# STATE BANK OF INDIA v. SANTOSH GUPTA AND ANR. ETC

- **Citation:** [2016] 9 S.C.R. 985
- **Court:** Supreme Court of India
- **Decided:** 2016-12-16
- **Case number:** Civil Appeal Nos. 12237-12238 of2016
- **Bench:** Kurian Joseph, R. F. Nariman
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-bank-of-india-v-santosh-gupta-and-anr-etc-31406
- **Pages:** 50

## Headnote

Securitisation and Reconstructi01~ of Financial Assets and
Enforcement of Security Interest Act, 2002 - ss. !3(1) & (4), 17A
and 18B - Application of the Act - To the State of Jammu and
Kashmir - Whether within legislative competence of Parliament as
the Act in pith and substance relates to 'transfer of property' not
'banking' and the same is in direct conflict with s.140 of Transfer
of Property Act of Jam mu and Kashmir; and whether ss.17 A and
18B of the Act being the provisions relatable to administration of
;ustice (which is purely a State subject) would also be ultra vires
Parliament-:- Held: State of Jammu and Kashmir is an integral part
of Union of India - By the Constitution Application to Jammu &
Kashmir Order, 1954, the State adapts all the provisions of the
Constitution of India together with certain amendments and
modifications - Art. 246 and Entries 45 and 95 of List I of VII
Schedule have also been made applicable to State of Jammu and
Kashmir - Recovery of debts by banks fall within Entry 45 of List I
of VII Schedule - The Act is relatable to Entry 45 of List I - Any
enactment made under the State List would have to give wiry to the
Act by virtue of application of Art. 246 of the Constitution of India
- Entire Act in pith and substance is referable to Entry 45 List I rlw
Entry 95 List I - The Act does not deal with 'transfer of property' -
The 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
- It is not correct to first dissect an Act into various parts and then
refer those parts to different Entries in the legislative Lists - ss.17 A
and 18B are also referable to Entry 45 and expressly to Entry 95 of
List I - The Act as a whole including ss.17A and 18B is referable to
Entries 45 and 95 of List I - Therefore the Act as a whole would
operate in the, State of Jammu and Kashmir - By virtue of Art. 246
rlw s.5 of Jammu and Kashmir Constitution, s.140 of Jammu and
985
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986
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SUPREME COURT REPORTS
[2016] 9 S.C.R.
Kashmir Transfer of Property Act has to give way to the i111pugned
Act - The impugned Act is well within legislative co111petence of
Parliament - Constitution of India - Arts. 1, 246 and 370, Schedule
VII List I Entries 45 and 95 - Constitution of Ja111111u and Kash111ir
- ss. 3 and 5 - Jammu and Kashmir Transfer of Property Act, I977
- s. 140 - Security Interest (Enforcement) Rules, 2002 - r.8(5)
proviso.
Constitution of lndia:
Arts. 368 proviso, 370(1){d), Vil Schedule, State List - Whether
the subject 111entioned in the State List as originally adopted by State
of Jammu and Kash111ir, were frozen and can never be delegated or
conferred on the Parliament so long as Art. 370 remains - Held:
Proviso to Art. 368 as applicable, to the State of Jammu and Kashmir
allows any constitutional a111endment to be applied to the State with
its concurrence - The amendment would include either 'addition'
or 'subtraction' in the State List"- The 'expression 'modifications'
occurring in Art. 370(1)(d) would not onty mean 'to limit or restrict'
but even 'to extend or enlarge' - The word 'modification' must be
given widest meaning.
Art. 368 proviso and Art.370 - Constitutional amendment -
Application of - To the State of Jammu and Kashmir - Held: As per
Art. 370 once a matter from either the Union List or the Concurrent
List is specified by a Presidential order, no further concurrence of
State is needed - A constitutional amendment is different from an
ordinary law - The language of Art. 368 proviso is different from
the language of Art. 370 and have to be applied according to their
terms.
Allowing the appeals, the Court
HELD: 1.1 It is not correct to say 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

## Text

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[2016] 9 S.C.R. 985
STATE BANK OF INDIA
v.
SANTOSH GUPTA AND ANR. ETC.
(Civil Appeal Nos. 12237-12238 of2016)
DECEMBER 16, 2016
[KURIAN JOSEPH AND R. F. NARIMAN, JJ.]
