STATE BANK OF INDIA VERSUS SANTOSH GUPTA December 16, 2016

                                 REPORTABLE



                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                   CIVIL APPEAL NOS.  12237-12238_OF 2016
            [ARISING OUT OF SLP (CIVIL) NOS.30884-30885 OF 2015]


STATE BANK OF INDIA                     … APPELLANT

                                   VERSUS
SANTOSH GUPTA AND ANR. ETC.       ...RESPONDENTS


                                    WITH

                   CIVIL APPEAL NOS.   12240-12246_OF 2016
        [ARISING OUT OF SLP (CIVIL) NOS.30810-30815 & 30817 OF 2015]
                    [SLP (CIVIL) NOS.30810-30817 OF 2015]


STATE BANK OF INDIA AND ORS.      …APPELLANTS

                                   VERSUS

ZAFFAR ULLAH NEHRU AND ANR. ETC.  …RESPONDENTS



                        J U D G M E N T

R.F. Nariman, J.



      Leave granted.

1.    The Constitution of India 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  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 of  India.   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.

2.    The present appeals arise out of a judgment dated 16.7.2015 passed  by
the High Court of Jammu & 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 of India  which  are
all India banks.

3.    Before going 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 moving 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  17  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 69A  of  the
Transfer of Property Act, 1882 (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 in sub-section  (2),  the  secured  creditor  may  take
recourse to one or more of the following 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 right to transfer by way of lease,  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:

PROVIDED FURTHER that where the management of 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  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  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  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 this sub-section.

(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 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 (4) 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 entitled 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 (1) 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  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  form  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,  make  an  order  for  expeditious  disposal  of  the   pending
application by the Debts Recovery Tribunal.

(7) Save as otherwise provided in this  Act,  the  Debts  Recovery  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 Appellate Tribunal under the Act  is  empowered  to
determine, and Section 35 is a general non-obstante  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 State 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 of India, read with Section 5 of  the  Jammu  &  Kashmir
Constitution,  1956.   It  is  their  submission  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 Parliament with power to enact  SARFAESI.   In
fact, according to them, even  the  impugned  judgment  of  the  High  Court
concedes this. According to  them,  once  Entry  45  List  I  has  no  other
competing  Entry,  inasmuch  as  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, 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 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.
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  of  this
judgment.

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 would,  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
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. 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 conferred on Parliament so  long  as  Article  370
remains and therefore any transference  of  a  State  List  subject  to  the
Concurrent List later 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
of India 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 of SARFAESI Act and 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   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 Jammu  &  Kashmir
in some detail and cited judgments of this Court dealing with the same.   He
also pointed out local  statutory  laws  which  prohibit  transfer  of  land
belonging to State residents to non  State  residents.  His  submission  was
that though the SARFAESI Act was enacted by Parliament by  virtue  of  Entry
45 List  I,  yet  Section  13(4)  alone  incidentally  encroaches  upon  the
property rights of permanent residents of the State of Jammu &  Kashmir  and
must be read down so that it will not be permissible under this  Section  to
sell property belonging to a permanent resident of the  State  to  a  person
who is  not  a  permanent  resident  of  the  State.   It  was  his  further
submission that the proviso added to Rule 8(5) of the  SARFAESI  Rules  must
be read along with Section 13(4) of the SARFAESI Act and  if  so  read,  the
State of Jammu & Kashmir  would  have  no  objection  to  the  SARFAESI  Act
applying to the State of Jammu & Kashmir.

8.    As Article 1 of the Constitution of India states, India is a Union  of
States.  In an illuminating judgment, namely, State of West Bengal v.  Union
of India, 1964 (1) SCR 371, Chief Justice Sinha, in the  majority  judgment,
has held that India is quasi-federal with a strong tilt to the  Centre.   In
so  holding,  the  learned  Judge  referred  to  four  indicia  of  a   real
federation, as follows:-

“(a) A truly federal form of Government envisages  a  compact  or  agreement
between  independent  and  sovereign  units  to  surrender  partially  their
authority in their common interest and vesting it in a Union  and  retaining
the residue of the authority  in  the  constituent  units.  Ordinarily  each
constituent unit has its separate Constitution by which it  is  governed  in
all matters except those surrendered to the Union, and the  Constitution  of
the Union primarily operates upon  the  administration  of  the  units.  Our
Constitution was not the result of  any  such compact  or  agreement:  Units
constituting a unitary State which were non-sovereign  were  transformed  by
abdication of power into a Union.

(b) Supremacy of the Constitution which cannot  be  altered  except  by  the
component units. Our Constitution is undoubtedly supreme but  it  is  liable
to be altered by the Union Parliament alone and the units have no  power  to
alter it.

