Banking Regulation Act, 1949 – s.21A – Constitutional validity of – Held: s.21A is valid as it is part of an enactment which, in pith and substance, is relatable to Entry 45, List I of the Seventh Schedule to the Constitution – However, insofar as s.21A incidentally encroaches upon the field of relief of agricultural indebtedness, set out in Entry 30, List II, it will not operate only in States where there is a State Debt Relief Act which deals with the subject matter of relief of agricultural indebtedness, where the State Debt Relief Act covers debts due to “banks”, as defined in those Acts – In States where the State Debt Relief Act does not apply to banks at all, or applies only to certain specified banks, s.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 – Constitution of India – Seventh Schedule List I Entry 45 – Judicial review – Usurious Loans Act, 1918 – State Debt Relief Legislations. Banking Regulation Act, 1949 – s.21A – Non-obstante clause – Interpretation of – Whether s.21A can be said to prevail over State Debt Relief Act in the event of a clash between the two – Held: So far as relief of agricultural indebtedness is concerned, where there is State legislation on the same subject matter which directly clashes with s.21A, s.21A will have to give way to the State Debt Relief Act insofar as relief from agricultural indebtedness due to banks is concerned – The non-obstante clause in s.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.
Constitution of India – Seventh Schedule, List II, Entry 30 – Interpretation of Entry 30 – The expression “relief of agricultural indebtedness” does not take colour from the expression “money lending and money lenders” preceding it in Entry 30 List II – The two expressions are separated by a semicolon which shows that they are not inextricably connected – Thus, money lending is not restricted to the agricultural sector but includes within its scope money lent to all person including purely commercial transactions – Interpretation of Constitution.
Constitution of India – Seventh Schedule, List I, Entry 45 – Banking – Whether s.21A of Banking Regulation Act trenches upon Entry 30, List II – Held: In pith and substance, the Banking Regulation Act fall within Entry 45, List I, but insofar as relief of agricultural indebtedness is concerned, s.21A certainly trenches upon Entry 30, List II – Banking Regulation Act, 1949 – s.21A – Doctrine of pith and substance.
Constitution of India – Seventh Schedule, List I, Entry 45; List II Entry 18 and 30 – Agricultural indebtedness, relief of agricultural indebtedness and banking – How they all fall under different Entries – Held: 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 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. Constitution of India – Art.246 – Federal supremacy – Doctrine of pith and substance – Doctrine of incidental trenching and unoccupied field – Once the spheres of both the entries i.e. State List Entry and Union List Entry 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 Art.246, which expression, so far as sub-articles (1) to (3) are concerned, imports the twin doctrines of incidental trenching and unoccupied field, which applies, therefore, to legislation made under sub-articles (1) to (3) of Art.246, thus making it clear that incidental encroachment by Parliament cannot be tolerated when the exclusive field allotted to the State legislature is not unoccupied –The paramountcy principle contained in Art.246, 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.
Interpretation of Constitution – Harmonious construction – How Entry 45 of List I and Entry 30 List II to be harmonized – Scope of Art.246 – Where two entries in Union List and State List are irreconcilable – Held: Art.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 harmonize the entries, if possible, by giving effect to both and not rendering any one of them otiose – Constitution of India – Art.246 – Banking Regulation Act, 1949 – s.21A.
Precedent – Binding effect – ratio decidendi – 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 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, such a judgment would not be binding upon apex court – Constitution of India – Art.141 – Doctrine of per incuriam.
The Court
HELD: 1. 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 this 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. The expression “banking” contained in Entry 45, List I is to be given a wide meaning. No doubt, the statute as a whole and the said Section does fall within Entry 45, List I. The effect of Section 21A 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 contract [Paras 11, 12][708-G-H; 709-A-C]
Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India (1970) 1 SCC 248 : [1970] 3 SCR 530; Union of India v. Delhi High Court Bar Assn., (2002) 4 SCC 275 : [2002] 2 SCR 450 ; Prafulla Kumar Mukherjee v. Bank of Commerce Ltd., Khulna,
AIR 1947 PC 60; Virendra Pal Singh v. Distt. Asstt. Registrar, Coop. Societies (1980) 4 SCC 109;
Harish Tara Refractories (P) Ltd. v. Certificate Officer, Sader Ranchi, (1994) 5 SCC 324 – relied on.
