application in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the rules made thereunder.”
4. Section 34 declares that a Civil Court shall not have jurisdiction
to entertain any suit or proceeding in respect of any matter which a
Debts Recovery Tribunal or the Appellate Tribunal under the Act is
empowered to determine, and Section 35 is a general non-obstante
clause declaring that this Act shall have effect, notwithstanding
anything inconsistent therewith contained in any other law for the time
being in force.
5. The bone of contention in the present appeals is whether
SARFAESI in its application to the State of Jammu & Kashmir would
be held to be within the legislative competence of Parliament. To 6
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decide this question, we have heard wide ranging arguments from the
learned Attorney General Shri Mukul Rohtagi and Shri Rakesh
Dwivedi, learned Senior Advocate, on behalf of the Appellants. They
have referred in detail to the provisions of Article 370 of the
Constitution of India, read with Section 5 of the Jammu & Kashmir
Constitution, 1956. It is their submission that the Instrument of
Accession of Jammu and Kashmir, 1947 itself makes it clear that List
I of the 7th Schedule of the Government of India Act, 1935 would
apply, and that the various Constitution Application to J & K Orders
issued from time to time under Article 370 makes it clear that Article
246 (1) read with Entry 45 and 95 List I would clothe Parliament with
power to enact SARFAESI. In fact, according to them, even the
impugned judgment of the High Court concedes this. According to
them, once Entry 45 List I has no other competing Entry, inasmuch as
List II of the 7th Schedule to the Constitution of India has not been
extended to the State of Jammu & Kashmir, and Entry 11A dealing
with Administration of Justice contained in List III of the 7th Schedule
to the Constitution of India does not apply to Jammu & Kashmir, and
Entry 6 List III dealing with transfer of property also does not apply, it
is their case that Entry 45 List I is to be read in its full plenitude and is
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not cut down by the provisions of any other Entry. If it is found that
the entire SARFAESI is in fact enacted under Entry 45 read with 95 of
List I, it would be clear that no other enquiry is necessary, as the Act
in pith and substance would be referable to these two entries. This
being the case, the State’s legislative power comes in only if none of
the entries of List I or III are attracted. To refer to Entry 11A and to
Entry 6, and further to state that Section 140 of the Transfer of
Property Act of Jammu & Kashmir would render the key provisions of
SARFAESI without legislative competence, is wholly incorrect. They
referred to a number of judgments to show that recovery of loans is
as much part of the business of banking as the giving of loans, and
that therefore the entire 2002 Act would fall within Entry 45 read with
Entry 95 List I. According to them, therefore, the impugned judgment
is wrong on several fundamentals and needs to be set aside. They
referred to and relied upon a number of other judgments which we
will deal with in the course of this judgment.
6. Shri Vijay Hansaria, learned senior advocate, appearing on
behalf of the private respondent, has argued that since both the
Constitution of India and the Constitution of Jammu & Kashmir are
expressions of the sovereign will of the people, they have equal 8
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status and none is subordinate to the other. His basic argument to
meet the contentions of the appellants is that the SARFAESI Act, in
pith and substance, relates to “transfer of property” and not “banking”
and would, therefore, be outside the competence of Parliament and
exclusively within the competence of the State Legislature. He
further argued that the power of Parliament is expressly “limited”
under Article 370(1)(b) of the Constitution of India whereas under the
Constitution of Jammu & Kashmir, the State Legislature has plenary
powers over all matters, except those where the Parliament has
power to make laws. He also argued that the subjects mentioned in
the State List of the 7th Schedule under the Constitution of India were
frozen and can never be delegated or conferred on Parliament so
long as Article 370 remains and therefore any transference of a State
List subject to the Concurrent List later cannot apply to the State of
Jammu & Kashmir. He also argued that it is not enough under Article
370 to confer power on Parliament by a Presidential Order, but that
every time Parliament enacts a law under such power, before such
law can operate in the State of Jammu & Kashmir, the State
Government’s concurrence must be obtained. This was stated to be
also for the reason that an amendment made to the Constitution of
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India will not apply unless the State concurs in applying it to the State
of Jammu & Kashmir, in which case only a Presidential Order
applying such amendment would take effect. Further, according to
him, Section 140 of the Jammu & Kashmir Transfer of Property Act
is in direct conflict with Section 13 of SARFAESI Act and the Transfer
of Property Act must prevail. He further argued that Section 17A and
18B of the SARFAESI Act, being Sections relatable to
administration of justice, which is purely a State subject,
would also be ultra vires Parliament. He relied upon Article 35A
and supported the impugned judgment on this score, and further
stated that the various judgments cited on behalf of the appellants
were distinguishable as the fact situation in the present case was
completely different from the situation in those judgments.
7. Shri Sunil Fernandes, learned Standing Counsel for the State of
Jammu & Kashmir, referred to Article 370 and the Constitution of
Jammu & Kashmir in some detail and cited judgments of this Court
dealing with the same. He also pointed out local statutory laws which
prohibit transfer of land belonging to State residents to non State
residents. His submission was that though the SARFAESI Act was
enacted by Parliament by virtue of Entry 45 List I, yet Section 13(4) 10
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alone incidentally encroaches upon the property rights of permanent
residents of the State of Jammu & Kashmir and must be read down
so that it will not be permissible under this Section to sell property
belonging to a permanent resident of the State to a person who is not
a permanent resident of the State. It was his further submission that
the proviso added to Rule 8(5) of the SARFAESI Rules must be read
along with Section 13(4) of the SARFAESI Act and if so read, the
State of Jammu & Kashmir would have no objection to the SARFAESI
Act applying to the State of Jammu & Kashmir.
8. As Article 1 of the Constitution of India states, India is a Union
of States. In an illuminating judgment, namely, State of West
Bengal v. Union of India, 1964 (1) SCR 371, Chief Justice Sinha, in
the majority judgment, has held that India is quasi-federal with a
strong tilt to the Centre. In so holding, the learned Judge referred to
four indicia of a real federation, as follows:-
“(a) A truly federal form of Government envisages a compact or agreement between independent and sovereign units to surrender partially their authority in their common interest and vesting it in a Union and retaining the residue of the authority in the constituent units. Ordinarily each constituent unit has its separate Constitution by which it is governed in all matters except those surrendered to the Union, and the Constitution of
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the Union primarily operates upon the administration of the units. Our Constitution was not the result of any such compact or agreement: Units constituting a unitary State which were non-sovereign were transformed by abdication of power into a Union.
(b) Supremacy of the Constitution which cannot be altered except by the component units. Our Constitution is undoubtedly supreme but it is liable to be altered by the Union Parliament alone and the units have no power to alter it.
(c) Distribution of powers between the Union and the regional units each in its sphere coordinate and independent of the other. The basis of such distribution of power is that in matters of national importance in which a uniform policy is desirable in the interest of the units, authority is entrusted to the Union, and matters of local concern remain with the State.
(d) Supreme authority of the Courts to interpret the Constitution and to invalidate action violative of the Constitution. A federal Constitution, by its very nature, consists of checks and balances and must contain provisions for resolving conflicts between the executive and legislative authority of the Union and the regional units.” [at pages 396 - 397]
9. It was found that so far as States other than the State of
Jammu & Kashmir are concerned, indicia (a) and (b) were absent
whereas indicia (c) and (d) were present, and this coupled with a
reading of various other Articles of the Constitution led a Constitution
Bench of this Court to decide that the federal structure of the
Constitution tilts strongly towards the Central Legislature and Central
Government.