(c) Distribution of powers between the Union and the regional units each  in
its sphere coordinate and independent  of  the  other.  The  basis  of  such
distribution of power is that in matters of national importance in  which  a
uniform policy is desirable in the  interest  of  the  units,  authority  is
entrusted to the Union, and matters of local concern remain with the State.

(d) Supreme authority of the Courts to interpret  the  Constitution  and  to
invalidate action violative of the Constitution. A federal Constitution,  by
its  very  nature,  consists  of  checks  and  balances  and  must   contain
provisions for resolving conflicts between  the  executive  and  legislative
authority of the Union and the regional units.” [at pages 396 - 397]

9.    It was found that so far as States other than the  State  of  Jammu  &
Kashmir are concerned, indicia (a) and (b) were absent whereas  indicia  (c)
and (d) were present, and this coupled  with  a  reading  of  various  other
Articles of the Constitution led a  Constitution  Bench  of  this  Court  to
decide that  the  federal  structure  of  the  Constitution  tilts  strongly
towards the Central Legislature and Central Government.

10.   Insofar as the State of Jammu & Kashmir  is  concerned,  it  is  clear
that indicia (b) is absent.  Insofar as the  other  indicia  are  concerned,
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.   And,  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.  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 with 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). 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.  All  this  leads  us  to
conclude that even qua the State of  Jammu  &  Kashmir,  the  quasi  federal
structure of the Constitution of India continues,  but  with  the  aforesaid
differences.  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.

11.   It is interesting to note that 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 that  the  erstwhile  Ruler  of  Jammu  &
Kashmir acceded to the Indian Union.  These events  have  been  set  out  in
detail in Prem Nath Kaul v. State of Jammu & Kashmir,  (1959)  Supp.  2  SCR
270, to which we will refer in some detail. The State of Jammu & Kashmir  is
dealt with by a special provision, namely, Article 370.  At  this  juncture,
it is necessary to set out this Article which reads as follows:-

Article 370. Temporary provisions with respect to the  State  of  Jammu  and
Kashmir.

(1) Notwithstanding anything in this Constitution,

(a) the provisions of Article 238 shall not apply in relation to  the  State
of Jammu and Kashmir;

(b) the power of Parliament to  make  laws  for  the  said  State  shall  be
limited to

(i) those matters in the Union  List  and  the  Concurrent  List  which,  in
consultation  with  the  Government  of  the  State,  are  declared  by  the
President to correspond to matters specified in the Instrument of  Accession
governing the accession of the  State  to  the  Dominion  of  India  as  the
matters with respect to which the Dominion Legislature  may  make  laws  for
that State; and

(ii) such other matters in the said Lists as, with the  concurrence  of  the
Government of the State, the President may by order specify.

Explanation.- For the purposes of this article, the Government of the  State
means the person for the time being  recognised  by  the  President  as  the
Maharaja of Jammu and Kashmir  acting  on  the  advice  of  the  Council  of
Ministers for the time being in office  under  the  Maharaja’s  Proclamation
dated the fifth day of March, 1948 ;

(c) the provisions of Article 1 and of this article shall apply in  relation
to that State;

(d) such of the  other  provisions  of  this  Constitution  shall  apply  in
relation to that State subject to such exceptions and modifications  as  the
President may by order specify:

Provided that no such order which relates to the matters  specified  in  the
Instrument of Accession of the State referred to in  paragraph  (i)  of  sub
clause (b) shall be issued except in consultation  with  the  Government  of
the State:

Provided further that no such order which  relates  to  matters  other  than
those referred to in the last preceding proviso shall be issued except  with
the concurrence of that Government.

(2) If the concurrence of  the  Government  of  the  State  referred  to  in
paragraph (ii) of sub clause (b) of clause (1) or in the second  proviso  to
sub clause (d) of that clause be given before the Constituent  Assembly  for
the purpose of framing the Constitution of the State is convened,  it  shall
be placed before such Assembly for such decision as it may take thereon.

(3) Notwithstanding anything in the foregoing provisions  of  this  article,
the President may, by public notification, declare that this  article  shall
cease to be operative or shall be operative only with  such  exceptions  and
modifications and from such date as he may specify:

Provided that the recommendation of the Constituent Assembly  of  the  State
referred to in clause (2) shall be necessary  before  the  President  issues
such a notification.



