REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

WRIT PETITION (CIVIL) NO. 134 OF 2013

JAYANT VERMA & ORS.  … PETITIONERS

VERSUS

UNION OF INDIA & ORS. … RESPONDENTS

J U D G M E N T

R.F. NARIMAN, J.

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

filed under Article 32 of the Constitution of India, assails

the constitutional validity of Section 21A of the Banking

Regulation  Act,  1949.   The  aforesaid  section  was

introduced  into  the  Banking  Regulation  Act  by  the

Banking Laws (Amendment) Act of 1983 with effect from

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15.2.1984.  Section 21A of  the Banking Regulation Act

reads as under:

“21A. Rates of interest charged by banking companies not to be subject to scrutiny by courts  Notwithstanding  anything  contained  in  the Usurious Loans Act, 1918 (10 of 1918), or any other law relating to indebtedness in force in any State,  a transaction between a banking company  and  its  debtor  shall  not  be  re- opened by any court on the ground that the rate  of  interest  charged  by  the  banking company  in  respect  of  such  transaction  is excessive.”

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

reopening  by  courts  of  a  debt  between  a  banking

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

interest charged by the banking company, in respect of a

loan transaction, is excessive.  The section seeks to keep

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

any other State legislation relating to indebtedness, and

then  declares  that  no  such  loan  transaction  shall  be

reopened  by  any  court  on  the  ground  of  charging  of

excessive rates of interest. The writ petition has been filed

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

the Parliamentary Standing Committee on Agriculture for

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

abolished, insofar as it applies to rural indebtedness.  The

Standing Committee’s Report reads as follows:  

“The  Committee  feels  that  the  worst exploitation of farmers is through the adverse credit  policies  of  the  financial  institutions which  compel  farmers  to  starve  under  the burden  of  loans  and  commit  suicides.  The Committee  finds  that  in  1918,  the  British passed  the  Usurious  Loans  Act  which provided that  no farmer could be charged a rate  of  interest  higher  than  the  authorised rate- which at that time was 5.5 per cent, and if  charged,  the  case  could  be  re-opened  in court  and  the  entire  account  re-settled. Moreover,  the total  amount  of  interest  could not be higher than the original capital. But in 1949, the Banking Regulation Act was passed which made a special provision under Section 21  (A)  saying  that  these  will  not  apply  to banking  companies  including  cooperative banks.

In view of the plight of farmers due to heavy burden of credits, the Committee recommend that section 21 (A) of the Banking Regulation Act  should  be  scrapped.  All  out  concerted efforts should be made to bring down the rate of interest on Farm Credit to the level of 5.5% simple interest, as it  used to be in the early

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20th century.  In  case  of  cooperatives, transaction cost/margin at each layer must be reduced as the length of  chain, from RBI to NABARD  to  State-District  and  Cooperative Societies at village level and Regional Rural Banks, is very big. Eventually, the farmer has to  take  the  burden  of  all  these middlemen/lending agencies. The Committee, therefore, recommends to shorten this chain, so that the eventual creditor is directly linked to the borrower. The Committee further desire the Government to ensure that in no case, the interest  should  be  higher  than  the  original capital  and  charging  of  compound  rate  of interest  should  be  absolutely  prohibited  so that  exploitation  of  farmers  by  financial institutions is minimized.

REPLY OF THE GOVERNMENT

1.23  The  Government  in  their  action  taken reply have stated that in order to bring down rate  of  interest  on  farm  loans  it  has  been announced in the Union Budget for the year 2006-07  that  effective  from  Kharif  2006-07, farmers  would  receive  crop  loans  upto  a principal amount of Rs. 3 lakh at 7% rate of interest  and  the  Government  of  India  would provide necessary interest subvention for this purpose. Crop loans to farmers are generally made  available  through  Kisan  Credit  Cards (KCC) which are valid for 3 years. As incentive for good performance, credit limits under KCC could be enhanced to take care of increase in costs, change in cropping pattern etc. Banks have been advised by RBI that total interest debited to an account should not exceed the principal amount in respect of short term loans

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advanced to small  and marginal farmers. As per the extant RBI instructions, banks are not allowed to compound interest on current dues of  crop  loans  and  term  loans  in  respect  of direct  agricultural  advances  granted  to farmers. If such loans become overdue banks have been advised that where the default is due to genuine reasons, they should extend the  period  of  loan  or  reschedule  the installments  under  term loans.  Once such a relief  has  been  extended  the  over  dues become current dues and hence banks should not  compound  interest  thereon.  In  case  of long duration crops, interest is recovered only annually.  

COMMENTS OF THE COMMITTEE

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

Moreover,  the  issue  of  cutting  the costs/margin at each layer of cooperative has

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also  not  been  addressed.  The  Committee, therefore,  reiterates  their  earlier recommendation  to  shorten  the  chain  of cooperative loan institutions and directly  link the eventual creditor to the borrowers.”

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

farmers  have  committed  suicide  in  India  between  the

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

linked to,  usurious rates of  interest  being charged from

them by banks, which cannot be interfered with by courts,

thanks to Section 21A.  

3. Shri  Sanjay Parikh, learned counsel appearing on

behalf of the writ petitioners, took us through the Usurious

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

power was alive to the fact that courts need to interdict

excessive  rates  of  interest,  and  have  been  given

complete  freedom to  do so,  depending on the facts  of

each case, including taking into account the plight of the

farmer debtor. He also referred to and relied upon various

State  Debt  Relief  Acts,  by  which  every  State  has

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

legislation,  that  loans  and  interest  thereon  either  be

waived totally or partially or that courts may come to the

rescue  of  the  farmer  debtor  by  lowering  the  rate  of

interest.  According to him, many States adopted the rule

of  Damdupat so  that  in  no  circumstance  can  interest

charged, for any period whatsoever, exceed the principal

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

judgments in  Fatehchand Himmatlal & Ors. v. State of

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

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

show  that  State  Debt  Relief  Acts  have  been

unsuccessfully challenged in this Court, and are referable

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

Constitution.   He  referred  to  the  Constituent  Assembly

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

speaks  of  relief  of  agricultural  indebtedness,  was

introduced by the Constitution for the first time, not being

in the predecessor entry in the Government of India Act,

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1935.  He also referred to and relied upon a proposed

amendment by Shri Shibban Lal Saxena, by which it was

sought to place the aforesaid Entry 30 into the Concurrent

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

of  agricultural  indebtedness.   However,  this  was turned

down by the Constituent Assembly, so that this subject is

exclusively within the domain of the State legislature.  

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

the Andhra Pradesh High Court reported as  State Bank

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

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

judgment  reported as  State Bank of  India  v.  Yasangi

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

out that the aforesaid single Judge judgment has been set

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

forthcoming from the Supreme Court judgment.  This was

because paragraph 7 of the aforesaid judgment was both

laconic  and  contained  only  conclusions  without  any

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reasoning. He also argued that the said decision is  per

incuriam, not having referred to the number of judgments

that were relied upon by the learned single Judge.  He

also pointed out that arguments were made only by the

appellant,  there  being  no  arguments  on  behalf  of  the

respondent,  and that,  therefore,  the aforesaid judgment

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

through  the  aforestated  report  of  the  Parliamentary

Standing  Committee  on  Agriculture  for  the  year  2006-

2007 to show that Parliament was alive to the fact that

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

provision which led to farmer suicides on a mass scale.

He  also  argued  that  the  said  provision  is  violative  of

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

fact that Section 21A is an arbitrary piece of legislation

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

any case, as an alternative argument,  the said Section

should  be  read  down  when  applied  to  loans  given  by

banks to the rural agricultural sector.  

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

senior counsel appearing on behalf of the Reserve Bank

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

to several judgments thereunder and stated that Section

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

Schedule  to  the  Constitution,  which  is  “banking”.

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

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

the federal paramountcy principle, State legislation under

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

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

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

that  “relief  of  agricultural  indebtedness”  will  not  include

indebtedness to banks.  He took us through the counter

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

the  plight  of  poor  farmers,  and  had  taken  several

measures,  including  issuance  of  guidelines,  to  assist

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

Yasangi  Venkateswara  Rao (supra)  could  have  been

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more elaborate, he argued that paragraph 7 lays down a

clear ratio decidendi, and that this Court ought to follow

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

he argued that  there is  no pleading in  the writ  petition

stating how Article 14 had been breached, and this being

the case, there being a presumption of constitutionality of

Section 21A, such presumption had not been rebutted in

this case.  

6. Ms. Shirin Khajuria, learned counsel who appeared

on  behalf  of  the  Union  of  India,  painstakingly  took  us

through  the  provisions  of  the  Banking  Regulation  Act.

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

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

Schedule to the Constitution, should be read along with

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

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

indebtedness  would  apply  only  to  money  lenders  and

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

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relief  of  agricultural  indebtedness  were  not  linked  to

money lending, it  would have found itself  in a separate

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

relied  upon  a  number  of  judgments  to  buttress  her

submissions,  and  read  copiously  from the  two  counter

affidavits  filed  by  the  Union  of  India  to  show how the

Central Government was fully alive to the plight of poor

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

same.  

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

necessary to first  set  out  the relevant provisions of  the

Government of India Act, 1935 and the Constitution.

“Government of India Act, 1935

List I- Federal Legislative List

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

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List II- Provincial Legislative List

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

xxx xxx xxx

Constitution of India

List I- Union List

45. Banking.

List II- State List

30. Money-lending and money-lenders;  relief of agricultural indebtedness.

xxx xxx xxx

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

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

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

(3)  Subject  to  clauses  (1)  and  (2),  the Legislature of any State has exclusive power

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to  make  laws  for  such  State  or  any  part thereof  with  respect  to  any  of  the  matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the “State List”).  

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

 8. In  order  to  appreciate  the  scope  of  the  subject

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

dicta  on  the  subject.  In  Rustom  Cavasjee  Cooper

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

SCC 248 at 279 and 281, this Court stated:

“31. The expression “banking” is not defined in any  Indian  statute  except  in  the  Banking Regulation Act, 1949. It may be recalled that by Section 5(b)  of  that  Act  “banking”  means “the accepting for  the purpose of  lending or investment  of  deposits  of  money  from  the public repayable on demand or otherwise, and withdrawable by cheque, draft  or otherwise”. The  definition  did  not  include  other commercial  activities  which  a  banking institution may engage in.

xxx xxx xxx

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36. The  legislative  entry  in  List  I  of  the Seventh  Schedule  is  “Banking”  and  not “Banker”  or  “Banks”.  To  include  within  the connotation  of  the  expression  “Banking”  in Entry 45, List I, power to legislate in respect of all commercial activities which a banker by the custom of bankers or authority of law engages in, would result in re-writing the Constitution. Investment  of  power  to  legislate  on  a designated topic covers all matters incidental to  the  topic.  A  legislative  entry  being expressed  in  a  broad  designation  indicating the contour of plenary power must receive a meaning  conducive  to  the  widest  amplitude, subject however to limitations inherent in the federal  scheme  which  distributes  legislative power between the Union and the constituent units.  The  field  of  “banking”  cannot  be extended  to  include  trading  activities  which not being incidental to banking encroach upon the  substance  of  the  entry  “trade  and commerce” in List II.”