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10. Insofar as the State of Jammu & Kashmir is concerned, it is
clear that indicia (b) is absent. Insofar as the other indicia are
concerned, the State does have its own separate Constitution by
which it is governed in all matters, except those surrendered to the
Union of India. Amendments that are made in the Constitution of
India are made to apply to the State of Jammu & Kashmir only if the
President, with the concurrence of the State Government, applies
such amendments to the State of Jammu & Kashmir. The distribution
of powers between the Union and the State of Jammu & Kashmir
reflects that matters of national importance, in which a uniform policy
is desirable, is retained with the Union of India, and matters of local
concern remain with the State of Jammu & Kashmir. And, even
though the Jammu & Kashmir Constitution sets up the District Courts
and the High Court in the State, yet, the supreme authority of courts
to interpret the Constitution of India and to invalidate action violative
of the Constitution is found to be fully present. Appeals from the High
Court of Jammu & Kashmir lie to the Supreme Court of India, and
shorn of a few minor modifications, Articles 124 to 147 all apply to the
State of Jammu & Kashmir, with Articles 135 and 139 being omitted.
The effect of omitting Articles 135 and 139 has a very small impact, in
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that Article 135 only deals with jurisdiction and powers of the Federal
Court to be exercised by the Supreme Court, and Article 139 deals
with Parliament’s power to confer on the Supreme Court the power to
issue directions, orders, and writs for purposes other than those
mentioned in Article 32 (2). We may also add that permanent
residents of the State of Jammu & Kashmir are citizens of India, and
that there is no dual citizenship as is contemplated by some other
federal Constitutions in other parts of the world. All this leads us to
conclude that even qua the State of Jammu & Kashmir, the quasi
federal structure of the Constitution of India continues, but with the
aforesaid differences. It is therefore difficult to accept the argument
of Shri Hansaria that the Constitution of India and that of Jammu &
Kashmir have equal status. Article 1 of the Constitution of India and
Section 3 of the Jammu & Kashmir Constitution make it clear that
India shall be a Union of States, and that the State of Jammu &
Kashmir is and shall be an integral part of the Union of India.
11. It is interesting to note that the State of Jammu & Kashmir,
though a state within the meaning of Article 1 of the Constitution of
India, has been accorded a special status from the very beginning
because of certain events that took place at the time that the 14
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erstwhile Ruler of Jammu & Kashmir acceded to the Indian Union.
These events have been set out in detail in Prem Nath Kaul v. State
of Jammu & Kashmir, (1959) Supp. 2 SCR 270, to which we will
refer in some detail. The State of Jammu & Kashmir is dealt with by a
special provision, namely, Article 370. At this juncture, it is necessary
to set out this Article which reads as follows:-
Article 370. Temporary provisions with respect to the State of Jammu and Kashmir.
(1) Notwithstanding anything in this Constitution,
(a) the provisions of Article 238 shall not apply in relation to the State of Jammu and Kashmir;
(b) the power of Parliament to make laws for the said State shall be limited to
(i) those matters in the Union List and the Concurrent List which, in consultation with the Government of the State, are declared by the President to correspond to matters specified in the Instrument of Accession governing the accession of the State to the Dominion of India as the matters with respect to which the Dominion Legislature may make laws for that State; and
(ii) such other matters in the said Lists as, with the concurrence of the Government of the State, the President may by order specify.
Explanation.- For the purposes of this article, the Government of the State means the person for the time being recognised by the President as the Maharaja of Jammu and Kashmir acting on the advice of the Council of Ministers for the time being in office under the
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Maharaja’s Proclamation dated the fifth day of March, 1948 ;
(c) the provisions of Article 1 and of this article shall apply in relation to that State;
(d) such of the other provisions of this Constitution shall apply in relation to that State subject to such exceptions and modifications as the President may by order specify:
Provided that no such order which relates to the matters specified in the Instrument of Accession of the State referred to in paragraph (i) of sub clause (b) shall be issued except in consultation with the Government of the State:
Provided further that no such order which relates to matters other than those referred to in the last preceding proviso shall be issued except with the concurrence of that Government.
(2) If the concurrence of the Government of the State referred to in paragraph (ii) of sub clause (b) of clause (1) or in the second proviso to sub clause (d) of that clause be given before the Constituent Assembly for the purpose of framing the Constitution of the State is convened, it shall be placed before such Assembly for such decision as it may take thereon.
(3) Notwithstanding anything in the foregoing provisions of this article, the President may, by public notification, declare that this article shall cease to be operative or shall be operative only with such exceptions and modifications and from such date as he may specify:
Provided that the recommendation of the Constituent Assembly of the State referred to in clause (2) shall be necessary before the President issues such a notification.
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12. The first thing that is noticed in Article 370 is that the marginal
note states that it is a temporary provision with respect to the State of
Jammu & Kashmir. However, unlike Article 369, which is also a
temporary provision limited in point of time to five years from the
commencement of this Constitution, no such limit is to be found in
Article 370. Despite the fact that it is, therefore, stated to be
temporary in nature, sub-clause (3) of Article 370 makes it clear that
this Article shall cease to be operative only from such date as the
President may by public notification declare. And this cannot be done
under the proviso to Article 370 (3) unless there is a recommendation
of the Constituent Assembly of the State so to do. This takes us to an
interesting judgment of this Court, namely, Sampat Prakash v. the
State of Jammu & Kashmir, (1969) 2 SCR 365. In this case, a writ
petition under Article 32 was filed challenging the detention of the
petitioner, in which it was contended that Article 370 contained only
temporary provisions which cease to be effective after the Constituent
Assembly of the State had completed its work by framing a
Constitution for the State. The detention of the petitioner was
continued without making a reference to the Advisory Board
inasmuch as Article 35(c) of the Constitution had given protection to
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any law relating to preventive detention in Jammu & Kashmir against
invalidity on the ground of infringement of any of the fundamental
rights guaranteed by Part III of the Constitution initially for a period of
five years, which was then extended to ten years and fifteen years.
These extensions were the subject matter of challenge, and it was
sought to be contended that the power of the President, depending
on the concurrence of the Government of the State of Jammu &
Kashmir, must be exercised under Article 370 before dissolution of
the Constituent Assembly of the State, and that such power must be
held to cease to exist after dissolution of the Constituent Assembly.
This argument was repelled by the Constitution Bench by giving three
reasons. First and foremost, it was stated that the reason for the
Article was that it was necessary to empower the President of India to
exercise his discretion from time to time in applying the Indian
Constitution. This being so, Article 370 would necessarily have to be
invoked every time the President, with the State’s concurrence, feels
it necessary that amendments to the Constitution of India be made
applicable to Jammu & Kashmir, given the special proviso to Article
368 which applies only to the State of Jammu & Kashmir. Further, it
was also held that the Article will cease to operate under sub-clause
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(3) only when a recommendation is made by the Constituent
Assembly of the State to that effect. It was found that in fact the
Constituent Assembly of the State had made a recommendation that
the Article should be operative with one modification to be
incorporated in the explanation to clause (1) of the Article, namely,
that the Maharaja of Jammu & Kashmir be substituted by the
expression “Sadar-I Riyasat of Jammu & Kashmir”. Also, it is
important to note that Article 370 (2) does not in any manner state
that the said Article shall cease on the completion of the work of the
Constituent Assembly or its dissolution. Having regard to all these
factors, this Court clearly held that though the marginal note refers to
Article 370 as only a temporary provision, it is in fact in current usage
and will continue to be in force until the specified event in sub-clause
(3) of the said Article takes place. It was further held by the Sampat
Prakash judgment that Section 21 of the General Clauses Act, 1897
was also applicable so that the power under this Article can be used
from time to time to meet with varying circumstances.