12.   The first thing that is noticed in Article 370 is  that  the  marginal
note states that it is a temporary provision with respect to  the  State  of
Jammu & Kashmir.  However, unlike Article 369, which  is  also  a  temporary
provision limited in point of time to five years from  the  commencement  of
this Constitution, no such limit is to be found  in  Article  370.   Despite
the fact that it is, therefore, stated  to  be  temporary  in  nature,  sub-
clause (3) of Article 370 makes it clear that this Article  shall  cease  to
be  operative  only  from  such  date  as  the  President  may   by   public
notification declare.  And this cannot be done under the proviso to  Article
370 (3) unless there is a recommendation of the Constituent Assembly of  the
State so to do.  This takes us to an interesting  judgment  of  this  Court,
namely, Sampat Prakash v. the State of Jammu & Kashmir, (1969)  2  SCR  365.
In this case, a writ petition under Article 32  was  filed  challenging  the
detention of the petitioner, in which it  was  contended  that  Article  370
contained only temporary provisions which cease to be  effective  after  the
Constituent Assembly of the State  had  completed  its  work  by  framing  a
Constitution for the State.  The detention of the petitioner  was  continued
without making a reference to the Advisory Board inasmuch as  Article  35(c)
of the Constitution had given protection to any law relating  to  preventive
detention  in  Jammu  &  Kashmir  against  invalidity  on  the   ground   of
infringement of any of the fundamental rights guaranteed by Part III of  the
Constitution initially for a period of five years, which was  then  extended
to ten years and fifteen years.  These extensions were  the  subject  matter
of challenge, and it was sought to  be  contended  that  the  power  of  the
President, depending on the concurrence of the Government of  the  State  of
Jammu & Kashmir, must be exercised under Article 370 before  dissolution  of
the Constituent Assembly of the State, and that such power must be  held  to
cease to exist after dissolution of the Constituent Assembly. This  argument
was repelled by the Constitution Bench by giving three reasons.   First  and
foremost, it was stated that the reason for the  Article  was  that  it  was
necessary to empower the President of India to exercise his discretion  from
time to time in applying the Indian Constitution.  This  being  so,  Article
370 would necessarily have to be invoked every time the President, with  the
State’s concurrence, feels it necessary that amendments to the  Constitution
of India be made applicable to Jammu & Kashmir, given  the  special  proviso
to Article 368  which  applies  only  to  the  State  of  Jammu  &  Kashmir.
Further, it was also held that the Article will cease to operate under  sub-
clause (3) only when a recommendation is made by  the  Constituent  Assembly
of the State to that effect. It was  found  that  in  fact  the  Constituent
Assembly of the State had made a recommendation that the Article  should  be
operative with one modification to be incorporated  in  the  explanation  to
clause (1) of the Article, namely, that the Maharaja of Jammu &  Kashmir  be
substituted by the expression “Sadar-I Riyasat of Jammu  &  Kashmir”.  Also,
it is important to note that Article 370 (2) does not in  any  manner  state
that the said Article shall cease on the  completion  of  the  work  of  the
Constituent Assembly  or  its  dissolution.   Having  regard  to  all  these
factors, this Court clearly held that though the  marginal  note  refers  to
Article 370 as only a temporary provision, it is in fact  in  current  usage
and will continue to be in force until the  specified  event  in  sub-clause
(3) of the said Article takes place.    It was further held  by  the  Sampat
Prakash judgment that Section 21 of the General Clauses Act, 1897  was  also
applicable so that the power under this Article can be  used  from  time  to
time to meet with varying circumstances.

13.    Article  370  begins  with  a  non  obstante  clause   stating   that
notwithstanding anything contained in the Constitution, first and  foremost,
under sub-clause (1)(a) the provisions of Article 238  shall  not  apply  in
relation to the State of Jammu  &  Kashmir.   Article  238  has  since  been
repealed and is not of any  importance  today.   It  only  referred  to  the
application of the provisions of Part VI to States in  Part  B  of  the  1st
Schedule.  Since the scheme of Article 370 was different, the  said  Article
was stated not to apply.  But more importantly, the power of  Parliament  to
make laws for the said State shall be limited, in sub-clause (b)(i), 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 difference between consultation and concurrence was  highlighted
in Prem Nath Kaul’s case, supra.  At this stage, it is  necessary  to  refer
to this case in some detail as it  goes  into  the  legislative  history  of
Article 370, and the Presidential Orders made under the  said  Article.   We
are not directly concerned here with the Jammu & Kashmir Big Landed  Estates
(Abolition) Act, 1950, whose validity was challenged in the  said  judgment.
The judgment goes into great detail as to how the  Instrument  of  Accession
to the Union  of  India  was  made  by  Maharaja  Hari  Singh.  What  is  of
importance is to note that after the reins of power were handed over to  his
son Yuvraj Karan Singh by  a  proclamation  dated  20.6.1949,  Yuvraj  Karan
Singh, by a proclamation dated 25.11.1949, stated that the  Constitution  of
India, which was yet to be promulgated, would apply to the State of Jammu  &
Kashmir.  Also, by a proclamation dated 20.4.1951,  a  Constituent  Assembly
was to be set up on  the  basis  of  adult  franchise  in  order  that  this
Assembly give to the State its own Constitution.  The judgment then goes  on
to refer to  the  Jammu  &  Kashmir  Presidential  Order  of  1950  and  its
amendments, which was then supplanted by the 1954 Order.  It  then  goes  on
to state  that,  whereas  sub-clause  (1)  (b)  (i)  of  370  requires  only
consultation with the Government of  the  State,  sub-clause  (ii)  requires
concurrence, which scheme applies under sub-clause (d) of the  said  Article
in relation to the extension or modification  of  other  provisions  of  the
Indian Constitution as well. Under sub-clause (d), other provisions  of  the
Constitution may, by Presidential Order, be held to apply to  the  State  of
Jammu & Kashmir.  If matters specified in the Instrument  of  Accession  are
to be applied, then there is only consultation with the  Government  of  the
State, and if not, there must be concurrence. 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. Under Article 370(2), the  concurrence  of  the
Government of the State, given before the Constituent Assembly is  convened,
can only be given effect to if ratified by the Constituent  Assembly.   This
legislative scheme therefore illustrates that the State of Jammu  &  Kashmir
is to be dealt with separately owing to the special conditions that  existed
at the time of the Instrument of Accession.