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

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

constitutional  validity  of  the  Recovery  of  Debts  Due to

Banks and Financial Institutions Act,  1993.  In repelling

the contention that the said Act would not fall under Entry

45, List I, this Court held:

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“14. The Delhi High Court and the Guwahati High Court have held that the source of the power of Parliament to enact a law relating to the  establishment  of  the  Debts  Recovery Tribunal is Entry 11-A of List III which pertains to “administration of  justice;  constitution and organisation of all courts, except the Supreme Court  and  the  High  Courts”.  In  our  opinion, Entry  45  of  List  I  would  cover  the  types  of legislation  now  enacted.  Entry  45  of  List  I relates  to  “banking”.  Banking  operations would, inter  alia,  include  accepting  of  loans and deposits, granting of loans and recovery of  the debts due to the bank. There can be little doubt that under Entry 45 of List I,  it  is Parliament alone which can enact a law with regard  to  the  conduct  of  business  by  the banks.  Recovery  of  dues  is  an  essential function of any banking institution. In exercise of  its  legislative  power  relating  to  banking, Parliament  can  provide  the  mechanism  by which monies due to the banks and financial institutions  can  be  recovered.  The  Tribunals have been set up in regard to the debts due to the  banks.  The  special  machinery  of  a Tribunal  which  has  been  constituted  as  per the  preamble  of  the  Act,  “for  expeditious adjudication  and  recovery  of  debts  due  to banks  and  financial  institutions  and  for matters  connected  therewith  or  incidental thereto” would squarely fall within the ambit of Entry 45 of List I. As none of the items in the lists are to be read in a narrow or restricted sense, the term “banking” in Entry 45 would mean  legislation  regarding  all  aspects  of banking  including  ancillary  or  subsidiary matters relating to banking. Setting up of an

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adjudicatory  body  like  the  Banking  Tribunal relating  to  transactions  in  which  banks  and financial  institutions  are  concerned  would clearly  fall  under  Entry  45  of  List  I  giving Parliament  specific  power  to  legislate  in relation thereto.”

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

construed widely  as including  not  only  banking,  but  all

aspects incidental or ancillary to banking, so long as the

field of “banking” does not trench upon trading activities

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

List II.  

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

other judgments of this Court dealing with the expression

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

Prafulla Kumar Mukherjee v. Bank of Commerce Ltd.,

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

expounded  the  doctrine  of  pith  and  substance,  and

ultimately found that, on a proper reading of the entries

concerned, there would be no clash between the Bengal

Money  Lenders  Act,  1940,  which  was  referable  to  the

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State  List,  and  the  Federal  entries  dealing  with

promissory notes and banking. Thus, the Court held:

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

“It  must  inevitably  happen  from time  to  time  that  legislation, though  purporting  to  deal  with  a subject in one list, touches also on a subject  in  another  list,  and the different  provisions  of  the enactment  may  be  so  closely intertwined  that  blind  observance to  a  strictly  verbal  interpretation would result in a large number of statutes  being  declared  invalid because  the  legislature  enacting them  may  appear  to  have legislated  in  a  forbidden  sphere. Hence  the  rule  which  has  been evolved  by  the  Judicial Committee,  whereby  the impugned  statute  is  examined  to ascertain its pith and substance or its  true  nature  and  character  for the  purpose  of  determining whether  it  is  legislation  with

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respect to matters in this list or in that.”  

36.  Their  Lordships agree that  this  passage correctly describes the grounds on which the rule is founded, and that it applies to provincial as well  as to Dominion legislation. No doubt experience of  past  difficulties  has made the provisions  of  the  Indian  Act  more  exact  in some  particulars,  and  the  existence  of  the Concurrent  List  has  made  it  easier  to distinguish between those matters which are essential in determining to which list particular provisions  should  be  attributed  and  those which  are  merely  incidental.  But  the overlapping  of  subject-matter  is  not  avoided by substituting three lists for two or even by arranging for a hierarchy of jurisdictions.  

37. Subjects must still overlap and where they do the question must be asked what in pith and substance is the effect of the enactment of which complaint is made and in what list is its  true nature and character  to be found.  If these  questions  could  not  be  asked,  much beneficent legislation would be stifled at birth, and  many  of  the  subjects  entrusted  to provincial legislation could never effectively be dealt with.

38. Thirdly, the extent of the invasion by the provinces  into  subjects  enumerated  in  the Federal List has to be considered. No doubt it is an important matter, not, as their Lordships think,  because the validity  of  an Act  can be determined  by  discriminating  between degrees  of  invasion,  but  for  the  purpose  of determining what is the pith and substance of

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the impugned Act. Its provisions may advance so far into Federal territory as to show that its true  nature  is  not  concerned  with  provincial matters,  but  the  question  is  not,  has  it trespassed more or less, but is the trespass, whatever it be, such as to show that the pith and  substance  of  the  impugned  Act  is  not money  lending  but  promissory  notes  or banking?  Once  that  question  is  determined the Act falls on one or the other side of the line and can be seen as valid or invalid according to its true content.  

39. This view places the precedence accorded to the three lists in its proper perspective. No doubt where they come in conflict  List I  has priority  over  Lists  III  and  II  and  List  III  has priority  over  List  II,  but  the  question  still remains,  priority  in  what  respect?  Does  the priority of the Federal legislature prevent the provincial  legislature  from  dealing  with  any matter which may incidentally affect any item in its list or in each case has one to consider what the substance of an Act is and, whatever its  ancillary  effect,  attribute  it  to  the appropriate list according to its true character? In their Lordships’ opinion the latter is the true view.  

40.  If  this  be  correct  it  is  unnecessary  to determine  whether  the  jurisdiction  as  to promissory  notes  given  to  the  Federal legislature is or is not confined to negotiability. The  Bengal  Money  Lenders  Act  is  valid because it  deals in  pith  and substance with money  lending,  not  because  legislation  in respect  of  promissory  notes  by  the  Federal legislature is  confined to legislation affecting

20

their negotiability—a matter as to which their Lordships express no opinion.

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

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

(Emphasis Supplied)

In  Virendra Pal Singh v. Distt. Asstt. Registrar, Coop.

Societies, (1980) 4 SCC 109 at 113-114, the aforesaid

judgment  was  followed  and  the  U.P.  Cooperative

Societies Act,  1965, insofar as it  dealt with Cooperative

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

This Court held:

“9. It  was  strenuously  contended  by  the learned Counsel for the petitioners in some of the cases that the U.P. Cooperative Societies Act, 1965, insofar as it was sought to be made

21

applicable to cooperative banks was beyond the competence of the State Legislature. The argument  was  that  while  the  subject “cooperative societies” was included in Entry 32 of List II, “banking” was a distinct entry by itself in List I  of the 7th Schedule (Entry 45) and  therefore,  the  State  Legislature  was incompetent to legislate in regard to banking by  “cooperative  societies”.  There  is  no substance whatever in this submission. Entry 43 of  List  I  is  “incorporation,  regulation  and winding up of  trading corporations,  including banking, insurance and financial corporations but not including cooperative societies”. Entry 44 is “incorporation, regulation and winding up of  corporations  whether  trading  or  not,  with objects  not  confined  to  one  State,  but  not including universities”.  Entry 45 is “banking”. Entry 32 of List II is, “incorporation, regulation and  winding  up  of  corporations,  other  than those  specified  in  List  I,  and  universities; unincorporated  trading,  literary,  scientific, religious and other societies and associations; cooperative societies”.

10. We do not think it necessary to refer to the abundance of authority on the question as to how to  determine  whether  a  legislation  falls under an entry in one list or another entry in another  list.  Long  ago  in Prafulla  Kumar Mukherjee v. Bank  of  Commerce  Ltd. [74  IA 23] the Privy Council was confronted with the question whether the Bengal Money-Lenders Act fell within Entry 27 in List II of the Seventh Schedule  to  the  Government  of  India  Act, 1935, which was “money-lending”, in respect of  which  the  provincial  legislature  was

22

competent to legislate, or whether it fell within Entries  28  and  38  in  List  I  which  were “promissory notes” and “banking” which were within  the  competence  of  the  Central Legislature.  The  argument  was  that  the Bengal  Money-Lenders  Act  was  beyond  the competence  of  the  provincial  legislature insofar as it dealt with promissory notes and the  business  of  banking.  The  Privy  Council upheld  the  vires  of  the  whole  of  the  Act because it  dealt, in pith and substance, with money-lending. They observed:

“Subjects  must  still  overlap,  and where they do the question must be  asked  what  in  pith  and substance  is  the  effect  of  the enactment  of  which  complaint  is made,  and in what list  is  its  true nature and character to be found. If  these  questions  could  not  be asked, much beneficent legislation would be stifled at birth, and many of  the  subjects  entrusted  to provincial  legislation  could  never effectively be dealt with.”

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

23

which  do  banking  business  to  facilitate  the working of other cooperative societies. Merely because  they  do  banking  business  such cooperative  societies  do  not  cease  to  be cooperative  societies,  when  otherwise  they are  registered  under  the  Cooperative Societies  Act  and  are  subject  to  the  duties, liabilities and control of the provisions of the Cooperative  Societies  Act.  We  do  not  think that  the  question  deserves  any  more consideration and, we, therefore, hold that the U.P. Cooperative Societies Act was within the competence of the State Legislature. This was also the view taken in Nagpur District Central Cooperative  Bank  Ltd. v. Divisional  Joint Registrar,  Cooperative  Societies [AIR  1971 Bom 365 : 1971 Mah LJ 932] and Sant Sadhu Singh v. State of Punjab [AIR 1970 P&H 528].”

(Emphasis Supplied)

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

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

this Court held that the Bihar and Orissa Public Demands

Recovery Act, 1914 was referable to Entries 11A and 13

of the Concurrent List and not to Entry 45, List I.   

10. We now come to some of  the judgments strongly

referred to and relied upon by Shri Parikh. In Fatehchand

(supra),  several  pleas  were  taken  to  invalidate  the

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Maharashtra  Debt  Relief  Act  of  1976.   Insofar  as

legislative competence was concerned, this Court held:

“54. What  then  is  the  incompetence  of  the State Legislature? Shri B. Sen urged that the wiping out of private debts which formed the capital assets of the moneylenders — one of the main things done by the Debt Act — was not in any of the legislative Lists and even if Parliament had residuary power under Entry 97 of List I, the State had none. Entry 30 in List  II  is  “Money lending and moneylenders; relief  of  agricultural  indebtedness”.  If commonsense  and  common  English  are components  of  constitutional  construction, relief  against  loans  by  scaling  down, discharging,  reducing  interest  and  principal, and  staying  the  realisation  of  debts  will, among  other  things,  fall  squarely  within  the topic.  And  that,  in  a  country  of  hereditary indebtedness  on  a  colossal  scale!  It  is commonplace to  state  that  legislative  heads must receive large and liberal meanings and the sweep of  the sense of  the rubrics must embrace  the  widest  range.  Even  incidental and  cognate  matters  come  within  their purview.  The whole gamut of Money lending and debt-liquidation is thus within the State’s legislative  competence. The  reference  to the Rajahmundry  Electricity  case [Rajamundry  Electric  Supply Corporation v. State of Andhra, AIR 1954 SC 251 : 1954 SCR 779] is of no relevance. Nor is  the  absence  of  the  expression  “relief”  in Entry 30,  List  II,  of  any moment when relief from moneylenders is eloquently implicit in the

25

topic. Sometimes, arguments have only to be stated to be rejected.”                         (at page 693)

(Emphasis Supplied)

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

with a challenge to the constitutional validity of Section 20

of the Kerala Debt Agriculturists Relief Act, 1970, which

entitled debtors to recover properties sold to purchasers

in  execution  of  decrees.   This  Court,  after  referring  to

Fatehchand (supra) in some detail, held:

“36. The avowed object  of  the Act  seems to give  substantial  relief  to  the  agriculturist debtors in order to get back their property and earn  their  livelihood.  This  is  undoubtedly  a laudable object and the Act is a piece of social legislation.  As  the  decree-holder  who  had purchased the property is fully compensated by being paid the amount  for  which he had purchased the property, it cannot be said that his  right  to  hold  the  property  has  been completely destroyed. The purchaser gets the property at a distress sale and is fully aware of the pitiable conditions under which the debtor was unable to pay the debt. In a Constitution which is wedded to a social pattern of society the purchaser must be presumed to have the knowledge that  any social  legislation for  the good of a particular community or the people in  general  can  be  brought  forward  by Parliament  at  any  time.  The  Act,  however,

26

does  not  take  away  the  property  of  the purchaser  without  paying  him  due compensation. It is true that Section 20(2)(b) provides for payment of the purchase money by instalments, but no exception can be taken to  this  fact  as  in  view of  the poverty  of  the debtor it is not possible for him to pay the debt in a lump sum and as the legislation is for a particular  community  the  provision  for payment  by  instalments  cannot  be  said  to work  serious  injustice  to  the  decree-holder purchaser.  A stranger auction purchaser has been  treated  differently  because  he  had nothing to do with the decree and is enjoined to  return  the  property  to  the  agriculturist debtor on payment of entire amount in lump sum without insisting on instalments. Thus, in short, the position is that the object of the Act is to protect  the poor distressed agriculturist debtors from the clutches of greedy creditors who  have  grabbed  the  properties  of  the debtors and deprived the debtors of their main source of sustenance.”