13. Article 370 begins with a non obstante clause stating that
notwithstanding anything contained in the Constitution, first and
foremost, under sub-clause (1)(a) the provisions of Article 238 shall 19
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not apply in relation to the State of Jammu & Kashmir. Article 238
has since been repealed and is not of any importance today. It only
referred to the application of the provisions of Part VI to States in Part
B of the 1st Schedule. Since the scheme of Article 370 was different,
the said Article was stated not to apply. But more importantly, the
power of Parliament to make laws for the said State shall be limited,
in sub-clause (b)(i), to the matters in the Union List and the
Concurrent List of the 7th Schedule to the Constitution of India, which
in consultation with the Government of the State, are declared by the
President to correspond to matters specified in the Instrument of
Accession. If other matters contained in the said Constitution outside
the Instrument of Accession in the said Lists are to be extended, then
they can be extended only with the concurrence of the State. The
difference between consultation and concurrence was highlighted in
Prem Nath Kaul’s case, supra. At this stage, it is necessary to refer
to this case in some detail as it goes into the legislative history of
Article 370, and the Presidential Orders made under the said Article.
We are not directly concerned here with the Jammu & Kashmir Big
Landed Estates (Abolition) Act, 1950, whose validity was challenged
in the said judgment. The judgment goes into great detail as to how
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the Instrument of Accession to the Union of India was made by
Maharaja Hari Singh. What is of importance is to note that after the
reins of power were handed over to his son Yuvraj Karan Singh by a
proclamation dated 20.6.1949, Yuvraj Karan Singh, by a proclamation
dated 25.11.1949, stated that the Constitution of India, which was yet
to be promulgated, would apply to the State of Jammu & Kashmir.
Also, by a proclamation dated 20.4.1951, a Constituent Assembly
was to be set up on the basis of adult franchise in order that this
Assembly give to the State its own Constitution. The judgment then
goes on to refer to the Jammu & Kashmir Presidential Order of 1950
and its amendments, which was then supplanted by the 1954 Order.
It then goes on to state that, whereas sub-clause (1) (b) (i) of 370
requires only consultation with the Government of the State,
sub-clause (ii) requires concurrence, which scheme applies under
sub-clause (d) of the said Article in relation to the extension or
modification of other provisions of the Indian Constitution as well.
Under sub-clause (d), other provisions of the Constitution may, by
Presidential Order, be held to apply to the State of Jammu & Kashmir.
If matters specified in the Instrument of Accession are to be applied,
then there is only consultation with the Government of the State, and
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if not, there must be concurrence. The scheme of Article 370(1),
therefore, is clear. Since the Instrument of Accession is an
agreement between the erstwhile Ruler of Jammu & Kashmir and the
Union of India, it must be respected, in which case if a matter is
already provided for in it, it would become applicable straightaway
without more, and only consultation with the Government of the State
is necessary in order to work out the modalities of the extension of
the provisions of the Government of India Act corresponding to the
Constitution of India referred to in it. However, when it comes to
applying the provisions of the Constitution of India which are not so
reflected in the Instrument of Accession, they cannot be so applied
without the concurrence of the Government of the State, meaning
thereby that they can only be applied if the State Government
accepts that they ought to be so applied. Under Article 370(2), the
concurrence of the Government of the State, given before the
Constituent Assembly is convened, can only be given effect to if
ratified by the Constituent Assembly. This legislative scheme
therefore illustrates that the State of Jammu & Kashmir is to be dealt
with separately owing to the special conditions that existed at the time
of the Instrument of Accession.
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14. Under sub-clause (1)(d) of Article 370, other provisions of the
Indian Constitution shall apply in relation to the State of Jammu &
Kashmir subject to such exceptions and modifications as the
President may by order specify. In Puranlal Lakhanpal v. President
of India, (1962) 1 SCR 688, this Court held that “modification” in
sub-clause (d) is a very wide expression which includes amendment
by way of change. This Court held:
“The question that came for consideration in In re: Delhi Laws Act case(') was with respect to the power of delegation to a subordinate authority in making subordinate legislation. It was in that context that the observations were made that the intention of the law there under consideration when it used the word "modification" was that the Central Government would extend certain laws to Part C States without any radical alteration in them. But in the present case we have to find out the meaning of the word "modification" used in Art. 370(1) in the context of the Constitution. As we have said already the object behind enacting Art. 370(1) was to recognise the special position of the State of Jammu and Kashmir and to provide for that special position by giving power to the President to apply the provisions of the Constitution to that State with such exceptions and modifications as the President might by order specify. We have already pointed out that the power to make exceptions implies that the President can provide that a particular provision of the Constitution would not apply to that State. If therefore the power is given to the President to efface in effect any provision of the Constitution altogether in its application to the State of Jammu and Kashmir, it seems that when he is also given the power to make modifications that power should be considered in its widest possible amplitude. If he could efface a particular
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provision of the Constitution altogether in its application to the State of Jammu and Kashmir, we see no reason to think that the Constitution did not intend that he should have the power to amend a particular provision in its application to the State of Jammu and Kashmir. It seems to us that when the Constitution used the word "modification" in Art. 370(1) the intention was that the President would have the power to amend the provisions of the Constitution if he so thought fit in their application to the State of Jammu and Kashmir. In the Oxford English Dictionary (Vol. VI) the word 'modify" means inter alia "to make partial changes in; to change (as object) in respect of some of its qualities; to alter or vary without radical transformation". Similarly the word "modification" means "the action of making changes in an object without altering its essential nature or character; the state of being thus changed; partial alteration". Stress is being placed on the meaning "to alter or vary without radical transformation" on behalf of the petitioner; but that is not the only meaning of the words "modify" or "modification". The word "modify" also means "to make partial changes in" and "modification" means "partial alteration". If therefore the President changed the method of direct election to indirect election he was in essence making a partial change or partial alteration in Art. 81 and therefore the modification made in the present case would be even within the dictionary meaning of that word. But, in law, the word "modify" has even a wider meaning. In "Words and Phrases" by Roland Burrows, the primary meaning of the word "modify" is given as "to limit" or "restrict" but it also means "'to vary" and may even mean to "extend" or "enlarge". Thus in law the word "modify" may just mean "vary", i.e., amend; and when Art. 370(1) says that the President may apply the provisions of the Constitution to the State of Jammu and Kashmir with such modifications as he may by order specify it means that he may vary (i.e., amend) the provisions of the Constitution in its application to the State of Jammu and Kashmir. We are therefore of opinion that in the context of the Constitution we must give the widest effect
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to the meaning of the word 'modification" used in Art. 370(1) and in that sense it includes an amendment. There is no reason to limit the word "modifications" as used in Art. 370(1) only to such modifications as do not make any "radical transformation".” [pages 692 – 693]
15. It has been argued that Parliamentary legislation would also
need the concurrence of the State Government before it can apply to
the State of Jammu & Kashmir under Article 370. This is a complete
misreading of Article 370 which makes it clear that once a matter in
either the Union List or the Concurrent List is specified by a
Presidential Order, no further concurrence is needed. Indeed, the
argument is that a Constitutional amendment does not ipso facto
apply to the State of Jammu & Kashmir under the proviso to Article
368 as applicable in the said State unless there is concurrence of the
State Government and therefore, logically, it must follow that
Parliamentary legislation would also require concurrence of the State
Government before it can be said to apply in the State of Jammu &
Kashmir. We fail to understand or appreciate such an argument. A
constitutional amendment is different in quality from an ordinary law
and, as has been held by us, it is clear that the language of Article
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368 proviso and the language of Article 370 are different and have to
be applied according to their terms.