14.   Under sub-clause (1)(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
specify.  In Puranlal Lakhanpal v. President of India,  (1962)  1  SCR  688,
this Court held that  “modification”  in  sub-clause  (d)  is  a  very  wide
expression which includes amendment by way of change.  This Court held:
“The question that came for consideration in In re: Delhi Laws  Act  case(')
was with respect to the power of delegation to a  subordinate  authority  in
making  subordinate  legislation.  It  was  in   that   context   that   the
observations  were  made  that  the  intention  of  the  law   there   under
consideration when it used the word  "modification"  was  that  the  Central
Government would extend certain laws to Part C States  without  any  radical
alteration in them. But in the present case we have to find out the  meaning
of the word  "modification"  used  in Art.  370(1) in  the  context  of  the
Constitution. As we  have  said  already  the  object  behind  enacting Art.
370(1) was to recognise the special position  of  the  State  of  Jammu  and
Kashmir and to provide for that special position  by  giving  power  to  the
President to apply the provisions of the Constitution  to  that  State  with
such exceptions and modifications as the President might by  order  specify.
We have already pointed out that the power to make exceptions  implies  that
the President can provide that a particular provision  of  the  Constitution
would not apply to that State. If  therefore  the  power  is  given  to  the
President to efface in effect any provision of the  Constitution  altogether
in its application to the State of Jammu and Kashmir, it seems that when  he
is also  given  the  power  to  make  modifications  that  power  should  be
considered  in  its  widest  possible  amplitude.  If  he  could  efface   a
particular provision of the Constitution altogether in  its  application  to
the State of Jammu  and  Kashmir,  we  see  no  reason  to  think  that  the
Constitution did not intend that  he  should  have  the  power  to  amend  a
particular provision in its application to the State of Jammu  and  Kashmir.
It seems to us that when  the  Constitution  used  the  word  "modification"
in Art. 370(1) the intention was that the President would have the power  to
amend the provisions of the Constitution if  he  so  thought  fit  in  their
application to the State  of  Jammu  and  Kashmir.  In  the  Oxford  English
Dictionary (Vol. VI) the word 'modify" means inter  alia  "to  make  partial
changes in; to change (as object) in respect of some of  its  qualities;  to
alter  or  vary  without  radical  transformation".   Similarly   the   word
"modification" means "the action of making  changes  in  an  object  without
altering  its  essential  nature  or   character;   the   state   of   being
thus  changed;     partial   alteration".   Stress     is    being    placed
on the  meaning  "to  alter  or  vary  without  radical  transformation"  on
behalf of the petitioner; but that is not the  only  meaning  of  the  words
"modify" or "modification". The word "modify" also means  "to  make  partial
changes in" and "modification" means "partial alteration". If therefore  the
President changed the method of direct election to indirect election he  was
in essence making a partial change or  partial  alteration  in Art.  81  and
therefore the modification made in the present case  would  be  even  within
the dictionary meaning of that word. But, in  law,  the  word  "modify"  has
even a wider meaning. In "Words and Phrases" by Roland Burrows, the  primary
meaning of the word "modify" is given as "to limit"  or  "restrict"  but  it
also means "'to vary" and may even mean to "extend" or  "enlarge".  Thus  in
law the word "modify" may just  mean  "vary",  i.e.,  amend;  and  when Art.
370(1) says that the President may apply the provisions of the  Constitution
to the State of Jammu and Kashmir with  such  modifications  as  he  may  by
order specify it means that he may vary (i.e., amend) the provisions of  the
Constitution in its application to the State of Jammu and  Kashmir.  We  are
therefore of opinion that in the context of the Constitution  we  must  give
the widest effect to the meaning of the word  'modification"  used  in  Art.
370(1) and in that sense it includes an amendment. There  is  no  reason  to
limit the  word  "modifications"  as  used  in  Art.  370(1)  only  to  such
modifications as do not make any "radical  transformation".”  [pages  692  –
693]