Securitisation and Reconstructi01~ of Financial Assets and
Enforcement of Security Interest Act, 2002 - ss. !3(1) & (4), 17A
and 18B - Application of the Act - To the State of Jammu and
Kashmir - Whether within legislative competence of Parliament as
the Act in pith and substance relates to 'transfer of property' not
'banking' and the same is in direct conflict with s.140 of Transfer
of Property Act of Jam mu and Kashmir; and whether ss.17 A and
18B of the Act being the provisions relatable to administration of
;ustice (which is purely a State subject) would also be ultra vires
Parliament-:- Held: State of Jammu and Kashmir is an integral part
of Union of India - By the Constitution Application to Jammu &
Kashmir Order, 1954, the State adapts all the provisions of the
Constitution of India together with certain amendments and
modifications - Art. 246 and Entries 45 and 95 of List I of VII
Schedule have also been made applicable to State of Jammu and
Kashmir - Recovery of debts by banks fall within Entry 45 of List I
of VII Schedule - The Act is relatable to Entry 45 of List I - Any
enactment made under the State List would have to give wiry to the
Act by virtue of application of Art. 246 of the Constitution of India
- Entire Act in pith and substance is referable to Entry 45 List I rlw
Entry 95 List I - The Act does not deal with 'transfer of property' -
The 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
- It is not correct to first dissect an Act into various parts and then
refer those parts to different Entries in the legislative Lists - ss.17 A
and 18B are also referable to Entry 45 and expressly to Entry 95 of
List I - The Act as a whole including ss.17A and 18B is referable to
Entries 45 and 95 of List I - Therefore the Act as a whole would
operate in the, State of Jammu and Kashmir - By virtue of Art. 246
rlw s.5 of Jammu and Kashmir Constitution, s.140 of Jammu and
985
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SUPREME COURT REPORTS
[2016] 9 S.C.R.
Kashmir Transfer of Property Act has to give way to the i111pugned
Act - The impugned Act is well within legislative co111petence of
Parliament - Constitution of India - Arts. 1, 246 and 370, Schedule
VII List I Entries 45 and 95 - Constitution of Ja111111u and Kash111ir
- ss. 3 and 5 - Jammu and Kashmir Transfer of Property Act, I977
- s. 140 - Security Interest (Enforcement) Rules, 2002 - r.8(5)
proviso.
Constitution of lndia:
Arts. 368 proviso, 370(1){d), Vil Schedule, State List - Whether
the subject 111entioned in the State List as originally adopted by State
of Jammu and Kash111ir, were frozen and can never be delegated or
conferred on the Parliament so long as Art. 370 remains - Held:
Proviso to Art. 368 as applicable, to the State of Jammu and Kashmir
allows any constitutional a111endment to be applied to the State with
its concurrence - The amendment would include either 'addition'
or 'subtraction' in the State List"- The 'expression 'modifications'
occurring in Art. 370(1)(d) would not onty mean 'to limit or restrict'
but even 'to extend or enlarge' - The word 'modification' must be
given widest meaning.
Art. 368 proviso and Art.370 - Constitutional amendment -
Application of - To the State of Jammu and Kashmir - Held: As per
Art. 370 once a matter from either the Union List or the Concurrent
List is specified by a Presidential order, no further concurrence of
State is needed - A constitutional amendment is different from an
ordinary law - The language of Art. 368 proviso is different from
the language of Art. 370 and have to be applied according to their
terms.
Allowing the appeals, the Court
HELD: 1.1 It is not correct to say 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 oflndia. The State of Jammu & Kashmir,
though a State within the meaning of Article 1 of the Constitution
of India, has been accorded a special status from the very
beginning because of certain events that took place at the time
STATE BANK OF INDIA v. SANTOSH GUPTA AND ANR. ETC.
987
that the erstwhile Ruler of Jammu & Kashmir acceded to the
A
Indian Union. The legislative scheme illustrates that the State of
Jammu & Kashmir is to be dealt with separately owing fo the
special conditions that existed· at the time of the Instrument of
Accession. [Paras 10, 11 and 13][1004-G-H; 1005-A-B; 1009-E]
Prem Nath Kaul v. State of Jammu & Kashmir (1959)
B
Supp. 2 SCR 270 - relied on.
Sampat Prakash v. the State of Jammu & Kashmir (1969)
2 SCR 365 - referred to.
1.2 The State of Jammu and Kashmir 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. Even though the
Jammu & Kashmir Constitution sets up the District Courts and
the High' Court in the State, yet, the supreme authority ~f 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. The effect of omitting Articles 135
and 139 has a very small impact, in that Article 135 only deals
with jurisdiction and powers of the Federal Court to be exercised
by the Supreme Court, and Article 139. deals wi_th Parliament's
power to confer on the Supreme Court the power to issue
directions, orders, and writs for purposes other than those
mentioned in Article 32(2) of Constitution of India. 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. All this
leads to conclude that even qua the State of Jammu & Kashmir,
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SUPREME COURT REPORTS
(2016] 9 S.C.R.