(at page 22)

In dealing with legislative competence, this Court upheld

Section 20 in the following terms:-

“56. It is Article 246 of the Constitution which deals with the subject-matter of the laws to be made by the Parliament and the Legislatures of  the  States.  Clause  (3)  of  the  Article provides that subject to clauses (1) and (2) of the Article with which we are not  concerned the  Legislature  of  the  State  has  “exclusive power to make laws..... with respect to any of

27

the matters enumerated in List II”. Entry 30 of the  List  specifically  states  the  following matters as being within the competence of the State Legislature,—

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

It  is  therefore  quite  clear,  and  is  beyond controversy,  that  the  Act  which  provides  for “the  relief  of  indebted  agriculturists  in  the State of Kerala” is within the competence of the State Legislature. Clause (1) of Section 2 of the Act defines an “agriculturist”, clause (4) defines a “debt”, clause (5) defines a “debtor” and the two Explanations to Section 20 define the expressions “court” and “judgment-debtor” and  give  an  extended  meaning  to  the expression  “agriculturist”  so  as  to  include  a person who would have been an agriculturist but for the sale of his immovable property. The other sections provide for the settlement of the liabilities and payment of the debt (along with the interest)  of  an agriculturist,  including the setting  aside  of  the  sale  in  execution  of  a decree  and  the  bar  of  suits.  The  subject- matter of the Act is therefore clearly within the purview  of  Entry  30  and  Counsel  for  the appellants have not been able to advance any argument which could justify a different view. Reference in this connection may be made to this  Court’s  decision  in Fatehchand Himmatlal v. State  of  Maharashtra  [(1977)  2 SCC 670 : (1977) 2 SCR 828]. It has however been argued that the entry would not permit the making of a law relating to the debt of an agriculturist  which has already been paid by

28

sale of his property in execution of a decree and is not a subsisting debt.

57. It  is  true  that  Section  20  of  the  Act provides for the setting aside of any sale of immovable property  in  which an agriculturist had an interest, if the property had been sold, inter alia, in execution of any decree for the recovery of a debt: (a) on or after November 1, 1956, or (b) before November 1, 1956, but possession whereof has not  actually passed before  November  20,  1957,  from  the judgment-debtor  to  the  purchaser,  and  the decree-holder is the purchaser, on depositing one-half of the purchase money together with the  cost  of  the  execution  etc.  The  section therefore  deals  with  a  liability  which  had ceased and did not subsist on the date when the Act came into force. But there is nothing in Entry 30 of List II  to show that it  will  not be attracted  and  would  not  enable  the  State Legislature to make a law simply because the debt  of  the  agriculturist  had  been  paid  off under  a distress sale.  The subject-matter  of the entry is “relief of agricultural indebtedness” and there is no justification for the contention that  it  is  confined  only  to  subsisting indebtedness  and  would  not  cover  the necessity  of  providing  relief  to  those agriculturists  who  had  lost  their  immovable property  by  court  sales  in  execution  of  the decree against them and had been rendered destitute.  Their  problem  was  in  fact  more acute  and  serious,  for  they  had  lost  the wherewithal  of  their  livelihood  and  were reduced to a state of penury. An agriculturist does not cease to be an agriculturist merely

29

because he has lost his immovable property, and  it  cannot  be  said  that  the  State  is  not interested  in  providing  him  necessary  relief merely  because  he  has  lost  his  immovable property.  On  the  other  hand  his  helpless condition calls for early solution and it is only natural that the State Legislature should think of  rehabilitating  him  by  providing  the necessary  relief  under  an  Act  of  the  nature under consideration in these cases.  There is in fact nothing in the wordings of Entry 30 to show that the relief contemplated by it  must necessarily  relate  to  any  subsisting indebtedness  and  would  not  cover  the question of relief to those who have lost the means of their livelihood because of the delay in providing them legislative relief.  It  is  well- settled,  having  been  decided  by  this  Court in     Navinchandra Mafatlal     v.     CIT     [AIR 1955 SC 58 : (1955) 1 SCR 829 : (1954) 26 ITR 758] , that  “in  construing  words  in  a  constitutional enactment  conferring  legislative  power  the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude”. This has to be so lest a  legislative  measure  may be  lost  for  mere technicality.” (at pages 31-32)

(Emphasis Supplied)

11. This  brings  us  to  the  sweep  of  the  Banking

Regulation  Act,  and  to  whether  the  said  Act,  which

includes by way of amendment Section 21A, can be said

30

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

the Constitution. The relevant provisions of the Banking

Regulation Act, which are necessary for us to decide the

present writ petition, are as follows:

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

Nothing in this Act shall apply to.-

(a)  a  primary  agricultural  credit  society;   (b)  a  co-operative  land mortgage bank;  and (c)  any other  co-operative society,  except  in the manner and to the extent specified in Part V.

xxx xxx xxx

5. Interpretation  

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

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

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

Explanation.--Any company which is engaged in the manufacture of goods or carries on any trade and which accepts  deposits  of  money from  the  public  merely  for  the  purpose  of

31

financing its business as such manufacturer or trader  shall  not  be  deemed  to  transact  the business of banking within the meaning of this clause;

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

xxx xxx xxx

6.  Forms  of  business  in  which  banking companies may engage  

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

(a)  the  borrowing,  raising,  or  taking  up  of money;  the  lending  or  advancing  of  money either upon or without security;  the drawing, making,  accepting,  discounting,  buying, selling,  collecting  and  dealing  in  bills  of exchange,  hundies,  promissory  notes, coupons,  drafts,  bills  of  lading,  railway receipts,  warrants,  debentures,  certificates, scrips  and  other  instruments  and  securities whether transferable or negotiable or not; the granting  and  issuing  of  letters  of  credit, traveller's  cheques  and  circular  notes;  the buying,  selling  and  dealing  in  bullion  and specie;  the  buying  and  selling  of  foreign exchange  including  foreign  bank  notes;  the acquiring,  holding,  issuing  on  commission, underwriting  and  dealing  in  stock,  funds, shares,  debentures, debenture stock, bonds,

32

obligations,  securities and investments of  all kinds;  the  purchasing  and  selling  of  bonds, scrips or other forms of securities on behalf of constituents or others, the negotiating of loans and  advances;  the  receiving  of  all  kinds  of bonds,  scrips or  valuables on deposit  or  for safe  custody  or  otherwise;  the  providing  of safe  deposit  vaults;  the  collecting  and transmitting of money and securities;  

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

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

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

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

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

33

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

(h) undertaking and executing trusts;  

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

(j) establishing and supporting or aiding in the establishment  and  support  of  associations, institutions,  funds,  trusts  and  conveniences calculated  to  benefit  employees  or  ex- employees of the company or the dependents or  connections  of  such  persons;  granting pensions  and  allowances  and  making payments  towards  insurance;  subscribing  to or  guaranteeing  moneys  for  charitable  or benevolent objects or for any exhibition or for any public, general or useful object;  

(k) the acquisition, construction, maintenance and  alteration  of  any  building  or  works necessary or convenient for the purposes of the company;  

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

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

34

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

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

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

xxx xxx xxx

22. Licensing of banking companies  

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

xxx xxx xxx

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

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

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

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

35

construed  as  references  to  a  co-operative bank;  

(ii) references to “commencement of this Act” shall  be  construed  as  references  to commencement  of  the  Banking  Laws (Application  to  Co-operative  Societies)  Act, 1965 (23 of 1965);”

There can be no doubt that the Banking Regulation Act

deals  with  the  subject  “banking”  insofar  as  it  licenses

banking companies, as defined, and cooperative banks,

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

of  amendment,  is  undoubtedly  an  integral  part  of  the

aforesaid Act relating to the interdict on the reopening of

loan  transactions  between  a  banking  company  and  its

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

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

indebtedness of a debtor to a banking company and the

interdict against a court reopening any such transaction,

on  the  ground  that  interest  charged  by  the  banking

company is  excessive,  would  relate  to  the  business  of

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

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the  Seventh  Schedule  have  to  be  read  in  the  widest

possible manner, and we have seen from the judgments

quoted  by  us  above  that  the  expression  “banking”

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

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

whole and the aforesaid Section does fall within Entry 45,

List I.   

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

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

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

its object being to confer on Courts in India an equitable

jurisdiction in cases relating to unconscionable usurious

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

“loan” respectively in the widest terms as under:

“2. Definitions.  

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

(1) “interest”  means  rate  of  interest  and includes  the  return  to  be  made  over  and above  what  was  actually  lent,  whether  the

37

same is  charged or  sought  to  be recovered specifically by way of interest or otherwise.

(2) “loan” means a loan whether of money or in kind and includes any transaction which is, in  the  opinion  of  the  Court,  in  substance  a loan.”

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

reads as follows:-

“3. Reopening of transaction.  

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

(a) that the interest is excessive; and

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

(i) re-open  the  transaction,  take  an  account between the parties and relieve the debtor of all liability in respect of any excessive interest;

(ii) notwithstanding any agreement, purporting to close previous dealings and to create a new obligation, re-open any account already taken between  them and  relieve  the  debtor  of  all liability  in  respect  of  any  excessive  interest, and if  anything has been paid or allowed in account in respect of such liability, order the creditor to repay any sum which it considers to be repayable in respect thereof;

38

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

Provided that, in the exercise of these powers, the Court shall not-

(i) re-open any agreement purporting to close previous  dealings  and  to  create  a  new obligation which has been entered into by the parties or any persons from whom they claim at a date more than twelve years from the date of the transaction;

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

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

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

(b) In  considering  whether  interest  is excessive under this section, the Court shall take  into  account  any  amounts  charged  or paid,  whether  in  money  or  in  kind,  for expenses,  inquiries,  fines,  bonuses,  premia, renewals  or  any  other  charges,  and  if compound interest is charged, the periods at

39

which it is calculated, and the total advantage which may reasonably be taken to have been expected from the transaction.

