Jayant Verma & Ors. Vs. Union of India & Ors.

[Writ Petition (Civil) No. 134 of 2013]

R.F. NARIMAN, J.

1. A writ petition, by way of a Public Interest Litigation, filed under Article 32 of the Constitution of India, assails the constitutional validity of Section 21A of the Banking Regulation Act, 1949. The aforesaid section was introduced into the Banking Regulation Act by the Banking Laws (Amendment) Act of 1983 with effect from 1 15.2.1984. Section 21A of the Banking Regulation Act reads as under:

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

2. It will be seen that Section 21A interdicts the reopening by courts of a debt between a banking company and its debtor, on the ground that the rate of interest charged by the banking company, in respect of a loan transaction, is excessive. The section seeks to keep out of harm's way the Usurious Loans Act, 1918 and/or any other State legislation relating to indebtedness, and then declares that no such loan transaction shall be reopened by any court on the ground of charging of excessive rates of interest.

The writ petition has been filed 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 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 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 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 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, 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 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.

5. On the other hand, Shri Jayant Bhushan, learned senior counsel appearing on behalf of the Reserve Bank of India, referred us to Article 246 of the Constitution and to several judgments thereunder and stated that Section 21A squarely falls within Entry 45, List I of the Seventh Schedule to the Constitution, which is "banking". According to him, even if some part of the Section were to incidentally trench upon Entry 30, List II, having regard to the federal paramountcy principle, State legislation under Entry 30, List II must give way to Section 21A and not the other way around.

He also argued that the best way of reconciling Entry 30, List II with Entry 45, List I is to say that "relief of agricultural indebtedness" will not include indebtedness to banks. He took us through the counter affidavit of the RBI to show that the RBI was fully alive to the plight of poor farmers, and had taken several measures, including issuance of guidelines, to assist them. While he agreed that this Court's judgment in Yasangi Venkateswara Rao (supra) could have been 10 more elaborate, he argued that paragraph 7 lays down a clear ratio decidendi, and that this Court ought to follow the same. Insofar as the plea of Article 14 is concerned, he argued that there is no pleading in the writ petition stating how Article 14 had been breached, and this being the case, there being a presumption of constitutionality of Section 21A, such presumption had not been rebutted in this case.

6. Ms. Shirin Khajuria, learned counsel who appeared on behalf of the Union of India, painstakingly took us through the provisions of the Banking Regulation Act. According to her, "relief of agricultural indebtedness", that is in the latter part of Entry 30, List II of the Seventh Schedule to the Constitution, should be read along with "money lending and money lenders" which is the first part of the said entry. This being the case, relief of agricultural indebtedness would apply only to money lenders and money lending and not to banks at all.

If the subject of 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.

List II- Provincial Legislative List

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

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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 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.

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14 36. The legislative entry in List I of the Seventh Schedule is "Banking" and not "Banker" or "Banks". To include within the connotation of the expression "Banking" in Entry 45, List I, power to legislate in respect of all commercial activities which a banker by the custom of bankers or authority of law engages in, would result in re-writing the Constitution. Investment of power to legislate on a designated topic covers all matters incidental to the topic.

A legislative entry being expressed in a broad designation indicating the contour of plenary power must receive a meaning conducive to the widest amplitude, subject however to limitations inherent in the federal scheme which distributes legislative power between the Union and the constituent units. The field of "banking" cannot be extended to include trading activities which not being incidental to banking encroach upon the substance of the entry "trade and commerce" in List II." In Union of India v. Delhi High Court Bar Assn., (2002) 4 SCC 275 at 285-286, this Court was faced with the constitutional validity of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. In repelling the contention that the said Act would not fall under Entry 45, List I, this Court held:

"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 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-Ã -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 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 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 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 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 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 which do banking business to facilitate the working of other cooperative societies. Merely because they do banking business such cooperative societies do not cease to be cooperative societies, when otherwise they are registered under the Cooperative Societies Act and are subject to the duties, liabilities and control of the provisions of the Cooperative Societies Act.

We do not think that the question deserves any more consideration and, we, therefore, hold that the U.P. Cooperative Societies Act was within the competence of the State Legislature. This was also the view taken in Nagpur District Central Cooperative Bank Ltd. v. Divisional Joint Registrar, Cooperative Societies [AIR 1971 Bom 365 : 1971 Mah LJ 932] and Sant Sadhu Singh v. State of Punjab [AIR 1970 P & H 528]." (Emphasis Supplied) Similarly, in Harish Tara Refractories (P) Ltd. v. Certificate Officer, Sader Ranchi, (1994) 5 SCC 324, this Court held that the Bihar and Orissa Public Demands Recovery Act, 1914 was referable to Entries 11A and 13 of the Concurrent List and not to Entry 45, List I. 10. We now come to some of the judgments strongly referred to and relied upon by Shri Parikh. In Fatehchand (supra), several pleas were taken to invalidate the 24 Maharashtra Debt Relief Act of 1976. Insofar as legislative competence was concerned, this Court held:

"54. What then is the incompetence of the State Legislature? Shri B. Sen urged that the wiping out of private debts which formed the capital assets of the moneylenders - one of the main things done by the Debt Act - was not in any of the legislative Lists and even if Parliament had residuary power under Entry 97 of List I, the State had none. Entry 30 in List II is "Money lending and moneylenders; relief of agricultural indebtedness". If commonsense and common English are components of constitutional construction, relief against loans by scaling down, discharging, reducing interest and principal, and staying the realisation of debts will, among other things, fall squarely within the topic.