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the quasi federal structure of the Constitution of India continues,
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but with the aforesaid differences. [Para 10][1004-B-G]
State of West Bengal v. Union of India 1964 (1) SCR
371 - relied on.
1.3 Under sub-clause (l)(d) of Article 370, other provisions
of the Indian Constitution shall apply in relation to the State of
Jammu & Kashmir subject to such exceptions and modifications
as the President may by order spec,ify. [Para 14)(1009-F)
1.4 It is not correct to say that a Constitutional amendment
does not ipso facto apply to the State of Jammu & Kashmir under
the proviso to Article 368 as applicable in the said State unless
there is concurrence of the State Government and therefore,
Parliamentary legislation would also require concurrence of the
State Government before it can be said to apply in the State of
Jammu & Kashmir. A constitutional amendment is different in
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quality from an ordinary law and the language of Article 368
proviso and the language of Article 370 are different and have to
be applied according to their terms. Article 370 makes it clear
that once a matter in either the Union List or the Concurrent
List is specified by a Presidential Order, no further concurrence
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of the State of Jammu and Kashmir is needed. [Para 15][1011-FH]
1.5 The Constitution Application to Jammu & Kashmir
Order, 1954 adopts all the provisions of the Constitution of India
as in force on the 20'h June, 1964, together with certain
amendments and modifications. The argument that Article
F · 370(1)(b) 'limits' the power of Parliament is answered by the
fact that the entire Constitution of India, as it exists in 1964, has
been made applicable by Presidential order to the State of Jammu
& Kashmir, availing both Articles 370(l)(b) and (d) for this
purpose. And the expression 'limited to' does not occur in Article
G 370(1)(d),under which it is open to adopt the entire Constitution
of India subject to exceptions and modifications.[Para 18][1013F-G)
H
1.6 By the 1954 Order, in Part XI of the Constitution of
India, in Article 246 for the words, brackets, and figures "clauses
(2) and (3)" occurring in clause (1), the word, brackets and figuri:
STATE BANK OF INDIA v. SANTOSH GUPTA AND ANR. ETC.
989
"clause (2)" shall be substituted, and the words, brackets and
figure "Notwithstanding anything in clause (3)," occurring in
clause (2), and the whole of clauses (3) and (4) shall be omitted.
Equally, Article 248 and Entry 97 List I of Seventh Schedule of
the Constitution of India have been modified so that Parliament
has the residuary power to make laws only with respect to three
subjects - (1) the prevention of activities involving terrorist acts,
(2) the prevention of activities_ directed towards questioning or
disrupting the sovereignty and territorial integrity of India or
bringing about cession of any part of the territory of India, and
(3) taxes on three specified subjects. Significantly, clause (t),
which contained Article 254 in a modified form, was omitted by
C.O. No.66, by which it has become clear that after 1963, Article
254 in its current form in the Constitution of India will apply to
t_he State of Jammu & Kashmir. Equally, in the 7•h Schedule Union
List, the omission of Entries has now come down to only four i.e.
Entries 8, 9, 34, and 79, with a few other Entries being modified
or substituted. Significantly, Entries 45 and 95,of List I continue
to apply to the State of Jammu & Kashmir. The State List
continues to be. omitted altogether, and from 1963 onwards, the
Concurrent List applies to the State of Jammu & Kashmir with a
number of Entries being omitted. Entry 6 dealing with the transfer
of property and Entry llA of the Concurrent List do not apply to
the State of Jammu & Kashmir. •Entry 6 does not apply because
it has not been extended to the State, and Entry. llA does '!-Ot
apply because the 42•d Amendment to the Constitution of India,
which introduced Entry llA into the Concurrent List, is itself
not applicable. (Paras 18, 19)(1014-G; 1015-C-F]
1.7 A combined reading of Article 370 of the Constitution
of India, the 1954 Presidentiaf Order as amended .from time to
time, and the Constitution of Jammu & Kashmir, 1956 wo.uld
lead to the following position insofar as the legislative competence
of the Parliament oflndia vis-a-vis the State of Jammu & Kashmir
is concerned:
1. All entries specified by the 1954 Order contained in List
I of the 7•h Schedule to the Constitution of India would clothe
Parliame.nt with exclusive jurisdiction to make laws in
relation to the subject matters set out in those entries.
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SUPREME COURT REPORTS
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2. Equally, under the residuary power contained in Entry
97 List I read with Article 248, the specified subject matters
set out would indicate that the res id nary power of
Parliament to enact exclusive laws relating to the aforesaid
subject matters would extend only to the aforesaid subject
matters and no further.