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

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

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

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

(4) Nothing  in  this  section  shall  affect  the rights of any transferee for value who satisfies the Court  that  the transfer  to him was bona fide,  and  that  he  had  at  the  time  of  such

40

transfer  no  notice  of  any  fact  which  would have entitled the debtor as against the lender to relief under this section.  

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

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

13. It can be seen that very wide powers are given to

Courts,  inter  alia,  to  scale  down  rates  of  interest

considering a whole host of factors, including the financial

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

been stated hereinabove,  go even further and not only

relate to scaling down of excessive rates of interest, but

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

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

either  wholly  or  partially.  There  can  be  no  doubt

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

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

41

validly  made  under  Entry  30,  List  II  of  the  Seventh

Schedule to the Constitution.1   

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

1Ms. Khajuria relied upon State Bank of Travancore v.  Mohammed Mohammed Khan, 1982 (1) SCR 338 at 348, for the proposition that banks were excluded from the Kerala Agriculturists’ Debt Relief Act of 1970 because, unlike money lenders, they do not exploit needy agriculturists and impose upon them harsh and onerous terms, while granting loans to them.   While this may have been the perception in the year 1982, the perception in the years after 1982 has altered as several recent State Debt Relief Acts include relief against loans granted by banks.  For instance, the Kerala Farmers’  Debt  Relief  Commission  Act,  2006 defines “debt”  as  including  liabilities, inter alia, due to institutional creditors and cooperative societies, and further defines “institutional creditors” to include the State Bank of India, its subsidiaries and “any scheduled bank”.  The same is the position in the Telangana State Commission for Debt  Relief  (Small  Farmers,  Agricultural  Labourers  and  Rural  Artisans)  Act,  2016. Sections 11 and 12 of both Acts read:  

“11. Bar of suits, applications and other proceedings. No suit for recovery of debt shall be instituted, or application for execution of a decree in respect of a debt shall be made against a farmer described in clause (b) of sub-section (1) of section 5 and no appeal, revision petition or application for review against any  decree or  order  in  any  such suit  or  application  shall  be presented or made against such a farmer in any Civil Court, or Tribunal or other authority, and such suits, applications, appeals and petitions instituted or made against such a farmer before the date of declaration of a district or part thereof as a distress affected area and pending on such date shall stand stayed, for such period as the Commission may recommend in that behalf.”

“12. Payment of debt in instalments  (1) Notwithstanding anything contained in any law or contract or  in any decree or  order  of  any Court  or  Tribunal,  a farmer described in  clause  (b)  of  sub-  section  (1)  of  section  5  may discharge his  debts  in suitable instalments  together  with fair rate  of  interest  as  recommended  by  the  Commission  on  the principal amount outstanding at the time of each payment, in the  manner  as  may  be  directed  by  the  Commission  and  on payment  of  the  same  in  the  manner  directed  by  the Commission, the whole debt shall be deemed to be discharged. (2) Where any instalment of a debt is not paid on the due date

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

List II of the Seventh Schedule to the Constitution?  

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

Debt Reliefs Acts in the event of a clash between the

two?

In order to answer these questions, we have to consider

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

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

agricultural  indebtedness”  must  take  colour  from  the

expression  “money  lending  and  money  lenders”

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

We  are  afraid  we  cannot  agree  for  several  reasons.

Firstly,  purely  grammatically,  a semicolon separates the

two  expressions  showing  that  they  are  not  inextricably

connected.   Also,  we have already adverted to several

judgments, including Pathumma (supra), which state that

as directed by the Commission, the creditor shall be entitled to recover the same in the manner as may be determined by the Commission: Provided that, before taking decision by the Commission under this section, the farmer shall be given an opportunity of being heard.”

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the widest and the most liberal possible meaning must be

given to Entry 30, List II of the Seventh Schedule.  The

latter part of this entry cannot be narrowed down by any

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

part of the entry.2 In fact, various State Acts were already

in existence at the time of the Constitution, which dealt

with the subject of relief of agricultural indebtedness from

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

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

Sections  9  and  10  of  the  Central  Provinces  Money-

Lenders  Act,  1934,  Sections  11  and  12  of  the  Bihar

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

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

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

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

Obviously, the addition of the subject “relief of agricultural

2 In Special Reference No.1 of 2001, (2004) 4 SCC 489, the expression “gas and gas works” contained in Entry 25, List II was read in a manner that “gas” must take colour from the expression “gas works”. It is clear that this was because natural gas was excluded from the said entry and was, in fact,  part of Entry 53, List I,  being within  the  expression  “petroleum”.  It  would  not  be  possible  to  extend  such  an interpretation to a subject matter which is not directly linked with another subject matter contained in the same entry.

44

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

refer  to relief of agricultural  indebtedness not  only from

money lenders, but also from all persons who give loans

including banks. For otherwise, the subject matter “relief

of agricultural indebtedness” would have been subsumed

within  “money  lending  and  money  lenders”  and  would

have been wholly unnecessary to add as a subject matter

separate  and  distinct  from  “money  lending  and  money

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

separate  and  distinct  from  “relief  of  agricultural

indebtedness”  is  also  clear  from  the  fact  that  money

lending  is  not  restricted  to  the  agricultural  sector,  but

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

including purely commercial transactions.  Also, there are

many  subjects  in  the  Seventh  Schedule  which  are

contained  in  one  entry,  but  which  deal  with  divergent

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

completely different  subjects, all  banded together under

Entry 5 and separated by semicolons, making it clear that

45

each subject  matter  is  separate  and distinct  from what

follows each semicolon.3  Similarly, Entry 6, List III deals

with  transfer  of  property  other  than  agricultural  land,

separated by a semicolon from registration of deeds and

documents.4 Entry 12, List III deals with evidence and is,

thus, separated by a semicolon from recognition of laws,

public  acts  and  records  and  judicial  proceedings.5

Obviously, there is no scientific method involved in placing

subjects in the various entries in the lists contained in the

Seventh  Schedule  to  the  Constitution.  Ms.  Khajuria’s

alternate  plea  that  “relief  of  agricultural  indebtedness”

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

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

agricultural  indebtedness is  to free the farmer from the

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

3 Entry 5, List III: Marriage and divorce; infants and minors; adoption; wills, intestacy and succession; joint family and partition; all matters in respect of which parties in judicial proceedings were immediately before the commencement of this Constitution subject to their personal law. 4 Entry 6, List  III:  Transfer of  property  other than agricultural  land;  registration of deeds and documents. 5 Entry 12, List III: Evidence and oaths; recognition of laws, public acts and records, and judicial proceedings.

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causes,  and  debt  relief  would  be

necessary  in  the  case  of  adverse  natural  causes

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

Khajuria is right, a farmer would then be protected only

against  moneylenders,  but  not  banks,  which  would

denude the entry of most of its content.

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

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

has relied strongly  upon Article  246 of  the Constitution

which, according to him, lays down the federal supremacy

principle.  According to him, the said principle extends to

edging  out  State  legislation  altogether,  where

reconciliation is not possible.  The scope of Article 246

has  been  dealt  with  in  many  judgments.  In  Hoechst

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

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

federal supremacy principle thus:

“It  is  obvious  that  Article  246  imposes limitations  on  the  legislative  powers  of  the

47

Union and State legislatures and its ultimate analysis would reveal the following essentials: 1. Parliament has exclusive power to legislate with respect to any of the matters enumerated in List I notwithstanding anything contained in clauses (2) and (3). The non obstante clause in Article 246(1) provides for predominance or supremacy of Union legislature. This power is not  encumbered  by  anything  contained  in clauses  (2)  and  (3)  for  these  clauses themselves  are  expressly  limited  and  made subject to the non obstante clause in Article 246 (1). The combined effect of the different clauses contained in  Article  246 is  no more and no less than this: that in respect of any matter  falling  within  List  I,  Parliament  has exclusive power of legislation. 2. The State legislature has exclusive power to  make  laws  for  such  State  or  any  part thereof  with  respect  to  any  of  the  matters enumerated in List II of the Seventh Schedule and it also has the power to make laws with respect to any matters enumerated in List III. The exclusive power of the State legislature to legislate  with  respect  to  any  of  the  matters enumerated  in  List  II  has  to  be  exercised subject to clause (1) i.e. the exclusive power of  Parliament  to  legislate  with  respect  to matters  enumerated  in  List  I.  As  a consequence, if there is a conflict between an entry in List I and an entry in List II which is not  capable  of  reconciliation,  the  power  of Parliament to legislate with respect to a matter enumerated  in  List  II  must  supersede  pro tanto  the  exercise  of  power  of  the  State legislature.

48

3.  Both Parliament  and the State legislature have  concurrent  powers  of  legislation  with respect to any of the matters enumerated in List III.

xxx xxx xxx

The  words  “notwithstanding  anything contained  in  clauses  (2)  and  (3)”  in  Article 246(1) and the words “subject to clauses (1) and  (2)”  in  Article  246(3)  lay  down  the principle of federal supremacy viz. that in case of inevitable conflict between Union and State powers,  the  Union  power  as  enumerated  in List  I  shall  prevail  over  the  State  power  as enumerated in Lists II and III, and in case of overlapping between Lists II and III, the former shall  prevail.  But  the  principle  of  federal supremacy  laid  down  in  Article  246  of  the Constitution  cannot  be  resorted  to  unless there  is  an  “irreconcilable”  conflict  between the entries in the Union and State Lists. In the case of a seeming conflict between the entries in  the two Lists,  the entries  should  be read together without giving a narrow and restricted sense to either of them. Secondly, an attempt should  be  made  to  see  whether  the  two entries cannot be reconciled so as to avoid a conflict of jurisdiction. It should be considered whether a fair reconciliation can be achieved by  giving  to  the  language  of  the  Union Legislative List a meaning which, if less wide than it  might  in  another  context  bear,  is  yet one  that  can  properly  be  given  to  it  and equally  giving  to  the  language  of  the  State Legislative  List  a  meaning  which  it  can properly  bear.  The  non  obstante  clause  in

49

Article  246(1)  must  operate  only  if  such reconciliation  should  prove  impossible. Thirdly,  no  question  of  conflict  between  the two Lists will arise if the impugned legislation, by the application of the doctrine of “pith and substance”  appears  to  fall  exclusively  under one list, and the encroachment upon another list is only incidental.

xxx xxx xxx

With  regard  to  the  interpretation  of  non obstante  clause  in  Section  100(1)  of  the Government  of  India  Act,  1935  Gwyer,  C.J. observed:

“It  is  a  fundamental  assumption  that  the legislative powers of the Centre and Provinces could not have been intended to be in conflict with one another and, therefore, we must read them  together,  and  interpret  or  modify  the language in  which  one  is  expressed by  the language of the other.”

