# JAYANT VERMA & ORS v. UNION OF INDIA & ORS

- **Citation:** [2018] 2 S.C.R. 679
- **Court:** Supreme Court of India
- **Decided:** 2018-02-16
- **Bench:** R. F. Nariman, Navin Sinha
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/jayant-verma-ors-v-union-of-india-ors-32699
- **Pages:** 65

## Headnote

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.
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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.

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JAYANT VERMA & ORS.
v.
UNION OF INDIA & ORS.
(Writ Petition (Civil) No. 134 of 2013)
FEBRUARY 16, 2018
[R. F. NARIMAN AND NAVIN SINHA, JJ.]
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.
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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
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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
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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.
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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 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,
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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.
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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
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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
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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.
 Case Law Reference
[1977] 2 SCR 828
relied on
Para 3
[1978] 2 SCR 537
relied on
Para 3
AIR 1986 AP 291
referred to
Para 4
[1999] 1 SCR 213
referred to
Para 4
[1970] 3 SCR 530
relied on
Para 8
[2002] 2 SCR 450
relied on
Para 8
JAYANT VERMA & ORS. v. UNION OF INDIA & ORS.
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AIR 1947 PC 60
relied on
Para 9
(1980) 4 SCC 109
relied on
Para 9
(1994) 5 SCC 324
relied on
Para 9
(1983) 3 SCR 130
relied on
Para 16
(1969) 1 SCR 108
relied on
Para 16
[1962] 3 Suppl. SCR 1
relied on
Para 16
[2001] 4 Suppl. SCR 323
relied on
Para 17
[1963] 3 SCR 209
relied on
Para 18
AIR 1941 FC 47
referred to
Para 23
[1989] 2 SCR 918 held inapplicable Para 27
1938 AIR 1939 FC 1 referred to Para 29
[2016] 11 SCR 723 referred to Para 30
[2004] 3 SCR 534
referred to
 Para 31
[1979] 3 SCR 1059
relied on
Para 43
[1981] 2 SCR 111
relied on
Para 43
[1975] 3 SCR 616
relied on
Para 43
[1988] 2 Suppl. SCR 929
relied on
Para 43
[2011] 6 SCR 443
relied on
Para 43
CIVIL ORIGINAL JURISDICTION: Writ Petition (Civil)
No. 134 of 2013.
Under Article 32 of the Constitution of India.
Sanjay Parikh, Abhimanue Shrestha, Parmanand Pandey, Advs.
for the Appellants.
Jayant Bhushan, Sr. Adv, Ms. Shirin Khajuria, Amit Sharma,
Ms. Asha G. Nair, Raj Bahaadur, Ms. Sanskriti Bhardwaj, Ms. Ayushi
Gaur, S. A. Haseeb, Vikas Bansal, Ms. Anil Katiyar, Ms. Sushma Suri,
H.S. Parihar, Kuldeep Parihar, Tushar Bhushan, Advs. for the
Respondents.
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The Judgment of the Court was delivered by
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 15.2.1984. Section 21A of the Banking Regulation Act reads
as under:
"21A. Rates of interest charged by banking companies not
to be subject to scrutiny by courts
Notwithstanding anything contained in the Usurious Loans Act,
1918 (10 of 1918), or any other law relating to indebtedness in
force in any State, a transaction between a banking company and
its debtor shall not be re-opened by any court on the ground that
the rate of interest charged by the banking company in respect of
such transaction is excessive."
2. It will be seen that Section 21A interdicts the reopening by
courts of a debt between a banking company and its debtor, on the ground
that the rate of interest charged by the banking company, in respect of a
loan transaction, is excessive. The section seeks to keep out of harm's
way the Usurious Loans Act, 1918 and/or any other State legislation
relating to indebtedness, and then declares that no such loan transaction
shall be reopened by any court on the ground of charging of excessive
rates of interest. The writ petition has been filed 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,
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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
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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
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recognized this, and has, thus, provided, by way of legislation, that loans
and interest thereon either be waived totally or partially or that courts
may come to the rescue of the farmer debtor by lowering the rate of
interest. According to him, many States adopted the rule of Damdupat
so that in no circumstance can interest charged, for any period
whatsoever, exceed the principal amount of loan. He strongly relied
upon this Court's judgments in Fatehchand Himmatlal & Ors. v. State
of Maharashtra etc., (1977) 2 SCC 670 and Pathumma and Ors. v.
State of Kerala and Ors. (1978) 2 SCC 1, to show that State Debt
Relief Acts have been unsuccessfully challenged in this Court, and are
referable to Entry 30, List II of the Seventh Schedule to the Constitution.
He referred to the Constituent Assembly Debates to show that that part
of Entry 30, List II, which speaks of relief of agricultural indebtedness,
was introduced by the Constitution for the first time, not being in the
predecessor entry in the Government of India Act, 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 20062007 to show that Parliament was alive to the fact that Section 21A
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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 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
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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.
xxx xxx xxx
Constitution of India
List I- Union List
45. Banking.
List II- State List
30. Money-lending and money-lenders; relief of agricultural
indebtedness.
xxx xxx xxx
Article 246. Subject-matter of laws made by Parliament and
by the Legislatures of States.
(1) Notwithstanding anything in clauses (2) and (3), Parliament
has exclusive power to make laws with respect to any of the
matters enumerated in List I in the Seventh Schedule (in this
Constitution referred to as the "Union List").
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(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.
xxx xxx xxx
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
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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.