3. Parliament would have concurrent power with the State
of Jammu & Kashmir with respect to the entries that are
specified in the Presidential Order of 1954 under List III
of the 7'h Schedule of the Constitution of India. This would
mean that all the decisions of this Court on principles of
repugnancy applicable to Article 254 would apply in full force
to laws made which are relatable to these subject matters.
4. Every other subject matter which is not expressly
referred to in either List I or List III of the 7'h Schedule of
the Constitution oflndia, as applicable in the State of Jammu
& Kashmir, is within the legislative competence of the State
Legislature of Jammu & Kashmir.[Para 21][1016-E-H;
1017-A-B]
1.8 It is not correct to say that the subjects mentioned in
the State List of the 7th Schedule to the Constitution of India as
originally adopted were frozen and can never be delegated or
conferred on the Parliament so long as Article 370 remains, since
under Article 370(1)(b), the President could declare that the
Parliament shall have power to make laws for the State of Jammu
& Kashmir only on the fields oflegislation mentioned in the Union
List and the Concurrent List. Article 368 proviso, as applicable
to the State of Jammu & Kashmir, expressly allows any
Constitutional amendment to the Constitution of India to be
applied with the concurrence of the State of Jam mu & Kashmir.
This would include within its ken, an amendment which either
adds to or subtracts from the State List and confers upon
G Parliament, either exclusively under List I or concurrently under
List III, a subject matter hitherto in the State List. The word
"modification" occuring in Article 370(l)(d) of the Constitution
of India must be given the widest meaning and would include all
amendments which either limit or restrict or extend or enlarge
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the provisions of the Constitution of India. For this reason also
STATE B~NK OF JNDJA v. SANTOSH GUPTA AND ANR. ETC.
991
it is clear that nothing can ever be frozen so long as the drill of
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Article 370 is followed. [Para 22][1017-C-G]
Puranlal Lakhanpal v. President of India (1962) 1 SCR
688; Sampat Prakash v. the State of Jammu & Kashmir
(1969) 2 SCR 365 - relied on.
1.9 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. The opening paragraph of the Constitution of India,
namely "WE THE PEOPLE OF INDIA, having solemnly resolved
to constitute India into a SOVEREIGN SOCIALIST SECULAR
DEMOCRATIC REPUBLIC and to secure to all its citizens ... "
B
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has been wholly omitted in the Constitution of Jam mu & Kashmir.
There is no reference to sovereignty. Neither is there any use of
the expression "citizen" while referring to its people. The people · D
of Jammu & Kashmir for whom special rights are provided in the
Constitution are referred to as "permanent residents" under Part
III of the Constitution of Jammu & Kashmir. Above all, the
Constitution of Jam mu & Kashmir has been made to further define
the existing relationship of the State with the Union of India!!..!!!!
integral part thereof. It is thus clear that the State of Jammu &
Kashmir has no vestige of sovereignty outside the Constitution
of India and its own Constitution, which is subordinate to the
Constitution of India. It is therefore wholly incorrect to describe
it as being sovereign in the sense o.f its residents constituting a
separate and. distinct class in themselves. The residents of
Jammu & Kashmir are first and foremost citizens of India.
Indeed, this is recognized by Section 6 of the Jammu & Kashmir
Constitution. They are governed first by the Constitution of India
and also by the Constitution of Jammu & Kashmir. This is made
clear by Section 10 of the Jammu & Kashmir Constitution. [Paras
41, 42 and 43][1029-C-D; 1030-F-H; 1031-A-CJ
2.1 Recovery of debts by banks has been held to fall within
Entry 45 List I. Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002
(SARFAESI) is relatable to Entry 45 List I and that any enactment
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SUPREME COURT REPORTS
[2016] 9 S.C.R.
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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. [Paras 24, 27][1018-B; 1020-E]
Union of India v. Delhi High Court Bar Association
2002 (2) SCR 450 : (2002) 4 SCC 275; Central Bank
B
of India v. State of Kera/a 2009 (3) SCR 735 : (2009) 4
SCC 94; UCO Bank & Am: v. Dipak Debbarma & Ors.
2016 (11) JT 251 : 2016 (12) SCALE 301; R. C. Cooper
v . .Union of India 1970 (3) SCR 530 : (1970) 1 SCC
248 - relied on.
c
Attorney-General for Canada v. Attorney-General for
the Province of Quebec, 1947 Appeal Cases 33 -
referred to.
2.2 Since List II of the VII Schedule to the Constitution of
India is not operative in the State of Jammu & Kashmir, there is
D
no competing-Entry in the said List and this would lead therefore
to the conclusion that Entries 45 and 95 of_ List I must be given ·a
wide meaning. [Para 30)(1022-A-B]
State of Jammu & Kashmir v. MS. Farooqui 1972 (3)
SCR 881 : (1972) 1 SCC 872 - relied on.