2. The courts are given very wide powers inter alia, to scale down rates of interest considering a whole host of factors, including the financial condition of the debtor. State Debt Relief Acts, 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. The State Debt Relief Acts are validly made under Entry 30, List II of the Seventh Schedule to the Constitution. [Para 13][711-G-H; 712-A-B]
Fatehchand Himmatlal & Ors. v. State of Maharashtra etc. (1977) 2 SCC 670 : [1977] 2 SCR 828; Pathumma and Ors. v. State of Kerala and Ors. (1978) 2 SCC 1 : [1978] 2 SCR 537 – relied on.
3. The plea that the expression “relief of agricultural indebtedness” must take colour from the expression “money lending and money lenders” preceding it in Entry 30, List II of the Seventh Schedule is not accepted for several reasons. Firstly, purely grammatically, a semicolon separates the two expressions showing that they are not inextricably connected. 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. 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. The addition of the subject “relief of agricultural indebtedness”, for the first time, by the Constitution would ref er 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 each subject matter is separate and distinct from what follows each semicolon. Therefore, 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 causes, and debt relief would be necessary in the case of adverse natural causes whatever be the source of the debt availed.[Para 15][713C-F; 714-A-E] Hoechst Pharmaceuticals Ltd. v. State of Bihar (1983) 3 SCR 130; Sudhir Chandra Nawn v. WTO
(1969) 1 SCR 108 – relied on.
4. Article 246 only states that where two entries in 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. [Para 16][717-F-G]
Calcutta Gas Co. (Proprietary) Ltd. v. State of W.B. [1962] 3 Suppl. SCR 1 ; Central Bank of India v. Ravindra (2002) 1 SCC 367 : [2001] 4 Suppl. SCR
323 ; Waverly Jute Mills Co. Ltd. v. Raymon & Co. (India) (P) Ltd., [1963] 3 SCR 209 – relied on.
5. 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 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. 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 includes agricultural land, and makes it a concurrent subject. 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. 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, is a sub-sub-species of indebtedness, which itself is one of many aspects of banking. In pith and substance, the Banking Regulation Act does fall within Entry 45, List I, but 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. [Paras 19, 20, 22][722B-D; 725-F-H; 726-C-D]
Subrahmanyan Chettiar v. Muttuswami Goundan
AIR 1941 FC 47 ; Attorney General for Canada v. Attorney General for British Columbia 1930 A.C. 111 – referred to.
Federation of Hotels and Restaurants v. Union of India (1989) 3 SCC 634 : [1989] 2 SCR 918 –
held inapplicable.
6. Once the spheres of both the entries i.e. State List Entry and Union List Entry 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 trenching and unoccupied field, which applies, therefore, to legislation made under subarticles (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. The paramountcy principle contained in Article 246, 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. [Paras 28 and 29][730-D-H] In Re CP & Berar Sales of Motor Spirit & Lubricants Taxation Act 1938 AIR 1939 FC 1; UCO Bank v. Dipak Debbarma (2017) 2 SCC 585 : [2016] 11 SCR 723; Special Reference No.1 of 2001 (2004) 4 SCC 489 : [2004] 3 SCR 534 – referred to.
7. Where Section 21A of the Banking Regulation Act incidentally trenches upon the State Debt Relief Acts, enacted under Entry 30, List II, so far as relief of 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. [Para 32][734-E-F; 735-A-B]
8. In Yasangi Venkateswara Rao series of conclusions were put together without any clear reasoning in support. This was probably because only appellant appeared before the Court and argued the case. The respondent though served did not appear and consequently was not heard. The law is clear 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. In the circumstances, the judgment in Yasangi Venkateswara Rao cannot deter from laying down the law on the subject. [Para 43][742-G-H; 743-A]
Dalbir Singh v. State of Punjab [1979] 3 SCR 1059 ; Som Prakash Rekhi v. Union of India
[1981] 2 SCR 111 ; Subhajit Tewary v. Union of India [1975] 3 SCR 616 ; Municipal Corpn. of Delhi v. Gurnam Kaur (1989) 1 SCC 101 : [1988] 2 Suppl. SCR 929 ; State of M.P. v. Narmada Bachao Andolan (2011) 7 SCC 639 : [2011] 6 SCR 443 – relied on.
State Bank of India, In re, AIR 1986 AP 291 ;
State Bank of India v. Yasangi Venkateswara Rao (1999) 2 SCC 375 : [1999] 1 SCR 213 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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