State bank of India v. Santosh Gupta and Ors.

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418
State Bank of India case
In the Supreme Court of India
Civil Appeal
Case No.
Civil Appeal No. 12237-12238 of 2016
Appellant
State Bank of India
Respondent
Santosh Kumar Gupta & Anr.
Date of Judgment
Decided on 16th December, 2016
Bench
Justice Kurian Joseph, Justice Rohinton Nariman

Background

Political Background

Jammu and Kashmir became a part of this nation with a condition to provide them special status. This Special Status includes separate State Constitution, State flag, Separate State legislations on every subject matter and various other privileges. The actual problem comes when there is a conflict between J &K State legislation and any legislation passed by Parliament of India. It was generally claimed by the people of J&K that as per special status Legislation passed by the parliament should not make applicable over them but irrespective of special status provided to them, J&K State Legislation cannot be given overriding effect over any legislation passed by the Parliament or Constitution for that matter. Constitution has always considered to be the grin norm of this land, hence, in case of contradiction between Constitution of India and the Constitution of J&K, the Constitution of India should prevail. Even the special status and laws must have a certain limitations.

Judicial Background

In this case, Judiciary has made harmonious construction between Constitution of India, Parliament Legislation and other State Legislation. Hon’ble Court has decided this case on the interpretation of Article 370 of Constitution of India, Article 246(1) read with Entry 45 and 95 List I, List II of the 7th Schedule to the Constitution of India, List III of the 7th Schedule to the Constitution of India, Section 140 of J&K TPA, Section 13, Section 17A and 18B of the SERFAESI Act.

While interpreting any law, Judiciary has always respected the special status of J&K but No Legislation can ever be given overriding effect over Law of the Land i.e. Constitution of India. Judiciary has given equal importance to Parliament and J&K State Legislation. No legislation has declared as a subordinate legislation by the Hon’ble Court.

Facts

This appeal is filed against the decision of J&K High Court which held that provisions of SARFESI are not applicable to the state of J&K because it’s outside the legislation competence of Parliament, as they are in conflict with Section 140 of the Transfer of Property Act of Jammu & Kashmir, 1920.

Issue Raised

Whether SARFAESI is applicable to the State of Jammu and Kashmir within the legislative competence of Parliament.

Arguments

Appellant’s Argument

1. Article 1 of the Indian Constitution and Section 3 of the J&K Constitution make it clear that India is a Union of States and J&K is an integral part of it.

2. SARFESI was enacted under entry 45 and 95 of List 1 of the Schedule and no relevance of list 2 or list 3 entries because all provisions of SARFAESI deals with banking activities.

3. The recent judgment of Supreme Court in UCO Bank v. Dipak Debbarma hs declared that State Law must be given way to Parliamentary Enactments.

4. They contended that once Entry 45 of List I has no other competition Entry, in as much as List II of the 7th Schedule to the Constitution of India has not been extended to the State of Jammu and Kashmir, and Entry 11A dealing with Administration of Justice contained in List III of the 7th Schedule to the Constitution of India does not apply to Jammu and Kashmir, and Entry 6 List III dealing with transfer of property also does not apply, it is their case that Entry 45 List I is to be read in its full plenitude and is not cut down by the provisions of any other Entry.

Respondent’s Argument

1. Constitution of India and Jammu and Kashmir have equal status and none is subordinate to the other.

2. Section 140 of J&K TPA is in direct conflict with Section 13 of SARFEASI, hence, TOPA of J&K must prevail. Property of a resident of J&K can not be transferred to a non resident merely because SARFEASI says so.

3. SARFEASI is related to the property which is a subject matter of State Legislature only and power of Parliament is restricted by Article 370(1)(b).

4. Section 17A and 18B relates to administration of justice which is under list 3 and Article 35A of Constitution has established rights toward property in J&K.

5. Article 370 of the Constitution is a non-obstante clause which prevails over the entire constitution even constitution even though it is a temporary provisions that does not negate its effect. Parliament need concurrence of J&K assembly before applying any statue in J&K.