E
Union of India 1'· H.S. Dhillon 1972(2) SCR 33 -
referred to.
2.3 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
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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
G not deal with "transfer of property". [Para 32)(1023-G-H; 1024A]
H
2.4 Under Section 13(4) of SARFAESI, apart from recourse
to taking possession of secured assets of the borrower and
assigning or selling them in order to realise their debts, the banks
can also take over the management of the business of the
STATE BANK OF INDIA v. SANTOSH GUPTA AND ANR. ETC.
borrower, and/or appoint any person as manager to manage
secured assets, the possession of which has been taken over by
the secured creditor. Banks as secured creditors may also require
at any time by notice in writing, any person who has acquired any
of the secured assets from the borrower and from whom money
is due or payable to the borrower, to pay the secured creditor so
much of the money as is sufficient to pay the secured debt. It is
thus clear that the 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". [Para 32][1024-B-D]
2.5 Sections 17 A and Section 18B of SARFAESI, which
apply to the State of Jammu & Kashmir, substituted 'District
Judge' and the 'High Court' for the 'Debts Recovery Tribunal'
and the 'Appellate Tribunal' respectively. It would be clear that
these provisions are referable to Entry 45 as being ancillary to
banking, and expressly to Entry 95 List I inasmuch as the
jurisdiction and power of courts is laid down for the special subject
of recovery of debts due to banks by these provisions. SARFAESI
as a whole would be referable to Entries 45 and 95 of List I. It is
not correct to first dissect an Act into various parts and then
refer those parts to different Entries in the legislative Lists. It is ·
clear therefore that the entire Act, including Sections 17 A and
18B, would in pith and substance be referable to Entries 45 and
95 of List I, and that therefore the Act as a whole would
necessarily operate in the State of Jammu & Kashmir. [Paras 32,
33 and 37][1024-E; 1025-D; 1027-B]
State of Maharashtra v. Narottamdas Jethabai (1950)
1 SCR 51; Jamshed N. Guzdar v. State of Maharashtra
2005 (1) .SCR 223 : (2005) 2 SCC 591; A.S. Krishna
and others v. State of Madras 1957 SCR 399 - relied
·on.
2.6 The judgment of the High Court is wholly incorrect in
referring to Entry llA of the Concurrent List. The Entry is not
extended to the State of Jammu & Kashmir. "Administration of
Justice" would come into play only when Entries 45 and 95 of
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List I are not attracted. Even if this were not so, the expression
"administration of justice" is general and must give way to the
special laws that are enacted under Entry 95 List I when coupled
with another Entry in the same List - in this case Entry 45 List I.
Rule 8(5) proviso of the Security Interest (Enforcement) Rules,
2002 makes it amply clear that Section 140 of the Transfer of
Property Act of Jammu & Kashmir will be respected in auction
sales that take place within the State. This being the case, it is
clear that there is no collision or repugnancy with any of the
provisions of SARFAESI. [Paras 38, 39 and 40][1027-C-E; 1028C, E]
2.7 It is wholly incorrect to refer to Entry llA of List 3 of
VII Schedule of the Constitution of India and to state that since it
is not extended to the State of Jammu & Kashmir, Parliament
would have no legislative competence to enact Sections 17 A and
18B of SARFAESI. There are at least three errors in this
conclusion. First and foremost, it is not possible to dissect the
provisions of SARFAESI and attach them to different Entries
under different Lists. The whole of SARFAESI is referable to
Entry 45 and 95 of List I. Secondly, what has been missed by the
impugned judgment is that Entry 95 List I is a source oflegislative
power for Parliament for conferring power and jurisdiction on
the District Court and the High Court respectively in respect of
matters contained in SARFAESI. And third, the subject
"Administration of Justice" is only general and can be referred
to only if Entry 95 List I read with Entry 45 List I are not attracted.
Even if it is found that Section 140 of the Jammu & Kashmir
Transfer of Property Act entitles only certain persons to purchase
properties in the State of Jam mu & Kashmir, yet, Rule 8(5) proviso
of Security Interest (Enforcement) Rules, 2002 which recognizes
this provision, has been brushed aside. In any case an attempt
has first to be made to harmonise Section 140 of the Jammu &
Kashmir Transfer of Property Act with SARFAESI, and if such
harmonization is impossible, it is clear that by virtue of Article
246 read with Section 5 of the Jammu & Kashmir Constitution,
Section 140 of the Jammu & Ka~flniir Transfer of Property Act
has to give way to SARFAESI, and not the other way around.
