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In a judgment which could become a subject matter of discussion in the coming days, the Supreme Court of India has slammed a judgment of the Jammu & Kashmir High Court which spoke about the “absolute sovereign power” of the people of Jammu & Kashmir.
The Bench of Justice Kurian Joseph and Justice Rohinton Fali Nariman was deciding the applicability of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Ac) in the State of Jammu & Kashmir.
Attorney General Mukul Rohatgi and Senior Advocate Rakesh Dwivedi appeared for the State Bank of India. Senior Advocate Vijay Hansaria appeared for one of the private respondents while Sunil Fernandes appeared for Jammu & Kashmir.
The case is an appeal filed by the State Bank of India against a judgment passed by the High Court of Jammu & Kashmir at Jammu on July 16 last year. In its judgment, the High Court held that various key provisions of the SARFAESI Act were outside the legislative competence of the Parliament, as they would collide with Section 140 of the Transfer of Property Act of Jammu & Kashmir, 1920.
The bone of contention was, whether SARFAESI in its application to the State of Jammu & Kashmir would be held to be within the legislative competence of the Parliament.
Arguments by parties
Vijay Hansaria argued that since both, the Constitution of India and the Constitution of Jammu & Kashmir are expressions of the sovereign will of the people, they have equal status and none is subordinate to the other.
However, his basic argument was that the SARFAESI Act, in pith and substance, relates to “transfer of property” and not “banking” and would, therefore, be outside the competence of the Parliament and exclusively within the competence of the State Legislature. He further argued that the power of the Parliament is expressly “limited” under Article 370(1)(b) of the Constitution of India, whereas under the Constitution of Jammu & Kashmir, the State Legislature has plenary powers over all matters, except those where the Parliament has power to make laws.
Interestingly, Hansaria also contended that it is not enough under Article 370 to confer power on the Parliament by a Presidential Order, but that every time the Parliament enacts a law under such power, before such law can operate in the State of Jammu & Kashmir, the State Government’s concurrence must be obtained.
He further submitted that Section 140 of the Jammu & Kashmir Transfer of Property Act is in direct conflict with Section 13 of SARFAESI Act and therefore the Transfer of Property Act must prevail. He further argued that Section 17A and 18B of the SARFAESI Act, being Sections relatable to administration of justice, which is purely a State subject, would also be ultra vires.
Attorney General Mukul Rohatgi and Senior Advocate Rakesh Dwivedi referred in detail to the provisions of Article 370 of the Constitution of India, read with Section 5 of the Jammu & Kashmir Constitution of 1956. Their submission was that the Instrument of Accession of Jammu and Kashmir, 1947 itself makes it clear that List I of the 7th Schedule of the Government of India Act, 1935 would apply, and that the various Constitution Application to J & K Orders issued from time to time under Article 370 makes it clear that Article 246 (1) read with Entry 45 and 95 List I would clothe the Parliament with power to enact SARFAESI. In fact, according to them, even the impugned judgment of the High Court concedes this.
According to them, Entry 45 List I has no other competing Entry, since List II of the 7th Schedule to the Constitution of India has not been extended to the State of Jammu & Kashmir, and Entry 11A dealing with Administration of Justice contained in List III of the 7th Schedule to the Constitution of India does not apply to Jammu & Kashmir, and Entry 6 List III dealing with transfer of property also does not apply. Since, Entry 45 List I has no competing Entry, they contended that the said Entry has to be read in its full plenitude and will not be cut down by the provisions of any other Entry.
If it is found that the entire SARFAESI is, in fact, enacted under Entry 45 read with 95 of List I, it would be clear that no other enquiry is necessary, as the Act in pith and substance would be referable to these two Entries. This being the case, the State’s legislative power comes in only if none of the Entries of List I or III are attracted. To refer to Entry 11A and to Entry 6, and further to state that Section 140 of the Transfer of Property Act of Jammu & Kashmir would render the key provisions of SARFAESI without legislative competence, is wholly incorrect.
They referred to a number of judgments to show that recovery of loans is as much part of the business of banking as the giving of loans, and that therefore the entire 2002 Act would fall within Entry 45 read with Entry 95 List I.
Regarding the two Constitutions
Since the distribution of powers between Centre and State was under discussion, the Court first set out the interplay between the two constitutions – the constitution of India and the Constitution of State of Jammu & Kashmir.
“….the State does have its own separate Constitution by which it is governed in all matters, except those surrendered to the Union of India. Amendments that are made in the Constitution of India are made to apply to the State of Jammu & Kashmir only if the President, with the concurrence of the State Government, applies such amendments to the State of Jammu & Kashmir. The distribution of powers between the Union and the State of Jammu & Kashmir reflects that matters of national importance, in which a uniform policy is desirable, is retained with the Union of India, and matters of local concern remain with the State of Jammu & Kashmir.”
However, the apex court held that even though the Jammu & Kashmir Constitution sets up the District Courts and the High Court in the State, yet, the supreme authority of courts to interpret the Constitution of India and to invalidate action violative of the Constitution is found to be fully present.