Judgment

The Court has reiterated that State of of JK for historical reasons enjoys a “special position” in the union of India among the States & among the Sate and Article 370, though was intended to be temporary or transitional, has become a permanent feature of the Constitution for the reasons mentioned in Article 370(3) that says that without recommendations of the State Constituent Assembly, Article 370 could not be abrogated.

SARFEASI Act’s applicability to the State of J&K. This law basically provides for three things-

1. Securitization of financial assets;

2. Reconstruction of impaired loan assets.

3. Enforcement of security interest.

By following the procedure prescribed under Section 13 read with the Security Interest Rules, 2002 as modified from time to time by the Central Government. The constitutional validity of this act held to be valid by the Hon’ble Supreme Court in Mardia Chemical Ltd. V. Union of India. The Supreme Court has since them repeatedly held that this Act has been passed by Parliament by exercising its legislative owner under Entry 45 of the Union List. This said Entry was extended to the State of J&K by the Presidential Order of 1954. There is unanimity on these points in the Supreme Court decisions till now & Bhupinder Singh Sodhi has also confirmed it.

1. Entry 45 of List 1 provides for “banking” which includes not only mobilization of deposits for lending & investment but the creditor’s right of recovery in case there is default by the borrower by selling his charged assets as recovery of loan is included in the subject of “banking”. This is admitted position of law. (Union of India v. Delhi HighCourt Bar Association, (2002) 4 SCC 275). Parliament has till date passed several legislations by exercising its powers under the said Entry 45. Before commencement of the Constitution, there were several Acts passed by the British & adopted by India after 1947 about banking & the same has been continuing till date. BUT a cursory look at the opening provisions of those Central Laws shows that each Act begins with very important words in their commencement clauses as: “This Act shall be applicable to the whole of India except the State of J & K”. Examples: RBI Act, 1934, Banking Regulation Act, 1949, Negotiable Instruments Act, 1881, Recovery of Debts Due to Banks & Financial Institutions Act, 1993. The expression “except the State of J & K” in those legislation was originally placed in view of Article 370. Then, except DRT Act, 1993, this expression was removed by the Jammu & Kashmir (Extension of Laws) Act, 1956 from the said Central laws & that Extension of Laws Act was passed pursuant to the Presidential order of 1954 cited above. In simple words, these Central Acts on the subject of “banking” were extended to the State of JK under Presidential Order of 1954 by following procedure under Article 370 (1). However, to note here, DRT Act, 1993 has not been adopted by or extended to the State till date because there is no such Concurrence given by the State government till now &, consequently, we don’t have DRT & DRAT mechanism in the State. Any borrower feeling aggrieved by an action taken by bank or FI or ARC u/s 13(4) of the SARAESI has a right to appeal before DRT & DRAT concerned. As DRT Act providing for setting up DRT/DRAT in the State was absent, this was another hindrance in implementation of the SARAESI in the State.  As regard the SARFEASI Act, 2002, the expression”…except the State of Jammu and Kashmir” is missing therein which apparently hs been a “deliberate Omission” on the Indian Lawmakers. It shows the intention of the Legislature to make it applicable to the State of Jammu and Kashmir.

In UCO Bank v. Dipak Debbarmma has held that Section 87 of the Tripura Act, 1960 that allowed sale of mortgage property to a member of Schedule Tribe only within Tripura was to give way to the SARFEASI Act as the latter

Act doesn’t put any embargo on the category of persons to whom mortgage property can be sold by the bank for realisation of its dues & that the SARFEASI Act will prevail over Section 87 of the Tripura Act, 1960 because the State legislation must give a way to the Parliamentary Legislation under the rules of interpretation of statues.

It has said that “anything that comes in the way of SARFAESI by way of a JAMMU & KASHMIR LAW must necessarily give way to the said law by virtue of Article 246 of the Constitution of India as extended to the JK read with section 5 of the Constitution of Jammu & Kashmir” 

Held

1. SARFEASI Act has to be read with the Constitutional of India and Constitution of Jammu and Kashmir. Constitution of India is superior to the Constitution of Jammu and Kashmir.

2. Provisions of SARFEASI Act are applicable to the State of Jammu and Kashmir.

Edited by Shuvneek Hayer
Quality check – Ankita Jha
Approved & Published – Sakshi Raje