[Para 44][1032-B-G]
'
.
STATE BANK OF INDIA v. SANTOSH GUPTA AND ANR. ETC.
995
State of Maharashtra v. Narottamdas Jethabai (1950)
A
1 SCR 51; Jamshed N Guzdar v. State of Maharashtra
2005 (1) SCR 223 : (2005) 2 SCC 591 - relied on.
2.8 The High Court is wrong in 'stating 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 High Court is also wrong in stating that the State
legislature having enacted Section 140 of the Jammu & Kashmir
Transfer of Property Act, therefore, having clearly stated that
the State's subjects/citizens are by virtue of the said provision
protected, SARFAESI cannot intrude and disturb such protection.
Entries 45 and 95 of List I clothe 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, 7'h Schedule to the Constitution of India. This being the case,
Section 5 of the Jammu & Kashmir Constitution will only operate
in areas in which Parliament has no power to make laws for the
State.
Thus, it is clear 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 State of Jammu & Kashmir, read with
Section 5 of the Constitution of Jammu & J(ashmir. Thus, Sections
13(1) and ( 4) cannot be held, to be beyond the legislative
competence of Parliament. [Para 40](1028-F-H; 1029-A-B]
3. The High Court having held that the provisions of
SARFAESI cannot be applied to the State of Jammu & Kashmir,
it is a contradiction in terms to state that SARFAESI can be availed
of by banks which originate from the State of Jammu & Kashmir
for securing monies which are due to them and which have been
advanced to borrowers who are not the residents of the State of
Jammu & Kashmir. [Para 47](1034-C, D]
Case Law Reference
1964 (1) SCR 371
relied on
Paras
(1959) Supp. 2 SCR 270
relied on
Para 11
(1969} 2 SCR 365
referred to
Para 12
B
c
D
E
F
G
H
996
A
B
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SUPREME COURT REPORTS
{2016] 9 S.C.R.
(1962) 1 SCR 688
referred to
Para 14
2002 (2) SCR 450
relied on
Para24
2009 (3) SCR 735
relied on
Para 25
2016 (12) SCALE 301
relied on
Para 26
1970 (3) SCR 530
relied on
Para 28
1947 Appeal Cases 33
referred to
Para29
1972(2) SCR 33
referred to
Para30
1972 (3) SCR 881
relied on
Para 31
(1950) 1 SCR 51
relied on
Para 34
2005 (1) SCR 223
relied on
Para36
1957 SCR 399
relied on
Para 37
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1223 712238 of2016 ..
· From the Judgment and Order dated 16.07.2015 of the High Court
D ·of Jammu and Kashmir atJammu in OWPNo. 1031/2004 & 1539/2012
WITH
C. A. Nos. 12240-12246 of2016.
Rakesh Dwivedi, Sr. Adv., Sanjay Kapur, Anmol Chandan,
Ms. Priyanka Das, Ms. Megha Karnwal, Ms. Sanskriti Pathak, Keshav
E
Thakur, Rajesh Chauhan, Advs. for the Appellant.
Vijay Hansaria, Bharat Bhushan Par.soon, Sr. Advs., Tusharfohn,
Avnish Pandey, Ms. Sonam Priya, Ms. Sneha Kalita, Ravi Kumar Tomar,
Sunil Fernandes, Ms. Mithu Jain, Arnav Vidyarthi, Advs. for the
Respondents.
F
The Judgment of the Court was delivered by
R.F. NARIMAN, J. Leave granted.
I. The Constitution oflndia is a mosaic drawn from the experience
of nations worldwide. The federal structure of this Constitution is largely
reflected in Part XI which is largely drawn from the Government of
· G
India Act, 1935. The State of Jammu & Kashmir is a part of this federal
structure. Due to historical reasons, it is a State which is accorded
special treatment within the framework of the Constitution oflndia. This
case is all about the State of Jammu &.Kashmir vis'-a-vis' the Union of
India, in so far as legislative relations between the two are concerned.
H
2. The present appeals arise out of a judgment dated 16.7.2015
STATE BANK OF INDIA v. SANTOSH GUPTA AND ANR. ETC. 997
[R. F. NARIMAN, J.] ·
passed by the High Court of Jarrimu & Kashmir at Jammu, in which it
has been held that various key provisions of the Securitisation. and
Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 (hereinafter referred to as "SARFAESI") were outside the
legislative competence of Parliament, as they would collide with Section
140 of the Transfer of Property Act of Jammu & Kashmir, 1920. The
said Act has been held to be inapplicable to banks such as the State
Bank oflndia which are all India banks.