And that, in a country of hereditary indebtedness on a colossal scale! It is commonplace to state that legislative heads must receive large and liberal meanings and the sweep of the sense of the rubrics must embrace the widest range. Even incidental and cognate matters come within their purview. The whole gamut of Money lending and debt-liquidation is thus within the State's legislative competence. The reference to the Rajahmundry Electricity case [Rajamundry Electric Supply Corporation v. State of Andhra, AIR 1954 SC 251 : 1954 SCR 779] is of no relevance.

Nor is the absence of the expression "relief" in Entry 30, List II, of any moment when relief from moneylenders is eloquently implicit in the 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, does not take away the property of the purchaser without paying him due compensation. It is true that Section 20(2)(b) provides for payment of the purchase money by instalments, but no exception can be taken to this fact as in view of the poverty of the debtor it is not possible for him to pay the debt in a lump sum and as the legislation is for a particular community the provision for payment by instalments cannot be said to work serious injustice to the decree-holder purchaser. A stranger auction purchaser has been treated differently because he had nothing to do with the decree and is enjoined to return the property to the agriculturist debtor on payment of entire amount in lump sum without insisting on instalments.

Thus, in short, the position is that the object of the Act is to protect the poor distressed agriculturist debtors from the clutches of greedy creditors who have grabbed the properties of the debtors and deprived the debtors of their main source of sustenance." (at page 22) In dealing with legislative competence, this Court upheld Section 20 in the following terms:-

"56. It is Article 246 of the Constitution which deals with the subject-matter of the laws to be made by the Parliament and the Legislatures of the States. Clause (3) of the Article provides that subject to clauses (1) and (2) of the Article with which we are not concerned the Legislature of the State has "exclusive power to make laws..... with respect to any of 27 the matters enumerated in List II". Entry 30 of the List specifically states the following matters as being within the competence of the State Legislature,- 30 - Money-lending and money-lenders; relief of agricultural indebtedness.

It is therefore quite clear, and is beyond controversy, that the Act which provides for "the relief of indebted agriculturists in the State of Kerala" is within the competence of the State Legislature. Clause (1) of Section 2 of the Act defines an "agriculturist", clause (4) defines a "debt", clause (5) defines a "debtor" and the two Explanations to Section 20 define the expressions "court" and "judgment-debtor" and give an extended meaning to the expression "agriculturist" so as to include a person who would have been an agriculturist but for the sale of his immovable property.

The other sections provide for the settlement of the liabilities and payment of the debt (along with the interest) of an agriculturist, including the setting aside of the sale in execution of a decree and the bar of suits. The subjectmatter of the Act is therefore clearly within the purview of Entry 30 and Counsel for the appellants have not been able to advance any argument which could justify a different view. Reference in this connection may be made to this Court's decision in Fatehchand Himmatlal v. State of Maharashtra [(1977) 2 SCC 670 : (1977) 2 SCR 828]. It has however been argued that the entry would not permit the making of a law relating to the debt of an agriculturist which has already been paid by 28 sale of his property in execution of a decree and is not a subsisting debt.

57. It is true that Section 20 of the Act provides for the setting aside of any sale of immovable property in which an agriculturist had an interest, if the property had been sold, inter alia, in execution of any decree for the recovery of a debt:

(a) on or after November 1, 1956, or

(b) before November 1, 1956, but possession whereof has not actually passed before November 20, 1957, from the judgment-debtor to the purchaser, and the decree-holder is the purchaser, on depositing one-half of the purchase money together with the cost of the execution etc.

The section therefore deals with a liability which had ceased and did not subsist on the date when the Act came into force. But there is nothing in Entry 30 of List II to show that it will not be attracted and would not enable the State Legislature to make a law simply because the debt of the agriculturist had been paid off under a distress sale. The subject-matter of the entry is "relief of agricultural indebtedness" and there is no justification for the contention that it is confined only to subsisting indebtedness and would not cover the necessity of providing relief to those agriculturists who had lost their immovable property by court sales in execution of the decree against them and had been rendered destitute.

Their problem was in fact more acute and serious, for they had lost the wherewithal of their livelihood and were reduced to a state of penury. An agriculturist does not cease to be an agriculturist merely because he has lost his immovable property, and it cannot be said that the State is not interested in providing him necessary relief merely because he has lost his immovable property.