“Appeals from the High Court of Jammu & Kashmir lie to the Supreme Court of India, and shorn of a few minor modifications, Articles 124 to 147 all apply to the State of Jammu & Kashmir, with Articles 135 and 139 being omitted. We may also add that permanent residents of the State of Jammu & Kashmir are citizens of India, and that there is no dual citizenship as is contemplated by some other federal Constitutions in other parts of the world…..It is therefore difficult to accept the argument of Shri Hansaria that the Constitution of India and that of Jammu & Kashmir have equal status. Article 1 of the Constitution of India and Section 3 of the Jammu & Kashmir Constitution make it clear that India shall be a Union of States, and that the State of Jammu & Kashmir is and shall be an integral part of the Union of India.”
Power to make law
Relying on Article 370, the Court concluded that the power of the Parliament to make laws for J&K shall be limited to the matters in the Union List and the Concurrent List of the 7th Schedule to the Constitution of India, which in consultation with the Government of the State, are declared by the President to correspond to matters specified in the Instrument of Accession.
If other matters contained in the said Constitution outside the Instrument of Accession in the said Lists are to be extended, then they can be extended only with the concurrence of the State.
“The scheme of Article 370(1), therefore, is clear. Since the Instrument of Accession is an agreement between the erstwhile Ruler of Jammu & Kashmir and the Union of India, it must be respected, in which case if a matter is already provided for in it, it would become applicable straightaway without more, and only consultation with the Government of the State is necessary in order to work out the modalities of the extension of the provisions of the Government of India Act corresponding to the Constitution of India referred to in it. However, when it comes to applying the provisions of the Constitution of India which are not so reflected in the Instrument of Accession, they cannot be so applied without the concurrence of the Government of the State, meaning thereby that they can only be applied if the State Government accepts that they ought to be so applied”.
After a combined reading of Article 370 of the Constitution of India, the 1954 Presidential Order as amended from time to time, and the Constitution of Jammu & Kashmir, 1956 the Court culled out the following position insofar as the legislative competence of the Parliament of India vis-à-vis the State of Jammu & Kashmir is concerned:
Regarding the SARFAESI Act, the Court relied on various decisions to arrive at the conclusion that it is relatable to Entry 45 List I and that any enactment made under the State List would have to give way to SARFAESI by virtue of the application of Article 246 of the Constitution of India.
SARFEASI: Banking or Transfer of property?
The Court considered this question and applied the doctrine of pith and substance to hold the following:
“Applying the doctrine of pith and substance to SARFAESI, it is clear that in pith and substance the entire Act is referable to Entry 45 List I read with Entry 95 List I in that it deals with recovery of debts due to banks and financial institutions. inter alia through facilitating securitization and reconstruction of financial assets of banks and financial institutions, and sets up a machinery in order to enforce the provisions of the Act. In pith and substance, SARFAESI does not deal with ‘transfer of property’.”
It clarified that transfer of property, by way of sale or assignment, is only one of several measures of recovery of a secured debt owing to a bank and
“this being the case, it is clear that SARFAESI, as a whole, cannot possibly be said to be in pith and substance, an Act relatable to the subject matter “transfer of property”.
Conclusion on SARFAESI
Having concluded that Entries 45 and 95 of List I clothe the Parliament with exclusive power to make laws with respect to banking, and the entirety of SARFAESI can be said to be referable to Entry 45 and 95 of List I, 7th Schedule to the Constitution of India, the Court held the following:
“…anything that comes in the way of SARFAESI by way of a Jammu & Kashmir law must necessarily give way to the said law by virtue of Article 246 of the Constitution of India as extended to the State of Jammu & Kashmir, read with Section 5 of the Constitution of Jammu & Kashmir. This being the case, it is clear that Sections 13(1) and (4) cannot be held to be beyond the legislative competence of the Parliament as has wrongly been held by the High Court.”
The Court, therefore, allowed the appeal and set aside the judgment of the High Court.
High Court judgment taken to task
What is significant in the judgment is the criticism by the Supreme Court of certain observations made by the High Court.
“The High court judgment begins from the wrong end and therefore reaches the wrong conclusion. It states that in terms of Section 5 of the Constitution of Jammu & Kashmir, the State has absolute sovereign power to legislate in respect of laws touching the rights of its permanent residents qua their immovable properties”.
The Court has not held back in its use of words, clearly stating that parts of the High Court judgment are “rather disturbing”. Observing that the Constitution of Jammu & Kashmir itself makes it clear affirming that Jammu & Kashmir is an integral part of India, the Court has gone on to affirm that the said provision is beyond the pale of amendment.
“We have been constrained to observe this because in at least three places the High Court has gone out of its way to refer to a sovereignty which does not exist…It is rather disturbing to note that various parts of the judgment speak of the absolute sovereign power of the State of Jammu & Kashmir. It is necessary to reiterate that Section 3 of the Constitution of Jammu & Kashmir, which was framed by a Constituent Assembly elected on the basis of universal adult franchise, makes a ringing declaration that the State of Jammu & Kashmir is and shall be an integral part of the Union of India. And this provision is beyond the pale of amendment.”
Read the judgment below.