3. Before goihg into the merits of the case, it is important to note
that SARFAESI is an enactment which inter alia entitles banks to enforce
- their security interest outside the court's process by movilig under Section
13 thereof to take possession of secured assets of the borrower and sell
them outside the court process. Sections 13 ( 1) and ( 4) and 1 7 are key
provisions of SARFAESI relevant for the present case and are set out
herein as follows:
"Section 13. Enforcement of security interest.
(1) Notwithstanding anything contained in section 69 or
section 69 A of the Transfer of Property Act, I 882 ( 4 of
1882), any security interest created in
favour of any
secured
creditor may be_. enforced, without
the
intervention of court or tribunal, by such creditor in
accordance with the provisions of this Act.
(4) In case the borrower fails to discharge his liability in full
within the period specified insub-section (2), the secured
creditor may take recourse to one or more of the fol lowing
measures to recover his secured debt, namely:- (a) take
possession of the secured assets of the borrower including
the right to transfer by way of lease, assignment or sale for
realising the secured asset; (b) take over the management
of the business of the borrower including the rightto transfer
by way oflease, assignment or sale for realising the secured
asset:
PROVIDED that the right to transfer by way of lease,
assignment or sale shall be .exercised only where the
substantial part of the business of the borrower is held as
security for the debt:
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PROVIDED FURTHER that where the management of
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[2016] 9 S.C.R.
whole of the business or part of the business is severable,
the secured creditor shall take over the management of
such business of the borrower which is relatable to the
security for the debt. ( c) appoint any person (hereafter
referred to as the manager), to manage the secured assets
the 'possession of which has been taken over by the secured
creditor; (d) require at any time by notice in writing, any
person who has acquired any of the secured assets from
the borrower and from whom any money is due or may
become due to the borrower, to pay the secured creditor,
so much of the money as is sufficient to pay the secured
debt.
xxx
Section 17. Right to appeal.
(1) Any person (including borrower), aggrieved by any of
D
the measures referred to in sub-section (4) of section 13
taken by the secured creditor or his authorised officer under
this Chapter, may make an application along with such fee,
as may be prescribed to the Debts Recovery Tribunal having
jurisdiction in the matter within forty-five days from the
E
date on which such measure had been taken:
PROVIDED that different fees may be prescribed for
making the application by the borrower and the person other
than the borrower.
..
Explanation: For the removal of doubts, it is hereby declared
. F
that the communication of the reasons to the borrower by
the secured creditor for not having accepted his
representation or objection or the likely action of the secured
creditor at the stage of communication of reasons to the
borrower shall not entitle the person (including borrower)
to make an application to' the Debts Recovery Tribunal under
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this sub-section.
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(2) The Debts Recovery Tribunal shall consider whether
any of the measures referred to in sub-section ( 4) of section
13 taken by the secured creditor for enforcement of security
are in accordance with the provisions of this Act and the
STATE BANK OF INDIA v. SANTOSH GUPTA AND ANR. ETC. 999
[R. F. NARIMAN, J.]
rules made thereunder.
(3) If, the Debts Recovery Tribunal, after examining the
facts and circumstances of the case and evidence produced
by the parties, comes to the conclusion that any of the
measures referred to in sub-section ( 4) of section 13, taken
by the secured creditor are not in accordance with the
provisions of this Act and the rules made thereunder, and
require restoration of the management of the business to
the borrower or restoration of possession of the secured
assets to the borrower, it may by order, declare the recourse
to anyone or more measures referred to in sub-section (4)
of section 13 taken by the secured creditors as invalid and
restore the possession of the secured assets to the borrower
or restore the management of the business to the borrower,
as the case may be, and pass such order as it may consider
appropriate and necessary in relation to any of the recourse
taken by the secured creditor under sub-section (..t) of
section 13.
( 4) If, the Debts Recovery Tribunal declares the recourse
taken by a secured creditor under sub-section ( 4) of section
13, is in accordance with the provisions of this Act and the
rules made thereunder, then, notwithstanding anything
contained in any other law for the time being in force, the
secured creditor shall be ~ntitled to take recourse to one or
more of the measures specified under sub-section (4) of
section 13 to recover his secured debt.
(5) Any application made under sub-section (l) shall be
dealt with by the Debts Recovery Tribunal as expeditiously
as possible and disposed of within sixty days from the date
of such application:
PROVIDED that the Debts Recovery Tribunal may, from
time to time, extend the said period for reasons to be
recorded in writing, so, however, that the total period of
pendency of the application with the Debts Recovery
Tribunal, shall not exceed four months from the date of
making of such application made under sub-section ( 1 ).
( 6) If the application is not disposed of by the Debts
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SUPREME COURT.REPORTS
[2016] 9 S.C.R.