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

(Emphasis Supplied)

To similar effect is the judgment cited by Shri Bhushan,

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

113, where the Court held:

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

(Emphasis Supplied)

It  can,  thus,  be  seen  that  Article  246  only  states  that

where two entries in  the Union List  and the State List,

respectively,  have  a  head-on  collision  and  are

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

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

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

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

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

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

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

“The  power  to  legislate  is  given  to  the appropriate legislatures by Article 246 of the Constitution. The entries in the three Lists are only legislative heads or fields of legislation: they  demarcate  the  area  over  which  the appropriate legislatures can operate. It is also well  settled that  widest  amplitude should be given to the language of the entries. But some of  the entries in  the different  Lists  or  in  the same List  may overlap and sometimes may also appear to be in direct conflict with each other.  It  is  then  the  duty  of  this  Court  to reconcile the entries and bring about harmony between them.

xxx xxx xxx

Entry 24 in List II in its widest amplitude takes in all industries, including that of gas and gas- works.  So  too,  Entry  25  of  the  said  List comprehends  gas  industry.  There  is, therefore,  an  apparent  conflict  between  the two entries  and  they  overlap  each  other.  In such  a  contingency  the  doctrine  of harmonious  construction  must  be  invoked. Both the learned counsel accept this principle. While the learned Attorney-General seeks to harmonize  both  the  entries  by  giving  the widest meaning to the word “industry” so as to include the industrial aspect of gas and gas- works  and  leaving  the  other  aspects  to  be covered by Entry 25, learned counsel for the contesting  respondents  seeks  to  reconcile them by carving out gas and gas-works in all

52

its aspects from Entry 24. If industry in Entry 24  is  interpreted  to  include  gas  and  gas- works, Entry 25 may become redundant, and in  the  context  of  the  succeeding  entries, namely,  Entry  26,  dealing  with  trade  and commerce,  and  Entry  27,  dealing  with production, supply and distribution of goods it will be deprived of all its contents and reduced to  “useless  lumber”.  If  industrial,  trade, production and supply aspects are taken out of Entry 25, the substratum of the said entry would disappear:  in  that  event  we would be attributing to  the  authors  of  the Constitution ineptitude, want of precision and tautology. On the  other  hand,  the  alternative  contention enables Entries 24 and 25 to operate fully in their respective fields: while Entry 24 covers a very wide field, that is, the field of the entire industry  in  the State,  Entry  25,  dealing with gas  and  gas-works,  can  be  confined  to  a specific  industry,  that  is,  the  gas  industry. There  may  be  many  good  reasons  for  the authors  of  the  Constitution  giving  separate treatment  to  gas and gas-works.  If  one can surmise, it may be that, as the industry of gas and  gas-works  was  confined  to  one  or  two States and was not of all-India importance, it was  carved  out  of  Entry  24  and  given  a separate entry,  as otherwise if  a declaration by  law  was  made  by  Parliament  within  the meaning  of  Entry  7  or  Entry  52  of  List  I,  it would be taken out of the legislative power of States. Be it as it may, the express intention of the Constitution is to treat it, in normal times, as a state subject and it is not in the province of  this  Court  to  ascertain  and scrutinize the reasons for doing so. It is suggested that this

53

interpretation  would  prevent  Parliament  to make  law  in  respect  of  gas  and  gas-works during war or other national emergency. Apart from the  relevancy  of  such  a  consideration, the  apprehension  has  no  justification,  for under  Article  249  Parliament  is  enabled  to take  up  for  legislation  any  matter  which  is specifically enumerated in List II whenever the Council  of  States  resolves  by  two-thirds majority that such a legislation is necessary or expedient  in  the  national  interest.  So  too, under Article 250 Parliament can make laws with respect to any of the matters enumerated in  the  State  List,  if  a  proclamation  of emergency  is  in  operation.  Article  252 authorizes the Parliament to legislate for two or  more  States,  if  the  Houses  of  the legislatures of those States give their consent to the said course. Subject to such emergency or extraordinary powers, the entire industry of gas  and  gas-works  is  within  the  exclusive legislative  competence  of  a  State.  It  is, therefore,  clear  that  the  scheme  of harmonious construction suggested on behalf of the State gives full and effective scope of operation  for  both  the  entries  in  their respective  fields,  while  that  suggested  by learned  counsel  for  the  appellant  deprives Entry 25 of all its content and even makes it redundant. The  former  interpretation  must, therefore,  be  accepted  in  preference  to  the latter.  In  this  view,  gas  and  gas-works  are within the exclusive field allotted to the States. On  this  interpretation  the  argument  of  the learned  Attorney-General  that,  under  Article 246 of the Constitution, the legislative power of State is subject to that of Parliament ceases

54

to  have  any  force,  for  the  gas  industry  is outside the legislative field of Parliament and is within the exclusive field of the legislature of the  State.  We,  therefore,  hold  that  the impugned  Act  was  within  the  legislative competence  of  the  West  Bengal  Legislature and was, therefore, validly made.”

(Emphasis Supplied)                 

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

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

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

“55.  During  the  course  of  hearing  it  was brought to our notice that in view of several usury  laws  and  debt  relief  laws  in  force  in several  States  private  moneylending  has almost come to an end and needy borrowers by and large depend on banking institutions for  financial  facilities.  Several  unhealthy practices  having  slowly  penetrated  into prevalence were pointed  out.  Banking  is  an organised  institution  and  most  of  the  banks press  into  service  long-running  documents wherein  the  borrowers  fill  in  the  blanks,  at times without  caring to read what  has been provided therein, and bind themselves by the stipulations  articulated  by  the  best  of  legal brains. Borrowers other than those belonging to  the  corporate  sector,  find  themselves having  unwittingly  fallen  into  a  trap  and rendered themselves liable and obliged to pay interest the quantum whereof may at the end prove  to  be  ruinous.  At  times  the  interest charged and capitalised is manifold than the

55

amount actually advanced. Rule of damdupat does  not  apply.  Penal  interest,  service charges and other overheads are debited in the account of the borrower and capitalised of which debits  the borrower may not  even be aware. If the practice of charging interest on quarterly rests is upheld and given a judicial recognition, unscrupulous banks may resort to charging interest even on monthly rests and capitalising the same. Statements of accounts supplied by banks to borrowers many a times do not  contain particulars or  details  of  debit entries and when written in  hand are worse than medical prescriptions putting to test the eyes and wits of the borrowers. Instances of unscrupulous,  unfair  and  unhealthy  dealings can  be  multiplied  though  they  cannot  be generalised.  Suffice  it  to  observe  that  such issues  shall  have  to  be  left  open  to  be adjudicated upon in appropriate cases as and when  actually  arising  for  decision  and  we cannot venture into laying down law on such issues as do not arise for determination before us. However, we propose to place on record a few incidental observations, without which, we feel, our answer will not be complete and that we do as under:

xxx xxx xxx

(6)  Agricultural  borrowings are to be treated on a pedestal different from others. Charging and  capitalisation  of  interest  on  agricultural loans cannot be permitted in India except on annual or six-monthly rests depending on the rotation  of  crops  in  the  area  to  which  the agriculturist borrowers belong.”

(Emphasis Supplied)                 

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Given  the  fact  that,  at  present,  agricultural  loans  are

predominantly given by cooperative and other banks to

farmers, the method suggested by Shri Bhushan, which is

to  exclude  banks  from  the  entry  “relief  of  agricultural

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

force and render it largely otiose.  

18. Another  method  of  reconciling  conflicting  entries

was  discussed  in  Waverly  Jute  Mills  Co.  Ltd.  v.

Raymon & Co.  (India)  (P)  Ltd.,  (1963)  3 SCR 209 at

219-220 as follows:

“The rule of construction is undoubtedly well established that the entries in the Lists should be construed broadly and not in a narrow or pedantic sense. But there is no need for the appellants  to  call  this  rule  in  aid  of  their contention, as trade and commerce would, in their  ordinary  and  accepted  sense,  include forward  contracts.  That  was  the  view which was  adopted  in Bhuwalka  Brothers  Ltd. case [AIR  (1952)  Cal  740]  and  which commended itself to this Court in Duni Chand Rateria case [(1955) 1 SCR 1071] . Therefore, if the question were simply whether a law on Forward  Contracts  would  be  a  law  with respect to Trade and commerce, there should

57

be  no  difficulty  in  answering  it  in  the affirmative. But the point which we have got to decide is as to the scope of the entry “Trade and  commerce”  read  in  juxtaposition  with Entry 48 of List I. As the two entries relate to the powers mutually exclusive of two different legislatures, the question is how these two are to  be  reconciled.  Now  it  is  a  rule  of construction  as  well  established  as  that  on which the appellants rely,  that  the entries in the Lists should be so construed as to give effect  to  all  of  them and that  a construction which will result in any of them being rendered futile or otiose must be avoided. It follows from this  that  where  there  are  two  entries,  one general in its character and the other specific, the former must be construed as excluding the latter. This is only an application of the general maxim  that Generalia  specialibus  non derogant. It is obvious that if Entry 26 is to be construed  as  comprehending  Forward Contracts, then “Futures Markets” in Entry 48 will be rendered useless. We are therefore of opinion that legislation on Forward Contracts must  be  held  to  fall  within  the  exclusive competence of  the Union under  Entry  48 in List I.”

(Emphasis Supplied)

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

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

banks as well  as recovery of debts by banks generally,

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

58

indebtedness, is special, for the reason that indebtedness

itself  is  only  one  species  of  banking  and  agricultural

indebtedness  is  a  sub-species  thereof.  The  species  of

indebtedness is within Entry 45, List I, whereas the sub-

species  of  agricultural  indebtedness  is  within  Entry  18,

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

is a sub-sub-species of indebtedness, which is relatable

to Entry 30, List II.  Also, we must at this juncture keep in

mind  the  amendment  sought  to  be  moved  by  Shri

Shibban Lal Saxena in the Constituent Assembly to move

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

This was done as follows:

“Entry 34

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

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

This is an important amendment. I would like the  House  to  realise  the  magnitude  of  the problem.  We  all  want  to  wipe  out  rural indebtedness. Sir,  in this connection I  would like to read an extract from the People's Plan

59

for  Economic  Development  of  India,  which runs as follows:

“The  other  problem  that  will  have  to  be tackled,  along  with  this  problem  of  the outmoded  land  tenure  system,  will  be  the problem of rural indebtedness. The total rural indebtedness  was  estimated  by  the  Central Banking Inquiry Committee, in the year 1929, at  about  900  crores  of  rupees.  Subsequent estimates have however,  put  the figure at  a much higher level. The estimate according to the  report  of  the  Agricultural  Credit Department of  the Reserve Bank of  India in the year 1937 is about 1800 crores of rupees. It is not possible that this might have reduced to any significant extent since the year 1937, nor  can  the  so-called  agricultural  boom  at present  be  said  to  have  produced  very substantial  reductions.  The  money-lender  in the country dominates more in that strata of the agricultural  population which is relatively worse off.”

“The  boom  can  hardly  be  said  to  have benefited that strata. On the other hand, the debt  represents  accumulations  of  decades. The debt legislation in the various provinces has not, admittedly, been able to touch even the  fringe  of  the  problem.  We  feel  it necessary, therefore, that the debt should be compulsorily scaled down and then taken over by  the  State.  Experiments  made  in  this direction  in  the  Province  of  Madras,  for example, serve as a useful pointer. Under the working of the Madras Agriculturist' Relief Act of 1938, debts were scaled down by about 47

60

per cent and the provisions of the Act can, by no  logic  be  characterized  as  drastic.  In  the Punjab,  under  the  operations  of  the  Debt Conciliation  Boards,  debts  amounting  to  40 lakhs  were  settled  for  about  14  lakhs.  It should,  therefore,  be  possible  and  just  be considered  as  necessary  to  scale  down the present debts to about 25 per cent before they are  taken  over  by  the  State.  Assuming  the present indebtedness to amount to about Rs. 1,000 crores the debt to be taken over by the State will come to about Rs. 250 crores.”

The  compensation  to  be  paid  to  the  rent- receivers as well  as to the usurers will  thus amount  to  Rs.  1985 crores.  This  should  be paid  in  the  form  of  self-liquidating  bonds issued by the State.  These should  be for  a period of 40 years at the rate of interest of 3 per cent and should be compulsorily retained by  the  State  in  its  possession.  The  annual payments to be made by the State for these bonds will come to about Rs. 60 crores.