15.   It has been argued that Parliamentary legislation would also need  the
concurrence of the State Government before it can  apply  to  the  State  of
Jammu & Kashmir under  Article  370.   This  is  a  complete  misreading  of
Article 370 which 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  is  needed.   Indeed,   the   argument   is   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,
logically, it must follow that Parliamentary legislation would also  require
concurrence of the State Government before it can be said to  apply  in  the
State of Jammu & Kashmir.  We fail  to  understand  or  appreciate  such  an
argument.  A constitutional  amendment  is  different  in  quality  from  an
ordinary law and, as has been held by us, it is clear that the  language  of
Article 368 proviso and the language of Article 370 are different  and  have
to be applied according to their terms.

16.   The Instrument  of  Accession  of  Jammu  &  Kashmir  State  is  dated
26.10.1947, and states, in paragraphs 1, 3, 8, and 9, the following:

“1. I hereby declare that I accede to the Dominion of India with the  intent
that the Governor General of India, the Dominion  Legislature,  the  Federal
Court and any other Dominion authority established for the purposes  of  the
Dominion shall by virtue of this my  Instrument  of  Accession  but  subject
always to the terms thereof, and for the  purposes  only  of  the  Dominion,
exercise in relation to the State of Jammu & Kashmir  (hereinafter  referred
to as "this State") such functions as may be vested in them by or under  the
Government of India Act, 1935, as in force in the Dominion of India, on  the
15th day of August 1947, (which Act as so in force is hereafter referred  to
as "the Act').

3. I accept the matters specified in the  schedule  hereto  as  the  matters
with respect to which the Dominion Legislature may make law for this State.

8. Nothing in this Instrument affects the continuance of my  Sovereignty  in
and over this State, or, save as provided by or under this  Instrument,  the
exercise of any powers, authority and rights now enjoyed by me as  Ruler  of
this State or the validity of any law at present in force in this State.

9. I hereby declare that I execute this Instrument on behalf of  this  State
and that any reference in this Instrument to me  or  to  the  Ruler  of  the
State is  to  be  construed  as  including  a  reference  to  my  heirs  and
successors.”



The Schedule which is referred to in clause 3 refers to defence, external
affairs, communications and certain ancillary matters.

17.   At this stage, it is necessary to see which of the provisions  of  the
Constitution of India have in fact been applied by Article 370 to the  State
of Jammu & Kashmir.  First and foremost, in  sub-clause  (1)(c)  of  Article
370, the provisions of Article 1 and Article 370 itself are  said  to  apply
by virtue of this sub-clause straightaway.  In order to find out what  other
provisions of the Constitution have been extended to the State  of  Jammu  &
Kashmir, we have necessarily to go to the Presidential Order of 1950.   This
Order, which is called the  Constitution  Application  to  Jammu  &  Kashmir
Order, 1950, began rather warily by extending a few Entries  in  List  I  of
Schedule  7  and  applying  only  certain  clauses  and  Articles   of   the
Constitution.  Since  this  Order  and  its  amendments  are  of  historical
importance only, it is not necessary to refer to them in any detail,  as  it
is the Constitution  Application  to  Jammu  &  Kashmir  Order,  1954,  that
superseded the 1950 Order, and went on to apply various  provisions  of  the
Constitution of India to the State of Jammu & Kashmir that we are  concerned
with.  Insofar as this case is concerned, it is important to note  that,  in
Part XI, in Article 246,  it  was  stated  that  the  words,  brackets,  and
figures “notwithstanding anything contained in clauses 2  and  3”  occurring
in clause 1, and clauses 2, 3, and 4 shall  be  omitted.   Article  254  was
also, by sub-clause (f) of paragraph 6, extended with certain  modifications
and omissions.  The 7th schedule Union List was extended containing most  of
the Entries  therein  except  what  was  expressly  omitted  by  clause  22.
Interestingly enough, Entry 45 and 95 with which we are  directly  concerned
were applied for the first time by this Order, and have continued  to  apply
to the State since.  Significantly, the State List and the  Concurrent  List
of the 7th Schedule were omitted by the original 1954 Order.

18.   This order has been amended  repeatedly  by  a  number  of  subsequent
orders, and the Order with which we  are  directly  concerned  is  the  1954
Order as amended from time to time.  This Order adopts  all  the  provisions
of the Constitution of India as in force on the 20th  June,  1964,  together
with  certain  amendments  and  modifications.  The  argument  that  Article
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(1)(b)  and  (d)  for  this  purpose.  And  the  expression
‘limited to’ does not occur in Article 370(1)(d),under which it is  open  to
adopt  the  entire  Constitution  of  India  subject   to   exceptions   and
modifications,  as has been noted above.  The  opening  paragraphs  of  this
Order read as follows:-

“In exercise of the powers conferred by clause (1) of  article  370  of  the
Constitution, the President, with the concurrence of the Government  of  the
State of Jammu and Kashmir, is pleased to make the following Order:-

(1)     This Order may be called the Constitution (Application to Jammu  and
Kashmir) Order, 1954.