Recovery Tribunal within the period of four months as
specified in sub-section (5), any party to the application
may make an application, in such fonn as may be prescribed,
to the Appellate Tribunal for directing the Debts Recovery
Tribunal for expeditious disposal of the application pending
before the Debts Recovery Tribunal and the Appellate
Tribunal may, on such application, makr.: .in urdcr fo1
e:'l.peditious disposal of the pending applicatiL'I h) the Debts
Recovery Tribunal.
(7) Save as otherwise provided in this Act, the Debts
Reem ery Tribunal shall, as far as may be, dispose of the
application in accordance with the provisions of the
Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 and the rules made thereunder."
4. Section 34 declares that a Civil Court shall not have jurisdiction
to entertain any suit or proceeding in respect of any matter which a
Debts Recovery Tribunal or the Appellatt! Tribunal under the Act is
empowered to determine, and Section 35 is a general 1;on··,)bstante clause
declaring that this Act shall have effect, notwithstanding anything
inconsistent therewith contained in any other law.for the time being in
force.
5. The bone of contention in the present appeals is whether
SARFAESI in its application to the Stat.e of Jammu & Kashmir would
be held to be within the legislative competence of Parliament. To decide
this question, we have heard wide ranging arguments from the learned
Attorney General Shri Mukul Rohtagi and Shri Rakesh Dwivedi, learned
Senior Advocate, on behalf of the Appellants. They have referred in
detail to the provisions of Article 370 of the Constitution oflndia, read
with Section 5 of the Jam mu & Kashmir Constitution, 1956. It is their
submission that the Instrument of Accession of Jammu and Kashmir,
l 94 7 itself makes it clear that List l of the 7'h 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 Parliament with power to enact SARFAESI. In fact, according
to them, even the impugned judgment of the Hig:1 Court concedes this.
According to them, once Entry 45 List I has no other competing Entry,
inasmuch as List II of the 7'h Schedule to the Constitution of India has
STATE BANK OF INDIA v. SANTOSH GUPTA AND ANR. ETC. 1001
[R. F. NARIMAN, J.]
not been extended to the State of Jammu & Kashmir, and Entry 11 A
dealing with Administration of Justice contained in List III of the 7'h
Schedule to the Constitution oflndia does not apply to Jammu & 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. 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 enquity is necessary, as the Act in pitli
~
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 11 A and to Entry 6, and
further to state that Section 140 of the Transfer of Property Act of
Jammu & Kashmir would render the key prpvisions 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.
According to them, therefore, the impugned judgment is wrong on several
fundamentals and needs to be set aside. They referred to and relied
upon a number of other judgments which we will deal with in the course
gfthisjudgment.
6. Shri Vijay Hansaria, learned senior advocate, appearing on behalf
of the private respondent, has 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. His basic argument to meet the contentions of
the appellants is that the SARFAESI Act, in pith and substance, relates
to "transfer of property" and not "banking" and wou Id, therefore, be
outside the competence of Parliament and exclusively within the
competence of the State Legislature. He further argued that the power
of Parliament is e_xpressly "limited" under Article 370(l)(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. He also-argued
that the subjects mentioned in the State List of the 7th Schedule under
the Constitution of India were frozen and can never be delegated or
c,unferred on Parliament so long as Article 3 70 remains and therefore
any transference of a State List subject to the Concurrent List later
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SUPREME COURT REPORTS
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cannot apply to the State of Jammu & Kashmir. He also argued that it
is not enough under Article 370 to confer power on Parliament by a
Presidential Order, but that every time 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. This
was stated to be also for the reason that an amendment made to the
Constitution oflndia will not apply unless the State concurs in applying it
to the State of Jammu & Kashmir, in which case only a Presidential
Order applying such amendment would take effect. Further, according
to him, Section 140 of the Jammu & Kashmir Transfer of Property Act
is in direct conflict with Section 13 ofSARFAESI Act and the Transfer
of Property Act must prevail. He further argued that Section 17 A and
18B of the SARFAESI Act, being Sections relatable to administration
of justice, which is purely a State subject, would also be ultra
vires Parliament. He relied
upon Article 35A and supported the
impugned judgment on this score, and further stated that the various
judgments cited on behalf of the appellants were distinguishable as the
fact situation in the present case was completely different from the
situation in those judgments.
7. Shri Sunil Fernandes, learned Standing Counsel for the State of
Jammu & Kashmir, referred to Article 370 and the Constitution of Jam mu
& Kashmir in some detail and cited judgments of this Court dealing with
the same. He also pointed out local statutory laws which prohibit transfer
ofland belonging to State residents to non State residents.