16. The Instrument of Accession of Jammu & Kashmir State is
dated 26.10.1947, and states, in paragraphs 1, 3, 8, and 9, the
following:
“1. I hereby declare that I accede to the Dominion of India with the intent that the Governor General of India, the Dominion Legislature, the Federal Court and any other Dominion authority established for the purposes of the Dominion shall by virtue of this my Instrument of Accession but subject always to the terms thereof, and for the purposes only of the Dominion, exercise in relation to the State of Jammu & Kashmir (hereinafter referred to as "this State") such functions as may be vested in them by or under the Government of India Act, 1935, as in force in the Dominion of India, on the 15th day of August 1947, (which Act as so in force is hereafter referred to as "the Act').
3. I accept the matters specified in the schedule hereto as the matters with respect to which the Dominion Legislature may make law for this State.
8. Nothing in this Instrument affects the continuance of my Sovereignty in and over this State, or, save as provided by or under this Instrument, the exercise of any powers, authority and rights now enjoyed by me as Ruler of this State or the validity of any law at present in force in this State.
9. I hereby declare that I execute this Instrument on behalf of this State and that any reference in this Instrument to me or to the Ruler of the State is to be
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construed as including a reference to my heirs and successors.”
The Schedule which is referred to in clause 3 refers to defence,
external affairs, communications and certain ancillary matters.
17. At this stage, it is necessary to see which of the provisions of
the Constitution of India have in fact been applied by Article 370 to
the State of Jammu & Kashmir. First and foremost, in sub-clause (1)
(c) of Article 370, the provisions of Article 1 and Article 370 itself are
said to apply by virtue of this sub-clause straightaway. In order to find
out what other provisions of the Constitution have been extended to
the State of Jammu & Kashmir, we have necessarily to go to the
Presidential Order of 1950. This Order, which is called the
Constitution Application to Jammu & Kashmir Order, 1950, began
rather warily by extending a few Entries in List I of Schedule 7 and
applying only certain clauses and Articles of the Constitution. Since
this Order and its amendments are of historical importance only, it is
not necessary to refer to them in any detail, as it is the Constitution
Application to Jammu & Kashmir Order, 1954, that superseded the
1950 Order, and went on to apply various provisions of the
Constitution of India to the State of Jammu & Kashmir that we are 27
Page 28
concerned with. Insofar as this case is concerned, it is important to
note that, in Part XI, in Article 246, it was stated that the words,
brackets, and figures “notwithstanding anything contained in clauses
2 and 3” occurring in clause 1, and clauses 2, 3, and 4 shall be
omitted. Article 254 was also, by sub-clause (f) of paragraph 6,
extended with certain modifications and omissions. The 7th schedule
Union List was extended containing most of the Entries therein
except what was expressly omitted by clause 22. Interestingly
enough, Entry 45 and 95 with which we are directly concerned were
applied for the first time by this Order, and have continued to apply to
the State since. Significantly, the State List and the Concurrent List
of the 7th Schedule were omitted by the original 1954 Order.
18. This order has been amended repeatedly by a number of
subsequent orders, and the Order with which we are directly
concerned is the 1954 Order as amended from time to time. This
Order adopts all the provisions of the Constitution of India as in force
on the 20th June, 1964, together with certain amendments and
modifications. The argument that Article 370(1)(b) ‘limits’ the power of
Parliament is answered by the fact that the entire Constitution of
India, as it exists in 1964, has been made applicable by Presidential 28
Page 29
order to the State of Jammu & Kashmir, availing both Articles 370(1)
(b) and (d) for this purpose. And the expression ‘limited to’ does not
occur in Article 370(1)(d),under which it is open to adopt the entire
Constitution of India subject to exceptions and modifications, as has
been noted above. The opening paragraphs of this Order read as
follows:-
“In exercise of the powers conferred by clause (1) of article 370 of the Constitution, the President, with the concurrence of the Government of the State of Jammu and Kashmir, is pleased to make the following Order:-
1. (1) This Order may be called the Constitution (Application to Jammu and Kashmir) Order, 1954.
(2) It shall come into force on the fourteenth day of May, 1954, and shall thereupon supersede the Constitution (Application to Jammu and Kashmir) Order, 1950.
2. The provisions of the Constitution as in force on the 20th day of June, 1964 and as amended by the Constitution (Nineteenth Amendment) Act, 1966, the Constitution (Twenty-first Amendment) Act, 1967, Section 5 of the Constitution (Twenty-third Amendment) Act, 1969, the Constitution (Twenty-fourth Amendment) Act, 1971, section 2 of the Constitution (Twenty-fifth Amendment) Act, 1971, the Constitution (Twenty-sixth Amendment) Act, 1971, the Constitution (Thirtieth Amendment) Act, 1972, section 2 of the Constitution (Thirty-first Amendment) Act, 1973, section 2 of the Constitution (Thirty-third Amendment) Act, 1974, sections 2, 5, 6 and 7 of the Constitution (Thirty-eighth Amendment) Act, 1975, the Constitution (Thirty-ninth Amendment) Act, 1975, the Constitution (Fortieth Amendment) Act, 1976, sections 2,
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3 and 6 of the Constitution (Fifty-second Amendment) Act, 1985 and the Constitution (Sixty-first Amendment) Act, 1988 which, in addition to article 1 and article 370, shall apply in relation to the State of Jammu and Kashmir and the exceptions and modifications subject to which they shall so apply shall be as follows:-”
By this Order, in Part XI of the Constitution of India, in Article 246 for
the words, brackets, and figures "clauses (2) and (3)" occurring in
clause (1), the word, brackets and figure "clause (2)" shall be
substituted, and the words, brackets and figure "Notwithstanding
anything in clause (3)," occurring in clause (2), and the whole of
clauses (3) and (4) shall be omitted. This being the case, it is clear
that Article 246 as applicable to the State of Jammu & Kashmir would
read thus:-
“246. Subject matter of laws made by Parliament and by the Legislatures of States
(1) Notwithstanding anything in clause ( 2 ), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the 7th Schedule (in this Constitution referred to as the Union List)
(2) Parliament, and, subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the 7th Schedule (in this Constitution referred to as the Concurrent List)”
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19. Equally, Article 248 and Entry 97 List I have been modified so
that Parliament has the residuary power to make laws only with
respect to three subjects – (1) the prevention of activities involving
terrorist acts, (2) the prevention of activities directed towards
questioning or disrupting the sovereignty and territorial integrity of
India or bringing about cession of any part of the territory of India, and
(3) taxes on three specified subjects. Significantly, clause (f), which
contained Article 254 in a modified form, was omitted by C.O. No.66,
by which it has become clear that after 1963, Article 254 in its current
form in the Constitution of India will apply to the State of Jammu &
Kashmir. Equally, in the 7th Schedule Union List, the omission of
Entries has now come down to only four i.e. Entries 8, 9, 34, and 79,
with a few other Entries being modified or substituted. Significantly,
Entries 45 and 95 of List I continue to apply to the State of Jammu &
Kashmir. The State List continues to be omitted altogether, and from
1963 onwards, the Concurrent List applies to the State of Jammu &
Kashmir with a number of Entries being omitted. What is of
importance for the decision of this case is that Entry 6 dealing with
the transfer of property and Entry 11A of the Concurrent List do not
apply to the State of Jammu & Kashmir. Entry 6 does not apply
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because it has not been extended to the State, and Entry 11A does
not apply because the 42nd Amendment to the Constitution of India,
which introduced Entry 11A into the Concurrent List, is itself not
applicable.