On the carrying out of these initial measures will  depend  the  success  of  the  planned economy  for  raising  the  productivity  of agriculture in  the interests of  the cultivators. Unless  the  status  quo  is  changed  in  this manner there can be no hope of improving the standard  of  living  of  the  vast  bulk  of  our peasantry, and therefore, no hope of building up  an  industrial  structure  in  the  country  on sound, stable and secure foundations. We are aware of the difficulties in the way of carrying out  the  above  measures  but  we  are

61

unnamable  to  see  any  alternative  to  them whatsoever.”

It  is  thus  obvious  that  if  we  really  want  to remove agricultural indebtedness, the problem cannot be solved merely by action taken by individual States. Only a comprehensive plan and  its  bold  execution  with  the  fullest  co- operation of  the Union Government with the Government  of  the  states  can  solve  these problems. It is therefore that I have suggested that this entry should be transferred to List III.

Sir,  I  have  tabled  my amendment  only  with this  purpose  in  view.  I  feel  and  I  am  quite convinced that we cannot change the face of our country and we cannot realise the 'India' of  our  dreams  unless  we  adopt  a comprehensive  plan  and  have  powers  to coordinate the activities of the Centre and the Provinces.  I  therefore  commend  my amendment  for  the  earnest  consideration  of the House.

Mr. President: The question is:

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

The amendment was negatived.

Mr. President: The question is:

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

The motion was adopted.

Entry 34, was added to the State List.”

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(Emphasis Supplied)

The amendment was obviously rejected in keeping with

the  fact  that  agriculture  and  aspects  of  agriculture  are

exclusively  given to  the States.  This  will  be clear  from

Entries 14, 18, 45 to 48 of List II, apart from Entry 30, List

II, which read as under:

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

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

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

46. Taxes on agricultural income.  

47.  Duties  in  respect  of  succession  to agricultural land.  

48. Estate duty in respect of agricultural land.”

Entries 82, 86, 87 and 88, List I and Entries 6 and 7, List

III also specifically exclude agriculture as follows:

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“82. Taxes on income other than agricultural income.  

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

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

88. Duties in respect of succession to property other than agricultural land.

xxx xxx xxx

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

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

To complete the picture, it is also important to advert to

Entry 41, List III, which states as follows:-

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

The  constitutional  scheme,  insofar  as  agriculture  is

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

exception – that the custody, management and disposal

of  property,  declared  by  law  to  be  evacuee  property

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includes  agricultural  land,  and  makes  it  a  concurrent

subject.

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

harmonised  by  giving  effect  to  both.  This  can  only  be

done if the relief of agricultural indebtedness is to include

banks,  both  cooperative  and  otherwise.  As  mentioned

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

to legislate on “land improvement and agricultural loans.”

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

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

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

which itself is one of many aspects of banking.  

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

and  incidental  trenching.  Having  thus  delineated  the

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

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

have  to  view  the  pith  and  substance  of  the  Banking

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

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

substance,  the  Banking  Regulation  Act  does  fall  within

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

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

clear that, insofar as relief of agricultural indebtedness is

concerned, Section 21A certainly trenches upon Entry 30,

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

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

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

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

Seventh Schedule.  While thus falling as a whole within

one List, certain provisions in a particular Act enacted by

one legislature may incidentally trench upon a forbidden

field exclusively given to another legislature. What is the

position in law with respect to such incidental trenching?  

23. In  Subrahmanyan  Chettiar  v.  Muttuswami

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

with the constitutional validity of the Madras Agriculturists

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

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

drastic  manner,  with  the  problem of  rural  indebtedness

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

The precise question that arose before the Federal Court

was whether the Madras Act trespassed into the federal

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

legislature  has  an  exclusive  power  to  legislate  with

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

Negotiable Instruments Act, 1881, expressly clashed with

the  Madras  Act  in  that,  in  a  promissory  note  where

interest  at  a  specified rate  is  expressly  made payable,

interest is to be calculated at that rate until  payment or

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

amount, as the Court directs.  Inasmuch as the Madras

Act scales down such interest, a direct clash between the

provisions of Madras Act and the Negotiable Instruments

Act became inevitable.  

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24. The majority  answered the question by upholding

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

substance,  relatable  to  “money  lending  and  money

lenders”  inasmuch as the Madras Act operated not on the

promissory note, but on a decree in which the promissory

note  had merged,  and had,  thus,  become a judgment-

debt.   It  was  held  that  the  Act  neither  affected  nor

purported to affect any liability on a promissory note.  

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

through Gwyer, C.J., said:

“But  though,  as  I  have  said,  I  reserve  my opinion upon all of them, I do not wish it to be assumed that I accept in its entirety the view of the Madras High Court that the impugned Act  does  not  really  affect  the  principles embodied in the Negotiable Instruments Act, for,  that  proposition seems to  me much too broadly stated. I doubt whether any provincial Act could, in the form of a debtors’ relief Act, fundamentally  affect  the  principle  of negotiability,  or  the  rights  of  a  bonafide transferee for  value.  Perhaps the position is different where the promissory note has never changed  hands  and  is  sued  upon  by  the original payee; and it may be (though I do not decide the question) that an Act such as the

68

Court  is  now considering  can  operate  upon the original debt in such cases, even though the creditor  has  taken a  promissory  note  in respect of his debt.  If  it  were otherwise,  the power  of  Provincial  Legislatures  to  enact remedial  legislation in  a field peculiarly  their own  would  be  very  greatly  hampered;  so much so, indeed, that the Central Legislature might well find itself compelled to review the situation. But it would perhaps be inadvisable that I should say more on this occasion.”

(at page 52) (Emphasis Supplied)

Sulaiman, J., however, dissented, and held that as there

was a clash between the Madras Act and the Negotiable

Instruments Act, the latter would prevail.  Despite the fact

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

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

learned  Judge  dealt  with  the  doctrine  of  incidental

trenching in great  detail,  and followed Canadian cases,

summarised  by  Lord  Tomlin  in  Attorney  General  for

Canada  v.  Attorney  General  for  British  Columbia

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

subject, as follows:

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“The  doctrine  which  has  been  evolved  with regard  to  the  Canadian  cases  is  that  if  the encroachment is merely incidental, then there is no defect so long as the trespass is upon an unoccupied field. Engrafted upon the doctrine of incidental encroachment there is the further doctrine of unoccupied field.

xxx xxx xxx

In Jai Gobind Singh v. Lachmi Narain Ram (1940)  3  F.L.J.  46  p.  51, where  the  amount due on an earlier promissory note had formed part  of  the mortgage money,  I  distinguished the case by pointing out that the suit being on a  mortgage  the  field  was  apparently  clear, and, therefore, the question of interfering with the interest  due on the promissory  note  did not directly arise. No Canadian case has been cited before us in which although the subject of legislation was substantially within S. 92, it not  only  incidentally  encroached  upon  a subject mentioned in S. 91, but at the same time  actually  clashed  with  an  existing Dominion legislation.  6 The principles laid down by their Lordships have gone only so far as to permit  an incidental  encroachment,  provided the Dominion field is unoccupied.  In no case so far decided have their Lordships tolerated a trespass as well as a clash. If a clash with the Dominion legislation were also allowed, then a Provincial Legislature would be in a position,

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

“There can be a domain in which provincial and Dominion legislation may overlap, in which case neither legislation will be ultra vires if the field is clear, but if the field is not clear and the two legislations meet the Dominion legislation must prevail”, must be read subject to this caveat.  

70

though  indirectly,  to  nullify  the  Dominion legislation,  even  inside  the  field  exclusively open to the Dominion, which would make the position intolerable.

xxx xxx xxx

The scheme of S. 100 of the Act is to exclude completely from the authority of the Provincial Legislature the power to legislate with respect to  subjects  in  List  I.  If  in  consequence  of certain difficulties that Provincial Legislatures would  experience  by  a  rigid  enforcement  of such an exclusion we must in interpreting the words “with respect to”  import  the Canadian doctrine  of  permissibility  of  incidental encroachment, we must then at the same time import the other allied doctrine also that such an encroachment is permissible only when the field is actually unoccupied.  It  is  only in this way that actual clash between the Centre and the Provinces can be avoided, which I  think we must. This will  also explain the apparent gap in  S.  107(1)  of  the Act,  that  gap being filled in by the provisions of S. 100.”

(at pages 62-64) (Emphasis Supplied)

26. However, Shri Bhushan sought to impress upon us

that certain observations in  Fatehchand (supra) make it

clear  that  the  doctrine  of  incidental  trenching  and

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

dissenting judgment  of  Sulaiman,  J.  in  Subrahmanyan

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

give  way  to  a  Central  legislation,  even  if  a  Central

legislation  incidentally  trenches  upon  a  State  subject,

covered by State legislation.  He relied upon paragraph

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

part  of  a long discussion, beginning from paragraph 55

and  ending  with  paragraph  67,  which  deals  with  an

argument  made that  that  part  of  the Maharashtra Debt

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

Parliament  has  occupied  the  field.  This  question  was

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

II.  It  was  held  that  the  Industrial  Development  and

Regulation Act, 1951 has occupied the field of the gold

industry under Entry 52, List I, as has the Gold Control

Act,  1968,  and  that,  therefore,  Entry  24,  List  II,  being

subject to Entry 52, List I, has become inoperative. This

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

with money lending, has been rendered inoperative and,

therefore, the Maharashtra Debt Relief Act, made under

72

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

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

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

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

having received Presidential assent, it would prevail over

the  aforesaid  Central  enactments  in  the  State  of

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

that  the  general  observation  as  to  Parliamentary

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

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

corresponding  entry  in  List  I  and,  by  the  requisite

declaration,  Parliament  occupies  the  field,  the  State

legislatures are denuded of legislative competence only

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

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

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

concerned.  

73

27. Shri  Bhushan  then  relied  upon  a  concurring

judgment  of  Ranganathan,  J.  in  Federation  of  Hotels

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

In paragraph 74, the learned Judge, while upholding the

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

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

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

relied upon the statement of the law that since Parliament

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

Constitution,  to  make  laws  with  respect  to  any  of  the

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

squarely  covered  by  an  entry  in  the  Union  List,  no

restriction can be read into the power of  Parliament  to

make  laws  in  regard  thereto.   This  was  made  in  the

context  of  a  taxation  entry,  which  as  the  aforesaid

paragraph  74  itself  states,  refers  to  the  Constitutional

scheme which neatly  divides the subject  matters of  tax

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

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

74

paragraph of Parliamentary paramountcy in the context of

incidental trenching and unoccupied field.  This judgment,

therefore, does not take the matter very much further.     

28. Insofar as Article 246 is concerned, we have already

seen  how the  said  Article  refers  to  federal  supremacy

insofar  as  the  whittling  down  of  a  State  List  entry  is

concerned, when compared with a Union List entry. Once

the spheres of both the entries have been delineated, the

doctrine of pith and substance comes in to test whether a

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

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

found that  the legislation as a whole is referable to an

entry in List I, but it incidentally encroaches upon an entry

in List II, there is no reason for the doctrine of unoccupied

field not to apply to federal legislation.  The expression

“with respect to” appears in all the sub-articles of Article

246, which expression, so far as sub-articles (1) to (3) are

concerned,  imports  the  twin  doctrines  of  incidental

75

trenching and unoccupied field, which applies, therefore,

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

246, thus making it clear that incidental encroachment by

Parliament cannot be tolerated when the exclusive field

allotted to the State legislature is not unoccupied.   