On the other hand his helpless condition calls for early solution and it is only natural that the State Legislature should think of rehabilitating him by providing the necessary relief under an Act of the nature under consideration in these cases. There is in fact nothing in the wordings of Entry 30 to show that the relief contemplated by it must necessarily relate to any subsisting indebtedness and would not cover the question of relief to those who have lost the means of their livelihood because of the delay in providing them legislative relief. It is wellsettled, having been decided by this Court in Navinchandra Mafatla l 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

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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;

Explanation.--Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause;

(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;

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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, 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;

(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;

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

(h) undertaking and executing trusts;

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

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

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

(l) selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing of or turning into account or otherwise dealing with all or any part of the property and rights of the company; (m) acquiring and undertaking the whole or any part of the business of any person or company, when such business is of a nature enumerated or described in this sub-section;

(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).

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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.

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

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

(i) references to a "banking company" or "the company" or "such company" shall be construed as references to a co-operative bank;

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

There can be no doubt that the Banking Regulation Act deals with the subject "banking" insofar as it licenses banking companies, as defined, and cooperative banks, and seeks to regulate them. Section 21A, though by way of amendment, is undoubtedly an integral part of the aforesaid Act relating to the interdict on the reopening of loan transactions between a banking company and its debtor, on the ground that the rate of interest charged is excessive.

There can be no doubt that a law relating to indebtedness of a debtor to a banking company and the interdict against a court reopening any such transaction, on the ground that interest charged by the banking company is excessive, would relate to the business of banking. We must not forget that the entries in the Lists to 36 the Seventh Schedule have to be read in the widest possible manner, and we have seen from the judgments quoted by us above that the expression "banking" contained in Entry 45, List I is to be given a wide meaning. There can be no doubt that the statute as a whole and the aforesaid Section does fall within Entry 45, List I.

12. The effect of the aforesaid Section is to put out of harm's way the Usurious Loans Act and all State Debt Relief Acts. The Usurious Loans Act was enacted in 1918; its object being to confer on Courts in India an equitable jurisdiction in cases relating to unconscionable usurious contracts. Section 2(1) and 2(2) define "interest" and "loan" respectively in the widest terms as under:

"2. Definitions. In this Act, unless there is anything repugnant in the subject or context,-

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

(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 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.

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

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

"12. Payment of debt in instalments (1) Notwithstanding anything contained in any law or contract or in any decree or order of any Court or Tribunal, a farmer described in clause (b) of sub- section (1) of section 5 may discharge his debts in suitable instalments together with fair rate of interest as recommended by the Commission on the principal amount outstanding at the time of each payment, in the manner as may be directed by the Commission and on payment of the same in the manner directed by the Commission, the whole debt shall be deemed to be discharged.

(2) Where any instalment of a debt is not paid on the due date 42 i. What is the scope of Entry 45, List I vis-Ã -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." 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

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.

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. Entry 12,

List III: Evidence and oaths; recognition of laws, public acts and records, and judicial proceedings. 46 causes, and debt relief would be necessary in the case of adverse natural causes whatever be the source of the debt availed. If Ms. Khajuria is right, a farmer would then be protected only against moneylenders, but not banks, which would denude the entry of most of its content.

16. The real question that arises is how are Entry 45, List I and Entry, 30 List II to be harmonized. Shri Bhushan has relied strongly upon Article 246 of the Constitution which, according to him, lays down the federal supremacy principle. According to him, the said principle extends to edging out State legislation altogether, where reconciliation is not possible. The scope of Article 246 has been dealt with in many judgments. In Hoechst Pharmaceuticals Ltd. v. State of Bihar, (1983) 3 SCR 130 at 162-63 and 165-66, this Court laid down the federal supremacy principle thus: "It is obvious that Article 246 imposes limitations on the legislative powers of the 47 Union and State legislatures and its ultimate analysis would reveal the following essentials:

1. Parliament has exclusive power to legislate with respect to any of the matters enumerated in List I notwithstanding anything contained in clauses (2) and (3). The non obstante clause in Article 246(1) provides for predominance or supremacy of Union legislature. This power is not encumbered by anything contained in clauses (2) and (3) for these clauses themselves are expressly limited and made subject to the non obstante clause in Article 246 (1). The combined effect of the different clauses contained in Article 246 is no more and no less than this: that in respect of any matter falling within List I, Parliament has exclusive power of legislation.

2. The State legislature has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II of the Seventh Schedule and it also has the power to make laws with respect to any matters enumerated in List III. The exclusive power of the State legislature to legislate with respect to any of the matters enumerated in List II has to be exercised subject to clause (1) i.e. the exclusive power of Parliament to legislate with respect to matters enumerated in List I. As a consequence, if there is a conflict between an entry in List I and an entry in List II which is not capable of reconciliation, the power of Parliament to legislate with respect to a matter enumerated in List II must supersede pro tanto the exercise of power of the State legislature.

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

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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,