20. At this stage, it is important to refer to the Constitution of
Jammu & Kashmir, 1956. This Constitution came into effect on
17.11.1956. Section 2(1)(a), and Sections 3, 4, and 5 read as
follows:-
“2. Definitions:-
(1) In this Constitution, unless the context otherwise requires- (a) "Constitution of India" means the Constitution of India as applicable in relation to this State;
3. Relationship of the State with the Union of India:-The State of Jammu and Kashmir is and shall be an integral part of the Union of India.
4. Territory of the State:-The territory of the State shall comprise all the territories which on the fifteenth day of August, 1947, were under the sovereignty or suzerainty of the Ruler of the State.
5. Extent of executive and legislative power of the State:- The executive and legislative power of the State extends to all matters except those with respect to which Parliament has power to make laws for the State under the provisions of the Constitution of India.”
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21. What is important to note in this Constitution, which was drafted
by a Constituent Assembly elected on the basis of adult franchise, is
that the State of Jammu & Kashmir is stated to be an integral part of
the Union of India, and that the executive and legislative power of the
State extends to all matters except those with respect to which
Parliament has power to make laws for the State under Article 370 of
the Constitution of India. A combined reading, therefore, of Article
370 of the Constitution of India, the 1954 Presidential Order as
amended from time to time, and the Constitution of Jammu &
Kashmir, 1956 would lead to the following position insofar as the
legislative competence of the Parliament of India vis-à-vis the State of
Jammu & Kashmir is concerned:
1. All entries specified by the 1954 Order contained in
List I of the 7th Schedule to the Constitution of India
would clothe Parliament with exclusive jurisdiction to
make laws in relation to the subject matters set out in
those entries.
2. Equally, under the residuary power contained in Entry
97 List I read with Article 248, the specified subject
matters set out would indicate that the residuary
power of Parliament to enact exclusive laws relating
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to the aforesaid subject matters would extend only to
the aforesaid subject matters and no further.
3. Parliament would have concurrent power with the
State of Jammu & Kashmir with respect to the entries
that are specified in the Presidential Order of 1954
under List III of the 7th Schedule of the Constitution of
India. This would mean that all the decisions of this
Court on principles of repugnancy applicable to
Article 254 would apply in full force to laws made
which are relatable to these subject matters.
4. Every other subject matter which is not expressly
referred to in either List I or List III of the 7 th Schedule
of the Constitution of India, as applicable in the State
of Jammu & Kashmir, is within the legislative
competence of the State Legislature of Jammu &
Kashmir.
22. An argument was made by learned counsel on behalf of the
respondents that the subjects mentioned in the State List of the 7th
Schedule to the Constitution of India as originally adopted were
frozen and can never be delegated or conferred on the Parliament so
long as Article 370 remains, since under Article 370(1)(b), the
President could declare that the Parliament shall have power to make
laws for the State of Jammu & Kashmir only on the fields of
legislation mentioned in the Union List and the Concurrent List. We 34
Page 35
are afraid that this submission is also without force for the reason that
Article 368 proviso, as applicable to the State of Jammu & Kashmir,
expressly allows any Constitutional amendment to the Constitution of
India to be applied with the concurrence of the State of Jammu &
Kashmir. This would include within its ken, an amendment which
either adds to or subtracts from the State List and confers upon
Parliament, either exclusively under List I or concurrently under List
III, a subject matter hitherto in the State List. This has been so held
in Sampat Prakash’s case (supra). Also, in Puranlal Lakhanpal’s
case (supra), the expression “modifications” occurring in Article
370(1)(d) has been construed not only to mean “to limit or restrict” but
even “to extend or enlarge.” Thus, the word “modification” must be
given the widest meaning and would include all amendments which
either limit or restrict or extend or enlarge the provisions of the
Constitution of India. For this reason also it is clear that nothing can
ever be frozen so long as the drill of Article 370 is followed.
23. Given this legislative scenario, we have now to examine
SARFAESI in its applicability to the State of Jammu & Kashmir.
Entries 45 and 95 of List I of the 7th Schedule of the Constitution of
India read as follows:- 35
Page 36
“45. Banking.
95. Jurisdiction and powers of all courts, except the Supreme Court, with respect to any of the matters in this List; admiralty jurisdiction.”
24. The first significant thing to note is that recovery of debts by
banks has been held to fall within Entry 45 List I. Thus, in Union of
India v. Delhi High Court Bar Association, (2002) 4 SCC 275, it
has been held:
“The Delhi High Court and the Guwahati High Court have held that the source of the power of Parliament to enact a law relating to the establishment of the Debts Recovery Tribunal is Entry 11-A of List III which pertains to “administration of justice; constitution and organisation of all courts, except the Supreme Court and the High Courts”. In our opinion, Entry 45 of List I would cover the types of legislation now enacted. Entry 45 of List I relates to “banking”. Banking operations would, inter alia, include accepting of loans and deposits, granting of loans and recovery of the debts due to the bank. There can be little doubt that under Entry 45 of List I, it is Parliament alone which can enact a law with regard to the conduct of business by the banks. Recovery of dues is an essential function of any banking institution. In exercise of its legislative power relating to banking, Parliament can provide the mechanism by which monies due to the banks and financial institutions can be recovered. The Tribunals have been set up in regard to the debts due to the banks. The special machinery of a Tribunal which has been constituted as per the preamble of the Act, “for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto” would squarely fall within
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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.” [para 14]
25. When it came to SARFAESI itself, this Court has held in
Central Bank of India v. State of Kerala, (2009) 4 SCC 94:
“Undisputedly, the DRT Act and the Securitisation Act have been enacted by Parliament under Entry 45 in List I in the 7th Schedule whereas the Bombay and Kerala Acts have been enacted by the State Legislatures concerned under Entry 54 in List II in the 7th Schedule. To put it differently, two sets of legislations have been enacted with reference to entries in different lists in the 7th 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. Therefore, even if the observations contained in Kesoram Industries case [(2004) 10 SCC 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.” [para 36]
26. In a recent judgment, namely, UCO Bank & Anr. V. Dipak
Debbarma & Ors., [Civil Appeal No. 11247 of 2016 and Civil Appeal
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No. 11250 of 2016] delivered by this Court on 25 th November, 2016,
this Court has held:
“18. The Act of 2002 is relatable to the Entry of banking which is included in List I of the 7th 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 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 Act of 2002, must give way. The dominant legislation being the Parliamentary legislation, the provisions of the Tripura Act of 1960, pro tanto, (Section 187) would be invalid. It is the provisions of the Act of 2002, 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 of 1960.”
27. In this case, a Tripura Land Reform law, which was made under
Entries 18 and 45 of List II, was pitted against SARFAESI which is
made under Entry 45 List I. Despite the fact that the Tripura Act
received the protection of Article 31B read with Ninth Schedule, it was
held that the Tripura Act, Section 187 of which put a legislative
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embargo on the sale of mortgaged properties by a bank to any
person who is not a member of Scheduled Tribe, was held to give
way to the Parliamentary enactment SARFAESI made under Entry 45
List I. Though this judgment does not apply on all fours to the
present case, it clearly establishes that SARFAESI is relatable to
Entry 45 List I and that any enactment made under the State List
would have to give way to SARFAESI by virtue of the application of
Article 246 of the Constitution of India.