29. The paramountcy principle contained in Article 246,

as  we  have  seen,  is  only  taken  as  a  last  resort  after

harmonious construction fails, and, that too, qua entries in

competing lists.  Once legislation is referable to one list or

the  other,  the  doctrine  of  incidental  trenching  and

unoccupied  field  would  apply  equally  to  both

Parliamentary  and  State  legislations.  In  the  very  first

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

of Motor Spirit  & Lubricants Taxation Act,  1938 AIR

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

evolved on a reading of the British North America Act by

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

to the construction of Section 100 of the Government of

76

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

the Constitution. These principles were set out as follows:

“(1)  That  the  provisions  of  an  Act  like  the Government of India Act, 1935, should not be cut  down  by  a  narrow  and  technical construction,  but,  considering the magnitude of the subjects with which it purports to deal in very few words, should be given a large and liberal  interpretation,  so  that  the  Central Government,  to  a  great  extent,  but  within certain  fixed  limits,  may  be  mistress  in  her own  house,  as  the  Provinces,  to  a  great- extent, but again within certain fixed limits, are mistresses  in  theirs.  See Henrietta  Muir Edwards v. Attorney-General  for  Canada (1930 AC 124 at 136 and 137).

(2) In an enquiry like the one before us in this Reference, the Court must ascertain the true nature  and  character  of  the  challenged enactment, its pith and substance; and not the form alone which it may have assumed under the  hand  of  the  draftsman.  See Attorney- General  for  Ontario v. Reciprocal Insurers (1924 AC 328 at 337). (3)  Where  there  is  an  absolute  jurisdiction vested in a Legislature, the laws promulgated by it must take effect according to the proper construction of the language in which they are expressed.  But  where  the  law-making authority is of a limited or qualified character, obviously  it  may  be  necessary  to  examine, with  some  strictness,  the  substance  of  the legislation,  for  the  purpose  of  determining what it is that the Legislature is really doing.

77

See Attorney-General  for  Ontario  v. Reciprocal Insurers (1924 AC 328 at 337). (4) Even where there has been an endeavour to  give  pre-eminence  to  the  Central Legislature in cases of a conflict of powers, it is  obvious  that,  in  some  cases  where  this apparent conflict exists, the Legislature could not  have  intended  that  powers  exclusively assigned to the Provincial Legislature should be  absorbed  in  those  given  to  the  Central Legislature.”

(Emphasis Supplied)

Principle 4 is of particular relevance in these cases.  

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

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

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

“13. The  federal  structure  under  the constitutional scheme can also work to nullify an  incidental  encroachment  made  by  the parliamentary  legislation  on  a  subject  of  a State  legislation  where  the  dominant legislation is the State legislation. An attempt to  keep  the  aforesaid  constitutional  balance intact  and  give  a  limited  operation  to  the doctrine  of  federal  supremacy  can  be discerned in the concurring judgment of Ruma Pal,  J.  in ITC  Ltd. v. Agricultural  Produce Market  Committee [ITC  Ltd. v. Agricultural Produce  Market  Committee,  (2002)  9  SCC 232], wherein after quoting the observations of this  Court  in S.R.  Bommai v. Union  of

78

India [S.R. Bommai v. Union of India, (1994) 3 SCC  1],  the  learned  Judge  has  gone  to observe  as  follows:  (ITC  Ltd.  case [ITC Ltd. v. Agricultural  Produce  Market Committee, (2002) 9 SCC 232], SCC p. 282, paras 93-94)

“93. … ‘276. The fact that under the scheme of our Constitution, greater power is conferred upon the Centre vis-à-vis the States does not mean that States are mere appendages of the Centre.  Within  the  sphere  allotted  to  them, States  are  supreme.  The  Centre  cannot tamper  with  their  powers.  More  particularly, the courts should not adopt an approach, an interpretation, which has the effect of or tends to have the effect of whittling down the powers reserved  to  the  States.’  (S.R.  Bommai case [S.R. Bommai v. Union of India, (1994) 3 SCC 1], SCC pp. 216-17, para 276) 94.  Although  Parliament  cannot  legislate  on any of the entries in the State List, it may do so  incidentally  while  essentially  legislating within  the  entries  under  the  Union  List. Conversely,  the  State  Legislatures  may encroach  on  the  Union  List,  when  such  an encroachment  is  merely  ancillary  to  an exercise of power intrinsically under the State List. The fact of encroachment does not affect the vires of the law even as regards the area of  encroachment.  [A.S.  Krishna v. State  of Madras [A.S. Krishna v. State of Madras, AIR 1957 SC 297 : 1957 Cri LJ 409]; Chaturbhai M.  Patel v. Union  of  India [Chaturbhai  M. Patel v. Union  of  India,  (1960)  2  SCR 362 : AIR  1960  SC 424]; State  of  Rajasthan v. G. Chawla [State of Rajasthan v. G. Chawla, AIR

79

1959 SC 544 : 1959 Cri LJ 660] and Ishwari Khetan  Sugar  Mills  (P)  Ltd. v. State  of U.P. [Ishwari  Khetan  Sugar  Mills  (P) Ltd. v. State of U.P., (1980) 4 SCC 136] This principle commonly known as the doctrine of pith  and substance,  does  not  amount  to  an extension of  the legislative fields.  Therefore, such incidental encroachment in either event does not deprive the State Legislature in the first case or Parliament in the second, of their exclusive  powers  under  the  entry  so encroached upon.     In the event the incidental encroachment  conflicts  with  legislation actually enacted by the dominant power, the dominant legislation will prevail  .”

(Emphasis Supplied)

14. The  aforesaid  view  in  the  concurring judgment  of  Ruma  Pal,  J.  in ITC Ltd. v. Agricultural  Produce  Market Committee [ITC  Ltd. v. Agricultural  Produce Market Committee, (2002) 9 SCC 232], seems to  have  been  echoed  in  a  recent pronouncement  of  this  Court  in Vishal  N. Kalsaria v. Bank  of  India [Vishal  N. Kalsariav. Bank of India, (2016) 3 SCC 762 : (2016) 2 SCC (Civ) 452], wherein this Court had held that the provisions of the 2002 Act will  not  have  an  overriding  effect  on  the provisions of the State Rent Control Acts.”

This  Court  then  went  on  to  hold  that  between  the

Securitisation and Reconstruction of Financial Assets and

Enforcement  of  Security  Interest Act,  2002 (SARFAESI),

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

Land Revenue and Reforms Act, 1960, referable to Entry

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

the Tripura Act (which prohibited banks from transferring

property  which has been mortgaged by a member  of  a

Scheduled Tribe to any person other than a member of a

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

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

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

that since legislation had been made by Parliament under

Entry 45, List I  and the SARFAESI Act dealt exclusively

with activities relating to sale of secured assets by banks,

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

inconsistent with the SARFAESI Act, must give way.

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

aforesaid judgment sets out paragraphs 13 to 15 of the

Constitution Bench judgment in Special Reference No.1

81

of  2001, (2004)  4  SCC  489.7  Shri  Bhushan  strongly

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

the  entire  discussion  begins  from paragraph  13,  which

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

interpreted as to cancel or obliterate another entry made

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

the  primary  duty  of  the  Court  to  harmonise  the  two

entries.   It is only when there is an irreconcilable conflict

between two legislations that the Central legislation shall

prevail.   It  is  after  noticing  this  statement  of  the  law

contained  in  paragraph  15  of  the  Constitution  Bench

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

discussion on incidental encroachment in paragraphs 13

and 14, referred to hereinabove, is then laid down by the 7 In this case, a Constitution Bench of this Court had to decide on whether a Gujarat statute, which defined “gas” as being predominantly methane gas, was ultra vires the State legislature.  The competing entries were Entry 53, List I and Entry 25, List II. Entry 53, List I dealt, inter alia, with petroleum, whereas Entry 25, List II dealt with gas and gas works.   The Constitution Bench went into great detail in considering various Acts, judgments and other authorities, including dictionaries, and held that natural gas fell within the definition of “petroleum”, and further that Entry 25, List II referred only to manufactured gas, as is evident from the expression “gas works”, which is defined as “a plant for manufacture of artificial gas”.  The Constitution Bench was careful to indicate, in paragraph 43 of the judgment, that Entry 25, List II would not be reduced to “useless lumber” as feared by the States, because natural gas was never intended to be covered by that entry, which is given full effect by including gas manufactured and used in gas works.   

82

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

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

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

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

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

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

legislation  is  referable  to  the  special  entry  “relief  of

agricultural  indebtedness”  under  Entry  30,  List  II,  as

opposed to the Banking Regulation Act, under the general

entry  of  “banking”  in  Entry  45,  List  I,  any  incidental

encroachment by the Parliamentary statute on Entry 30,

List  II,  read  with  the  State  Debt  Relief  Acts  made

thereunder,  would make Section 21A yield to the State

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

agriculturists  from  debts  due  to  banks.  It  is  clear  that

where  Section  21A  of  the  Banking  Regulation  Act

incidentally  trenches  upon  the  State  Debt  Relief  Acts,

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

83

agricultural  indebtedness  is  concerned,  where  there  is

State legislation on the same subject matter which directly

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

way to the State Debt Relief Acts insofar as relief from

agricultural indebtedness due to banks is concerned. The

non-obstante  clause  in  Section  21A cannot  override  a

State  Debt  Relief  Act  in  this  situation,  as  Parliament

cannot give itself supremacy over State legislation where

none exists  under  the Constitution.  If  this  were not  the

case,  the  exclusive  power  of  the  States  to  make laws

within List  II  would become illusory,  and “Parliamentary

paramountcy”  would  trap  many  a  beneficent  State

legislation made within its exclusive domain, contrary to

the statement  of  law laid down by the Privy Council  in

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

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

both of which have been consistently followed by several

judgments of this Court.   

84

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

demonstrate that certain entries in List II  are subject to

entries in Lists I and III.  These are set out hereinbelow:-

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

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

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

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

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

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

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

85

27.  Production,  supply  and  distribution  of goods subject to the provisions of Entry 33 of List III.   

33.  Theatres  and  dramatic  performances; cinemas subject to the provisions of Entry 60 of  List  I;  sports,  entertainments  and amusements.

37.  Elections to the Legislature of  the State subject to the provisions of any law made by Parliament.

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

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

34. Numerically, this would amount to a little over one-

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

35. Certain entries such as Entry 12 exclude from the

State  List  ancient,  historical  monuments  and  records

declared  by  law made by  Parliament  to  be  of  national

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

“12.  Libraries,  museums  and  other  similar institutions controlled or financed by the State; ancient and historical monuments and records

86

other  than  those  declared  by  or  under  law made  by  Parliament  to  be  of  national importance.”  

Yet  another  delineation  of  the  legislative  power  of  the

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

speak of  a particular subject  and then give a residuary

power qua the same subject over matters not specified in

List I.  

“32. Incorporation, regulation and winding up of corporations, other than those specified in List I, and universities; unincorporated trading, literary, scientific, religious and other societies and associations; co-operative societies.  