(2)     It shall come into force on the fourteenth day  of  May,  1954,  and
shall  thereupon  supersede  the  Constitution  (Application  to  Jammu  and
Kashmir) Order, 1950.

2. The provisions of the Constitution as in force on the 20th day  of  June,
1964 and as amended by the Constitution (Nineteenth  Amendment)  Act,  1966,
the Constitution (Twenty-first  Amendment)  Act,  1967,  Section  5  of  the
Constitution (Twenty-third Amendment) Act, 1969, the  Constitution  (Twenty-
fourth Amendment) Act, 1971, section 2  of  the  Constitution  (Twenty-fifth
Amendment) Act, 1971, the Constitution (Twenty-sixth Amendment)  Act,  1971,
the  Constitution  (Thirtieth  Amendment)  Act,  1972,  section  2  of   the
Constitution  (Thirty-first  Amendment)  Act,  1973,  section   2   of   the
Constitution (Thirty-third Amendment) Act, 1974, sections 2, 5, 6 and  7  of
the Constitution (Thirty-eighth   Amendment)  Act,  1975,  the  Constitution
(Thirty-ninth Amendment) Act, 1975, the  Constitution  (Fortieth  Amendment)
Act, 1976, sections 2, 3 and 6 of the Constitution (Fifty-second  Amendment)
Act, 1985 and the Constitution (Sixty-first Amendment) Act, 1988  which,  in
addition to article 1 and article 370, shall apply in relation to the  State
of Jammu and Kashmir and the exceptions and modifications subject  to  which
they shall so apply shall be as follows:-”



By this 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 figure "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.  This being the case, it is clear that Article  246  as  applicable
to the State of Jammu & Kashmir would read thus:-

“246. Subject matter of laws made by Parliament and by the  Legislatures  of
States

(1) Notwithstanding anything in clause  (  2  ),  Parliament  has  exclusive
power to make laws with respect to any of the matters enumerated in  List  I
in the 7th Schedule (in this Constitution referred to as the Union List)

(2)  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 7th Schedule (in this Constitution  referred  to  as  the
Concurrent List)”


19.   Equally, Article 248 and Entry 97 List I 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 (f),  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 the State of Jammu & Kashmir.  Equally, in  the  7th  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.   What  is  of
importance for the decision of this case is that Entry 6  dealing  with  the
transfer of property and Entry 11A 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 11A does not apply  because  the  42nd
Amendment to the Constitution of India, which introduced Entry 11A into  the
Concurrent List, is itself not applicable.


20.   At this stage, it is important to refer to the Constitution  of  Jammu
&  Kashmir,  1956.   This  Constitution  came  into  effect  on  17.11.1956.
Section 2(1)(a), and Sections 3, 4, and 5 read as follows:-

“2. Definitions:-

(1) In  this  Constitution,  unless  the  context  otherwise  requires-  (a)
"Constitution of India" means the Constitution of  India  as  applicable  in
relation to this State;

3. Relationship of the State with the Union of  India:-The  State  of  Jammu
and Kashmir is and shall be an integral part of the Union of India.

4. Territory of the State:-The territory of the  State  shall  comprise  all
the territories which on the fifteenth day of August, 1947, were  under  the
sovereignty or suzerainty of the Ruler of the State.

5. Extent of executive and legislative power of the  State:-  The  executive
and legislative power of the State extends to all matters except those  with
respect to which Parliament has power to make laws for the State  under  the
provisions of the Constitution of India.”


21.   What is important to note in this Constitution, which was  drafted  by
a Constituent Assembly elected on the basis of adult franchise, is that  the
State of Jammu & Kashmir is stated to be an integral part of  the  Union  of
India, and that the executive and legislative power of the State extends  to
all matters except those with respect to which Parliament has power to  make
laws for the State under Article  370  of  the  Constitution  of  India.   A
combined reading, therefore, 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 would lead to the  following  position
insofar as the legislative competence of the Parliament of  India  vis-à-vis
the State of Jammu & Kashmir is concerned:

All entries specified by the 1954 Order contained  in  List  I  of  the  7th
Schedule  to  the  Constitution  of  India  would  clothe  Parliament   with
exclusive jurisdiction to make laws in relation to the subject  matters  set
out in those entries.
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
residuary power of Parliament  to  enact  exclusive  laws  relating  to  the
aforesaid subject  matters  would  extend  only  to  the  aforesaid  subject
matters and no further.
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 7th 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.
Every other subject matter which is not  expressly  referred  to  in  either
List I or List III of the 7th Schedule of  the  Constitution  of  India,  as
applicable in the State of  Jammu  &  Kashmir,  is  within  the  legislative
competence of the State Legislature of Jammu & Kashmir.