28. R.C. Cooper v. Union of India, (1970) 1 SCC 248, has also in
paragraph 36, stated that the subject matter ‘banking’ in Entry 45 List
I must be construed so as to comprehend within its scope all matters
that are incidental to such subject matter. It was held:
“The legislative entry in List I of the 7th Schedule is “Banking” and not “Banker” or “Banks”. To include within the connotation of the expression “Banking” in Entry 45, List I, power to legislate in respect of all commercial activities which a banker by the custom of bankers or authority of law engages in, would result in re-writing the Constitution. Investment of power to legislate on a designated topic covers all matters incidental to the topic. A legislative entry being expressed in a broad designation indicating the contour of plenary power must receive a meaning conducive to the widest amplitude, subject however to limitations inherent in the federal scheme which distributes legislative power between the Union and the constituent units. The field of “banking” cannot be
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extended to include trading activities which not being incidental to banking encroach upon the substance of the entry “trade and commerce” in List II.” [para 36]
29. A judgment of the Privy Council reported in Attorney-General
for Canada v. Attorney-General for the Province of Quebec, 1947
Appeal Cases 33, 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 the Parliament of Canada. Lord Porter, in an
illuminating judgment, posed the question and answered it thus:-
“Is then, the repayment of deposits to depositors or their successors in title under the law as existing a part of the business of banking or necessarily incidental thereto, or is it concerned primarily 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
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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:
“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.” (At pages 44 and 46)
30. What is of significance to note is that since List II is not
operative in the State of Jammu & Kashmir, there is no competing
Entry in the said List and this would lead therefore to the conclusion
that Entries 45 and 95 of List I must be given a wide meaning.
Indeed, in a converse situation, this Court, in Union of India v. H.S.
Dhillon, 1972(2) SCR 33, had this to say:
“It was also said that if this was the intention of the Constitution makers they need not have formulated List I at all. This is the point which was taken by Sardar Hukam Singh and others in the debates referred to above and was answered by Dr. Ambedkar. But apart from what has been stated by Dr. Ambedkar in his speech extracted above there is some merit and legal effect in having included specific items in List I for when there are three lists it is easier to construe List II in the light of Lists I and II. If there had been no List I, many items in List II would perhaps have been given much wider interpretation than can be given under the present scheme. Be that as it
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may, we have the three lists and a residuary power and therefore it seems to us that in this context if a Central Act is challenged as being beyond the legislative competence of Parliament, it is enough to enquire if it is a law with respect to matters or taxes enumerated in List II. If it is not, no further question arises.” (At page 67)
31. At this juncture, it is important to advert to State of Jammu &
Kashmir v. M.S. Farooqui, (1972) 1 SCC 872. This judgment dealt
with the interplay between the Jammu & Kashmir Government
Servants Prevention of Corruption (Commission) Act, 1962 as against
the All India Services (Discipline and Appeal) Rules, 1955. In para 7
of the judgment it was noticed that Parliament could legislate by
virtue of Entry 70 List I on All India Services, and Rules made under
Article 309 of the Constitution are referable to this Entry. This being
the case, the question that this Court had to answer was as to
whether the appellant, who was a member of the Indian Police
Service, which is an All India Service, in the Jammu & Kashmir cadre,
was liable to be governed by the All India Services Rules or by the
Jammu & Kashmir Act. After dealing in some detail with judgments of
this Court on legislative competence, this Court concluded:-
“From the perusal of the provisions of the two statutory laws, namely, the All India Services (Discipline and Appeal) Rules, 1955, and the Jammu and Kashmir
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government servants' Prevention of Corruption (Commission) Act, 1962, it is impossible to escape from the conclusion that the two cannot go together. The impugned Act provides for additional punishments not provided in the Discipline and Appeal Rules. It also provides for suspension and infliction of some punishments. It seems to us that insofar as the Commission Act deals with the infliction of disciplinary punishments it is repugnant to the Discipline and Appeal Rules. Parliament has occupied the field and given clear indication that this was the only manner in which any disciplinary action should be taken against the members of the All India Services. Insofar as the Commission Act deals with a preliminary enquiry for the purposes of enabling any prosecution to be launched it may be within the legislative competence of the Jammu and Kashmir State and not repugnant to the provisions of the Discipline and Appeal Rules. But as the provisions dealing with investigation for possible criminal prosecution are inextricably intertwined with the provisions dealing with infliction of disciplinary punishment the whole Act must be read down so as to leave the members of the All India Service outside its purview.
We accordingly hold that the provisions of the Commission Act do not apply to the members of the All India Services. Accordingly we dismiss the appeal. As the respondent was not represented there would be no order as to costs. We thank Mr. G.L. Sanghi for assisting us as amicus curiae.” [paras 47 – 48]
32. 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
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Page 44
securitization 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, in so far 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
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Page 45
that SARFAESI, as a whole, cannot possibly be said to be in pith and
substance, an Act relatable to the subject matter “transfer of
property”. At this juncture it is necessary to point out that insofar as
the State of Jammu & Kashmir is concerned, Sections 17A and
Section 18B of SARFAESI, which apply to the State of Jammu &
Kashmir, substituted ‘District Judge’ and the ‘High Court’ for the
‘Debts Recovery Tribunal’ and the ‘Appellate Tribunal’ respectively.
These provisions read as under:-
“Section 17-A. Making of application to Court of District Judge in certain cases. In the case of a borrower residing in the State of Jammu and Kashmir, the application under Section 17 shall be made to the Court of District Judge in that State having jurisdiction over the borrower which shall pass an order on such application.
Explanation.—For the removal of doubts, it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons shall not entitle the person (including borrower) to make an application to the Court of District Judge under this section.
Section 18-B. Appeal to High Court in certain cases.
Any borrower residing in the State of Jammu and Kashmir and aggrieved by any order made by the Court of District Judge under Section 17-A may prefer an appeal, to the High Court having jurisdiction over such Court, within thirty days from the date of receipt of the order of the Court of District Judge:
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Provided that no appeal shall be preferred unless the borrower has deposited, with the Jammu and Kashmir High Court, fifty per cent of the amount of the debt due from him as claimed by the secured creditor or determined by the Court of District Judge, whichever is less:
Provided further that the High Court may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five per cent of the debt referred to in the first proviso.”
33. It would be clear that these provisions are referable to Entry 45
as being ancillary to banking, and expressly to Entry 95 List I
inasmuch as the jurisdiction and power of courts is laid down for the
special subject of recovery of debts due to banks by these provisions.
34. In State of Maharashtra v. Narottamdas Jethabai, (1950) 1
SCR 51, this Court upheld the Bombay City Civil Courts Act, and in
so doing, referred specifically to the following Entries in the legislative
lists of the Government of India Act, 1935.
Entry 53, List I: “Jurisdiction and powers of all courts except the Federal Court, with respect to any of the matters in this List ….”
Entries 1 and 2, List II: “1. . . . the administration of justice; constitution and organisation of all courts except the Federal Court ….”
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“2. Jurisdiction and powers of all courts except the Federal Court, with respect to any of the matters in this List ….”
Entry 15, List III: “Jurisdiction and powers of all courts except the Federal Court, with respect to any of the matters in this List.”
35. Justices Fazal Ali, Mahajan, and Mukherjea held that
‘Administration of Justice’ contained in Entry 1 of List 2 of the
Government of India Act, 7th Schedule, would include jurisdiction and
power of courts generally, but that Entry 53 of List 1 would refer to
special powers referable to a particular entry in the Union List as
opposed to the general power contained in Entry 1 List 2. It was
held, therefore, that but for an express provision like Entry 53 List 1,
Parliament may not have been able to confer special jurisdiction on
courts in regard to matters set out in legislative List 1. Two learned
Judges, namely, Patanjali Sastri and Das, JJ. also upheld the
Bombay Act, but on the basis that the expression “Administration of
Justice” would be cut down by the expression “jurisdiction and power
of all courts”, and would not therefore include within its ken
jurisdiction and power of courts.