63.  Rates  of  stamp  duty  in  respect  of documents other than those specified in the provisions  of  List  I  with  regard  to  rates  of stamp duty.”8

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

power to the States to legislate on the subject  matters

mentioned therein.  If Shri Jayant Bhushan’s submission

is to be accepted, this threefold scheme contained within

List II itself would be violated.  If Parliamentary legislation

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

87

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

to prevail  over State legislation made within the States’

exclusive  powers,  all  the  entries  of  List  II  would  be

subjected  to  entries  of  List  I,  which  is  not  the

constitutional  scheme.  Further,  only one entry,  namely,

Entry  12  of  List  II,  specifically  excepts  ancient  and

historical monuments and records, if Parliament declares

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

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

national  level  and  is  of  national  importance  and  must,

therefore,  prevail  over State legislation made within the

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

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

would then be subject to Parliamentary law, which is of

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

to refer  to  relief  of  agricultural  indebtedness other than

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

Entry 30 words that  are conspicuous by their  absence,

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

88

would go to show that where the States have exclusive

legislative  competence  under  certain  entries  of  List  II,

legislation  made  thereunder  cannot  be  effaced  by

legislation made under List I, which incidentally trenches

upon State legislation made under an exclusive power.   

37. We have already seen how agriculture as a subject

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

aspects, save and except evacuee property under Entry

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

concurrently  with  Parliament,  specifically  including

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

amendment suggested by Shri Shri Shibban Lal Saxena

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

subject,  was turned down.   Any argument  that  has the

effect  of  making  relief  of  agricultural  indebtedness  a

concurrent  subject  by  which  Parliamentary  legislation

ousts State legislation must, therefore, also be rejected.  

89

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

as  relief  from  agricultural  indebtedness  to  banks  is

concerned.   Article  249  of  the  Constitution  enables

Parliament  to  legislate  on  the  aforesaid  subject  in  the

national  interest  if  the  Rajya  Sabha  declares,  by  a

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

members  present  and  voting,  that  it  is  necessary  or

expedient  in national  interest that Parliament should do

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

legislatures of two or more States deem it desirable that

Parliament  should  pass  an  Act  for  regulating  a  matter

exclusively  in  the  State  List,  this  can  be  done  by

resolutions  to  that  effect  passed  by  the  legislatures  of

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

convention with other countries, Parliament, under Article

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

exclusive  State  subject.   In  an  emergency,  Parliament

can,  under  Article  250,  legislate  on  matters  exclusively

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

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

argument  that,  unless  we  accept  his  submission,

Parliament would be denuded of legislative competence

altogether to deal with the subject matter of relief against

debts due to banks from the agricultural sector.  

39. The next  important  question is  as to whether  the

judgment  of  this  Court  in  Yasangi  Venkateswara  Rao

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

another earlier 2-Judge Bench of this Court.  

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

is necessary to indicate what was held by the judgment of

the  learned  Single  Judge  of  the  Andhra  Pradesh  High

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

out the Banking Regulation Act and the scope of Section

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

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

purpose,  operation  and  effect  of  Section  21A  of  the

Banking Regulation Act is not even remotely connected

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

Agriculturists Relief Act, which was held to be a special

law enacted to relieve agriculturist debtors.  It was further

held that charging excessive interest was no longer part

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

spheres of the two provisions were completely different.

Coming  to  legislative  competence,  the  learned  Judge

went into great detail in considering several judgments of

the  Federal  Court,  High  Courts  and  this  Court,  and

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

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

that Section 21A was arbitrary and violative of Article 14

of the Constitution.  

41. By a short judgment in Yasangi Venkateswara Rao

(supra),  this Court  upset  the elaborate judgment  of  the

High Court thus:

“7. We are unable to understand as to how the High Court could come to the conclusion that Parliament had no jurisdiction to enact Section 21-A. There can be no doubt that Section 21-

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A deals with the question of the rate of interest which can be charged by a banking company. Entry  45  of  List  I  of  the  Seventh  Schedule clearly empowers Parliament to legislate with regard to banking. The enactment of Section 21-A  was  clearly  within  the  domain  of Parliament.  The  said  section  applies  to  all types of loans which are granted by a banking company, whether to an agriculturist or a non- agriculturist, and, therefore, reference by the High Court  to  Entry  30 of  List  II  was of  no consequence. In our opinion, the said Section 21-A had been validly enacted.”

(at page 377)

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

paragraph does contain reasons for  upsetting the High

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

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

Paragraph  7  is  a  series  of  conclusions  put  together

without any clear reasoning in support.  This is probably

because only the learned Additional Solicitor General for

the appellant appeared before the Court and argued the

case on behalf of the appellant. The respondent, though

probably served, did not  appear and consequently  was

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

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the judgment of the single Judge referred to a very large

number of High Court, Federal Court, Privy Council and

Supreme  Court  judgments,  not  a  single  judgment  is

adverted  to  in  the  cryptic  paragraph  7  set  out

hereinabove.  Can  it  be  said  that  this  judgment  is  a

declaration  of  the  law  under  Article  141  of  the

Constitution,  which  as  a  matter  of  practice  we  cannot

differ from being a bench of coordinate strength?  

42. This  question  is  answered  by  referring  to

authoritative  works  and  judgments  of  this  Court.  In

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

‘ratio decidendi’ is described as follows:  

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

(at page 72)

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

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

sets out what is the ratio decidendi of a judgment:

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

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

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

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

For  the  purposes  of  the  parties  themselves and their privies, ingredient (iii) is the material element in the decision for it determines finally their  rights  and  liabilities  in  relation  to  the subject-matter of the action. It is the judgment that  estops  the  parties  from  reopening  the dispute.  However,  for  the  purpose  of  the doctrine  of  precedents,  ingredient  (ii)  is  the vital  element  in  the decision.  This indeed is the  ratio  decidendi.  [R.J.  Walker  &  M.G. Walker:  The  English  Legal  System. Butterworths, 1972, 3rd Edn., pp. 123-24] It is not  everything  said  by  a  judge when giving judgment  that  constitutes  a  precedent.  The

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only thing in a judge’s decision binding a party is the principle upon which the case is decided and for this reason it is important to analyse a decision and isolate from it the ratio decidendi. In  the  leading  case  of Qualcast (Wolverhampton) Ltd. v. Haynes [LR 1959 AC 7 43 : (1959) 2 All ER 38] it was laid down that the  ratio  decidendi  may  be  defined  as  a statement of law applied to the legal problems raised by the facts as found, upon which the decision is based. The other two elements in the  decision  are  not  precedents.  The judgment is not binding (except directly on the parties  themselves),  nor  are  the  findings  of facts. This means that even where the direct facts of an earlier case appear to be identical to  those  of  the  case  before  the  court,  the judge is not bound to draw the same inference as drawn in the earlier case.”

Similarly, this Court in  Som Prakash Rekhi v. Union of

India (1981) 2 SCR 111 at 139 referred to the “laconic

discussion and limited ratio” in Subhajit Tewary v. Union

of India (1975) 3 SCR 616, a judgment of a Constitution

Bench of  this  Court,  and was not  bound by it.  Krishna

Iyer, J. put it thus:

“We  may  first  deal  with  Subhajit  Tewary  v. Union of India  (1975) 3 SCR 616, where the question  mooted  was  as  to  whether  the C.S.I.R.  (Council  of  Scientific  and  Industrial Research)  was  ‘State’  under Art.  12.  The

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C.S.I.R. is a registered society with official and non-official  members  appointed  by Government and subject to some measure of control  by  Government  in  the  Ministry  of Science and Technology. The court held it was not ‘State’ as defined in Art. 12. It is significant that  the  court  implicitly  assented  to  the proposition that  if  the society were really an agency of the Government it would be ‘State’. But  on the facts  and features present  there the character of agency of Government was negatived.  The  rulings  relied  on  are, unfortunately, in the province of Art. 311 and it is clear that a body may be ‘State’ under Part III but not under Part XIV. Ray, C.J., rejected the argument that merely because the Prime Minister  was the President  or  that  the other members  were  appointed  and  removed  by Government  did  not  make  the  Society  a ‘State’.  With great  respect,  we agree that  in the absence of the other features elaborated in  Airport  Authority case (1979) 3 SCC 489, the composition of the Governing Body alone may not be decisive. The laconic discussion and the limited ratio in  Tewary (supra) hardly help either side here.”

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

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

“11. Pronouncements  of  law,  which  are  not part  of  the  ratio  decidendi  are  classed  as obiter dicta and are not authoritative. With all respect to the learned Judge who passed the order in Jamna Das case [Writ Petitions Nos. 981-82 of 1984] and to the learned Judge who

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agreed with him, we cannot concede that this Court  is  bound to  follow it.  It  was delivered without  argument,  without  reference  to  the relevant  provisions  of  the  Act  conferring express power on the Municipal  Corporation to direct removal of encroachments from any public place like pavements or public streets, and  without  any  citation  of  authority. Accordingly, we do not propose to uphold the decision of the High Court because, it seems to us that it is wrong in principle and cannot be justified  by  the  terms  of  the  relevant provisions.  A decision  should  be  treated  as given  per  incuriam when  it  is  given  in ignorance of the terms of a statute or of a rule having the force of  a statute.  So far  as the order shows, no argument was addressed to the court on the question whether or not any direction could properly be made compelling the Municipal Corporation to construct a stall at the pitching site of a pavement squatter.”

(Emphasis Supplied)

Further, in  State of M.P. v. Narmada Bachao Andolan,

(2011) 7 SCC 639 at 679-680, it was stated:

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

xxx xxx xxx

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67. Thus,  “per  incuriam”  are those decisions given  in  ignorance  or  forgetfulness  of  some statutory provision or authority binding on the court concerned, or a statement of law caused by inadvertence or conclusion that has been arrived  at  without  application  of  mind  or proceeded without any reason so that in such a case some part of the decision or some step in the reasoning on which it is based, is found, on that account to be demonstrably wrong.”

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

all  by  the  respondent,  and  the  judgment  is  one  of

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

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

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

counsel  alone.   That  apart,  where  there  is  a  detailed

judgment  of  the  High  Court  dealing  with  several

authorities, and it is reversed in a cryptic fashion without

dealing with any of them, the per incuriam doctrine kicks

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

manner  in  which it  deals with the proposition of  law in

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

principle  of  law  adopted  having  regard  to  the  line  of

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reasoning of the Judge which alone binds in future cases.

Such principle can only be laid down after a discussion of

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

only  one  side  is  heard  and  a  judgment  is  reversed,

without  any  line  of  reasoning,  and  certain  conclusions

alone are arrived at, without any reference to any case

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

would  be  binding  upon us  and  that  we would  have  to

follow it.  In the circumstances, we are of the opinion that

the  judgment  in  Yasangi  Venkateswara  Rao (supra)

cannot deter us in our task of laying down the law on the

subject.  

44. In  view  of  what  has  been  held  by  us,  it  is  not

necessary  for  us  to  go  into  the  arguments  relating  to

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

appearing for the Union of India and the Reserve Bank of

India are correct in stating that there is no pleading worth

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

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constitutionality  that  attaches  to  Section  21A  of  the

Banking Regulation Act.  References to RBI circulars and

the counter affidavits filed in the present writ petition again

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

a pure question of legislative competence.  

Conclusion

45.  We declare Section 21A of the Banking Regulation

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

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

Seventh Schedule to the Constitution.  However,  insofar

as Section 21A incidentally encroaches upon the field of

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

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

Debt  Relief  Act  which  deals  with  the  subject  matter  of

relief of agricultural indebtedness, where the State Debt

Relief  Act  covers  debts  due  to  “banks”,  as  defined  in

those Acts.   In  States where the State Debt  Relief  Act

does not apply to banks at all, or applies only to certain

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

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

only in respect of loans made to agriculturists where such

loans are given by banks other than the banks specified

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

case may be.

……………………………J. (R.F. Nariman)

……………………………J. (Navin Sinha)

New Delhi; February 16, 2018.   

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