22.   An argument was made by learned counsel on behalf of  the  respondents
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 of legislation  mentioned  in  the  Union  List  and  the
Concurrent List.  We are afraid that this submission is also  without  force
for the reason that 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
Jammu & Kashmir.  This would include within  its  ken,  an  amendment  which
either  adds  to  or  subtracts  from  the  State  List  and  confers   upon
Parliament, either exclusively under List I or concurrently under List  III,
a subject matter hitherto in the State List.   This  has  been  so  held  in
Sampat Prakash’s case (supra).  Also, in Puranlal Lakhanpal’s case  (supra),
the expression “modifications”  occurring  in  Article  370(1)(d)  has  been
construed not only to mean “to limit or restrict” but  even  “to  extend  or
enlarge.”  Thus, the word “modification” must be given  the  widest  meaning
and would include all amendments which either limit or  restrict  or  extend
or enlarge the provisions of the Constitution of  India.   For  this  reason
also it is clear that nothing can ever be frozen so long  as  the  drill  of
Article 370 is followed.

23.   Given this legislative scenario, we have now to  examine  SARFAESI  in
its applicability to the State of Jammu & Kashmir.  Entries  45  and  95  of
List I of the 7th Schedule of the Constitution of India read as follows:-

“45. Banking.

95. Jurisdiction and powers of all courts, except the  Supreme  Court,  with
respect to any of the matters in this List; admiralty jurisdiction.”


24.   The first significant thing to note  is  that  recovery  of  debts  by
banks has been held to fall within Entry 45 List I. Thus, in Union of  India
v. Delhi High Court Bar Association, (2002) 4 SCC 275, it has been held:

“The Delhi High Court and the Guwahati High Court have held that the  source
of the power of Parliament to enact a law relating to the  establishment  of
the Debts Recovery Tribunal is Entry 11-A of  List  III  which  pertains  to
“administration of justice; constitution and  organisation  of  all  courts,
except the Supreme Court and the High Courts”. In our opinion, Entry  45  of
List I would cover the types of legislation now enacted. Entry 45 of List  I
relates  to  “banking”.  Banking  operations  would, inter   alia,   include
accepting of loans and deposits, granting  of  loans  and  recovery  of  the
debts due to the bank. There can be little doubt  that  under  Entry  45  of
List I, it is Parliament alone which can enact a  law  with  regard  to  the
conduct of business by the banks. Recovery of dues is an essential  function
of any banking institution. In exercise of its  legislative  power  relating
to banking, Parliament can provide the mechanism by which monies due to  the
banks and financial institutions can be recovered. The Tribunals  have  been
set up in regard to the debts due to the banks. The special machinery  of  a
Tribunal which has been constituted as per the preamble  of  the  Act,  “for
expeditious adjudication and recovery of debts due to  banks  and  financial
institutions and for matters  connected  therewith  or  incidental  thereto”
would squarely fall within the ambit of Entry 45 of List I. As none  of  the
items in the lists are to be read in a narrow or restricted sense, the  term
“banking” in Entry 45  would  mean  legislation  regarding  all  aspects  of
banking including ancillary  or  subsidiary  matters  relating  to  banking.
Setting up of an adjudicatory body like the  Banking  Tribunal  relating  to
transactions in which banks and financial institutions are  concerned  would
clearly fall under Entry 45 of List I giving Parliament  specific  power  to
legislate in relation thereto.” [para 14]
25.   When it came to SARFAESI itself, this Court has held in  Central  Bank
of India v. State of Kerala, (2009) 4 SCC 94:

“Undisputedly, the DRT Act and the Securitisation Act have been  enacted  by
Parliament under Entry 45 in List I in the 7th Schedule whereas  the  Bombay
and Kerala Acts have been enacted by the State Legislatures concerned  under
Entry 54 in List II in the 7th Schedule. To put it differently, two sets  of
legislations have been enacted with reference to entries in different  lists
in the 7th Schedule. Therefore, Article 254 cannot be  invoked  per  se  for
striking down State  legislations  on  the  ground  that  the  same  are  in
conflict with  the  Central  legislations.  That  apart,  as  will  be  seen
hereafter,  there  is  no  ostensible  overlapping  between  two   sets   of
legislations. Therefore,  even  if  the  observations  contained  in Kesoram
Industries case [(2004) 10 SCC  201]  are  treated  as  law  declared  under
Article 141 of the Constitution, the State  legislations  cannot  be  struck
down  on  the  ground  that  the  same  are   in   conflict   with   Central
legislations.” [para 36]