36. Similarly in Jamshed N. Guzdar v. State of Maharashtra,
(2005) 2 SCC 591, this Court upheld the constitutional validity of the
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Bombay City Civil Court and the Bombay Courts of Small Causes
(Enhancement of Pecuniary Jurisdiction and Amendment) Act, 1986
by holding in paragraph 53 as follows:
“Thus, on and after 3-1-1977 the situation appears to be as under:
(a) Parliament alone has the competence to legislate with respect to Entry 78 of List I to “constitute and organise” the High Court.
(b) Both Parliament and the State Legislature can invest such a High Court with general jurisdiction by enacting an appropriate legislation referable to “administration of justice” under Entry 11-A of List III.
(c) Parliament may under Entry 95 of List I invest the High Court with jurisdiction and powers with respect to any of the matters enumerated in List I.
(d) The State Legislature may invest the High Court with the jurisdiction and powers with respect to any of the matters enumerated in List II.
(e) Both Parliament and the State Legislature may by appropriate legislation referable to Entry 46 of List III invest the High Court with jurisdiction and powers with respect to any of the matters enumerated in List III.” [para 53]
37. It is thus clear on a reading of these judgments that SARFAESI
as a whole would be referable to Entries 45 and 95 of List I. We must
remember the admonition given by this Court in A.S. Krishna and
others v. State of Madras, 1957 SCR 399, that it is not correct to
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first dissect an Act into various parts and then refer those parts to
different Entries in the legislative Lists. It is clear therefore that the
entire Act, including Sections 17A and 18B, would in pith and
substance be referable to Entries 45 and 95 of List I, and that
therefore the Act as a whole would necessarily operate in the State of
Jammu & Kashmir.
38. The judgment of the High Court is wholly incorrect in referring to
Entry 11A of the Concurrent List. First and foremost, as has been
noted by us above, the Entry is not extended to the State of Jammu &
Kashmir. From this, the counsel for the respondents sought to
contend that Parliament would, therefore, have no power under the
Concurrent List to legislate on the subject matter “Administration of
Justice”. Under Section 5 of the Jammu & Kashmir Constitution, we
have seen that “Administration of Justice” would come into play only
when Entries 45 and 95 of List 1 are not attracted. Even if this were
not so, we have seen in the two judgments cited hereinabove, the
expression “administration of justice” is general and must give way to
the special laws that are enacted under Entry 95 List I when coupled
with another Entry in the same List – in this case Entry 45 List I. The
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relevant part of Section 140 of the Jammu & Kashmir Transfer of
Property Act, on which great reliance has been placed by learned
counsel for the respondents, provides:-
“140. Exemptions of certain instruments from restriction imposed on transfer of immovable property.
Nothing contained in Irshad dated 29th Maghar, 1943, or any law, rule order, notification, regulation, hidyat, ailan, circular, robkar, yadasht, irshad, State Council resolution or any other instrument having the force of law prohibiting or restricting the transfer of immovable property in favour of a person who is not a permanent resident of the State shall apply to-
(h) a simple mortgage of immovable property executed or created in favour of a public financial institution, l as specified in section 4-A of the Companies Act, 1956, a Scheduled bank for the time being included in the Second Schedule to the Reserve Bank of India Act, 1934 and the Trustees for the holders of debentures to secure the loans, guarantees, issue of debentures or other form of financial assistance provided for developmental projects in the State of Jammu and Kashmir Like Baghliar Project of Jammu and Kashmir State Power Development Corporation Limited. Provided that in any suit based on such mortgage, the mortgaged property shall be sold or transferred only to a permanent resident of the State or any financial institution or corporation managed and owned by the Government of India;
39. At this juncture, it is necessary to refer to Rule 8(5) proviso of
the Security Interest (Enforcement) Rules, 2002, which states as
follows:-
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“Provided that in case of sale of immovable property in the State of Jammu and Kashmir, the provisions of Jammu and Kashmir Transfer of Property Act, 1977 shall apply to the person who acquires such property in the State.”
40. This Rule makes it amply clear that Section 140 of the Transfer
of Property Act of Jammu & Kashmir will be respected in auction
sales that take place within the State. This being the case, it is clear
that there is no collision or repugnancy with any of the provisions of
SARFAESI, and therefore it is clear that the High Court is absolutely
wrong in finding that as Section 140 of the Transfer of Property Act
will be infracted, SARFAESI cannot be held to apply to the State of
Jammu & Kashmir. Rule 8 has been noticed but brushed aside by
the aforesaid judgment. The High court judgment begins from the
wrong end and therefore reaches the wrong conclusion. It states that
in terms of Section 5 of the Constitution of Jammu & Kashmir, the
State has absolute sovereign power to legislate in respect of laws
touching the rights of its permanent residents qua their immovable
properties. The State legislature having enacted Section 140 of the
Jammu & Kashmir Transfer of Property Act, therefore, having clearly
stated that the State’s subjects/citizens are by virtue of the said
provision protected, SARFAESI cannot intrude and disturb such
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protection. The whole approach is erroneous. As has been stated
hereinabove, Entries 45 and 95 of List I clothe Parliament with
exclusive power to make laws with respect to banking, and the
entirety of SARFAESI can be said to be referable to Entry 45 and 95
of List I, 7th Schedule to the Constitution of India. This being the
case, Section 5 of the Jammu & Kashmir Constitution will only
operate in areas in which Parliament has no power to make laws for
the State Thus, it is clear that anything that comes in the way of
SARFAESI by way of a Jammu & Kashmir law must necessarily give
way to the said law by virtue of Article 246 of the Constitution of India
as extended to the State of Jammu & Kashmir, read with Section 5 of
the Constitution of Jammu & Kashmir. This being the case, it is clear
that Sections 13(1) and (4) cannot be held to be beyond the
legislative competence of Parliament as has wrongly been held by
the High Court.
41. It is rather disturbing to note that various parts of the judgment
speak of the absolute sovereign power of the State of Jammu &
Kashmir. It is necessary to reiterate that Section 3 of the Constitution
of Jammu & Kashmir, which was framed by a Constituent Assembly
elected on the basis of universal adult franchise, makes a ringing 52
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declaration that the State of Jammu & Kashmir is and shall be an
integral part of the Union of India. And this provision is beyond the
pale of amendment. Section 147 of the Jammu & Kashmir
Constitution states:-
“147. Amendment of the Constitution. - An amendment of this Constitution may be initiated only by the introduction of a Bill for the purpose in the Legislative Assembly and when the Bill is passed in each House by a majority of not less than two-thirds of the total membership of the House, it shall be presented to the Sadar-i-Riyasat for his assent and, upon such assent being given to the Bill, the Constitution shall stand amended in accordance with the terms of the Bill:
Provided that a Bill providing for the abolition of the Legislative Council may be introduced in the Legislative Assembly and passed by it majority of the total membership of the Assembly and by a majority of not less than two-thirds of the members of the Assembly present and voting:
Provided further that no Bill or amendment seeking to make any change in:
(a) this section;
(b) the provisions of the sections 3 and 5; or
(c) the provisions of the Constitution of India as applicable in relation to the State;
shall be introduced or moved in either House of the Legislature.”
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42. It is also significant in this context to refer to the Preamble to
the Constitution of Jammu & Kashmir, 1957 and compare it to that of
the Constitution of India, 1950.
The Preamble of the Constitution of Jammu and Kashmir reads
as follows:
"WE, THE PEOPLE OF THE STATE OF JAMMU AND KASHMIR, having solemnly resolved, in pursuance of the accession of this State to India which took place on the twenty-sixth day of October, 1947, to further define the existing relationship of the State with the Union of India as an integral part thereof, and to secure to ourselves- JUSTICE, social, economic and political; LIBERTY of thought, expression, belief, faith and worship; EQUALITY of status and of opportunity; and to promote among us all; FRATERNITY assuring dignity of the individual and the unity of the nation; IN OUR CONSTITUENT ASSEMBLY this seventeenth day of November, 1956, do HEREBY ADOPT, ENACT AND GIVE TO OURSELVES THIS CONSTITUTION."
It is to be noted that the opening paragraph of the Constitution
of India, namely “WE THE PEOPLE OF INDIA, having solemnly
resolved to constitute India into a SOVEREIGN SOCIALIST
SECULAR DEMOCRATIC REPUBLIC and to secure to all its
citizens…” has been wholly omitted in the Constitution of Jammu &
Kashmir. There is no reference to sovereignty. Neither is there any 54
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use of the expression “citizen” while referring to its people. The
people of Jammu & Kashmir for whom special rights are provided in
the Constitution are referred to as “permanent residents” under Part
III of the Constitution of Jammu & Kashmir. Above all, the
Constitution of Jammu & Kashmir has been made to further define
the existing relationship of the State with the Union of India as an
integral part thereof.
43. It is thus clear that the State of Jammu & Kashmir has no
vestige of sovereignty outside the Constitution of India and its own
Constitution, which is subordinate to the Constitution of India. It is
therefore wholly incorrect to describe it as being sovereign in the
sense of its residents constituting a separate and distinct class in
themselves. The residents of Jammu & Kashmir, we need to
remind the High Court, are first and foremost citizens of India. Indeed,
this is recognized by Section 6 of the Jammu & Kashmir Constitution
which states:
“6. Permanent residents:-(1) Every person who is, or is deemed to be, a citizen of India under the provisions of the Constitution of India shall be a permanent resident of the State, if on the fourteenth day of May, 1954-
(a) he was a State Subject of Class I or of Class II ; or 55
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(b) having lawfully acquired immovable property in the State, he has been ordinarily resident in the State for not less than ten years prior to that date.
(2) Any person who, before the fourteenth day of May, 1954, was a State Subject of Class I or of Class II and who having migrated after the first day of March, 1947, to the territory now included in Pakistan, returns to the State under a permit for resettlement in the State or for permanent return issued by or under the authority of any law made by the State Legislature shall on such return be a permanent resident of the State.
(3) In this section, the expression "State Subject of Class I or of Class II" shall have the same meaning as in State Notification No. 1-L/84 dated the twentieth April, 1927, read with State Notification No. 13/L dated the twenty 7th June, 1932.”
They are governed first by the Constitution of India and also by
the Constitution of Jammu & Kashmir. This is made clear by Section
10 of the Jammu & Kashmir Constitution which states:
“10. Rights of the permanent residents:- The permanent, residents of the State shall have all the rights guaranteed to them under the Constitution of India.”
We have been constrained to observe this because in at least
three places the High Court has gone out of its way to refer to a
sovereignty which does not exist.
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44. Again it is wholly incorrect to refer to Entry 11A of List 3 and to
state that since it is not extended to the State of Jammu & Kashmir,
Parliament would have no legislative competence to enact Sections
17A and 18B of SARFAESI. There are at least three errors in this
conclusion. First and foremost, it is not possible to dissect the
provisions of SARFAESI and attach them to different Entries under
different Lists. As has been held by us, the whole of SARFAESI is
referable to Entry 45 and 95 of List I. Secondly, what has been
missed by the impugned judgment is that Entry 95 List I is a source of
legislative power for Parliament for conferring power and jurisdiction
on the District Court and the High Court respectively in respect of
matters contained in SARFAESI. And third, the subject
“Administration of Justice” is only general and can be referred to only
if Entry 95 List I read with Entry 45 List I are not attracted. We are
afraid that despite the judgment in Narottamdas Jethabai and
Jamshed Guzdar’s case (supra), the High Court, even though it
refers to Narottamdas Jethabai, has completely missed this crucial
aspect. Most importantly, even if it is found that Section 140 of the
Jammu & Kashmir Transfer of Property Act entitles only certain
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persons to purchase properties in the State of Jammu & Kashmir, yet,
as has been held hereinabove, Rule 8(5) proviso which recognizes
this provision, has been brushed aside. In any case an attempt has
first to be made to harmonise Section 140 of the Jammu & Kashmir
Transfer of Property Act with SARFAESI, and if such harmonization is
impossible, it is clear that by virtue of Article 246 read with Section 5
of the Jammu & Kashmir Constitution, Section 140 of the Jammu &
Kashmir Transfer of Property Act has to give way to SARFAESI, and
not the other way around.
45. Reliance has also been placed on Article 35A of the
Constitution as it applies to the State of Jammu & Kashmir. The said
Article reads as follows:
“35A. Saving of laws with respect to permanent residents and their rights- Notwithstanding anything contained in this Constitution, no existing law in force in the State of Jammu and Kashmir, and no law hereafter enacted by the Legislature of the State,-
(a) Defining the classes of persons who are, or shall be, permanent residents of the State of Jammu and Kashmir; or
(b)Conferring on such permanent residents any special rights and privileges or imposing upon other persons any restrictions as respects-
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(i) employment under the State Government; (ii) acquisition of immovable property in the State; (iii) settlement in the State; or (iv) right to scholarships and such other forms of
aid as the State Government may provide,
Shall be void on the ground that it is inconsistent with or takes away or abridges any rights conferred on the other citizens of India by any provision of this Part.”
46. We fail to understand how Article 35A carries the matter any
further. This Article only states that the conferring on permanent
residents of Jammu & Kashmir special rights and privileges regarding
the acquisition of immovable property in the State cannot be
challenged on the ground that it is inconsistent with the fundamental
rights chapter of the Indian Constitution. The conferring of such
rights and privileges as mentioned in Section 140 of the Jammu &
Kashmir Transfer of Property Act is not the subject matter of
challenge on the ground that it violates any fundamental right of the
Constitution of India. Furthermore, in view of Rule 8(5) proviso, such
rights are expressly preserved.
47. We find that the High Court judgment ultimately states:
“It is held that the Union Parliament does not have legislative competence to make laws contained in section 13, section 17(A), section 18(B) section 34, 35 and section 36, so far as they relate to the State of J&K;
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It is further held that in view of the aforesaid declaration, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 cannot be enforced in the State of J&K;
It is further held that the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 can be availed of by the banks, which originate from the State of J&K for securing the monies which are due to them and which have been advanced to the borrowers, who are not State subjects and residents of the State of J&K and who are non State subjects/ non citizens of the State of J&K and residents of any other State of India excepting the State of J&K.”
Having held that the provisions of SARFAESI cannot be applied
to the State of Jammu & Kashmir, it is a contradiction in terms to state
that SARFAESI can be availed of by banks which originate from the
State of Jammu & Kashmir for securing monies which are due to
them and which have been advanced to borrowers who are not the
residents of the State of Jammu & Kashmir.
48. We therefore set aside the judgment of the High Court. As a
result, notices issued by banks in terms of Section 13 and other
coercive methods taken under the said Section are valid and can be
proceeded with further. The appeals are accordingly allowed with no
order as to costs.
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………………………….J. (Kurian Joseph)
………………………….J. (R.F. Nariman)
New Delhi; December 16, 2016.
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