26.   In a recent judgment, namely, UCO Bank &  Anr.  V.  Dipak  Debbarma  &
Ors., [Civil Appeal No. 11247 of 2016 and Civil Appeal No.  11250  of  2016]
delivered by this Court on 25th November, 2016, this Court has held:
“18. The Act of 2002 is relatable to the Entry of banking which is  included
in List I of the 7th Schedule. Sale of mortgaged property by a  bank  is  an
inseparable and integral part of the business of banking. The object of  the
State Act , as already noted, is an attempt to consolidate the land  revenue
law in the State and also to  provide  measures  of  agrarian  reforms.  The
field of encroachment made by the  State  legislature  is  in  the  area  of
banking. So long there did not exist any parallel Central  Act dealing  with
sale of secured assets and referable to Entry 45 of List I,  the State  Act,
including  Section 187, operated validly.  However,  the  moment  Parliament
stepped in by enacting  such  a  law  traceable  to  Entry  45  and  dealing
exclusively with activities relating to sale of secured  assets,  the  State
law, to the extent that it is inconsistent with the Act of 2002,  must  give
way. The dominant  legislation  being  the  Parliamentary  legislation,  the
provisions of the Tripura Act of 1960, pro tanto,  (Section  187)  would  be
invalid. It is the provisions of the Act of 2002, which do not  contain  any
embargo on the category of persons to whom mortgaged property  can  be  sold
by the bank  for  realisation  of  its  dues  that  will  prevail  over  the
provisions contained in Section 187 of the Tripura Act of 1960.”


27.   In this case, a Tripura Land Reform law, which was made under  Entries
18 and 45 of List II, was pitted against SARFAESI which is made under  Entry
45 List I.  Despite the fact that the Tripura Act  received  the  protection
of Article 31B read with Ninth Schedule, it was held that the  Tripura  Act,
Section 187 of which put a legislative embargo  on  the  sale  of  mortgaged
properties by a bank to any person who is not a member of  Scheduled  Tribe,
was held to give way to the  Parliamentary  enactment  SARFAESI  made  under
Entry 45 List I.  Though this judgment does not apply on all  fours  to  the
present case, it clearly establishes that SARFAESI 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.

28.   R.C. Cooper v.  Union  of  India,  (1970)  1  SCC  248,  has  also  in
paragraph  36, stated that the subject matter ‘banking’ in Entry 45  List  I
must be construed so as to comprehend within its scope all matters that  are
incidental to such subject matter.  It was held:

“The legislative entry in List I of the 7th Schedule is  “Banking”  and  not
“Banker” or “Banks”. To include within the  connotation  of  the  expression
“Banking” in Entry 45,  List  I,  power  to  legislate  in  respect  of  all
commercial activities which a banker by the custom of bankers  or  authority
of law engages in, would result in re-writing the  Constitution.  Investment
of power to legislate on a designated topic covers  all  matters  incidental
to the topic. A legislative entry being expressed  in  a  broad  designation
indicating the contour of plenary power must receive a meaning conducive  to
the widest  amplitude,  subject  however  to  limitations  inherent  in  the
federal scheme which distributes legislative power  between  the  Union  and
the constituent units. The field of “banking” cannot be extended to  include
trading activities which not being incidental to banking encroach  upon  the
substance of the entry “trade and commerce” in List II.” [para 36]


29.   A judgment of the  Privy  Council  reported  in  Attorney-General  for
Canada v. Attorney-General for the Province of  Quebec,  1947  Appeal  Cases
33, also throws some light on what is the correct meaning  to  be  given  to
the expression “banking”.  A  Quebec  Statute  deemed  as  vacant  property,
without an owner, (which will now belong to His  Majesty)  all  deposits  or
credits in credit  institutions  and  other  establishments  which  received
funds or securities on deposit where for 30 years or more such  deposits  or
credits are not the subject  of  any  operation  or  claim  by  the  persons
entitled thereto.  In an appeal from  the  Court  of  King’s  Bench  of  the
Province of Quebec, the Bank of Montreal  argued  that  the  State  Act  was
beyond the powers of the Quebec legislature as  “banking”  was  one  of  the
subjects allotted exclusively to the Parliament of Canada.  Lord Porter,  in
an illuminating judgment, posed the question and answered it thus:-

“Is then, the repayment of deposits to depositors  or  their  successors  in
title under the law as existing  a  part  of  the  business  of  banking  or
necessarily incidental thereto, or is it concerned primarily  with  property
and civil rights or incidental to those subjects?   Their  Lordships  cannot
but think that the receipt  of  deposits  and  the  repayment  of  the  sums
deposited to the depositors or their  successors  as  defined  above  is  an
essential part of the business of banking.”

In this view of the matter, the Privy Council further held:

“In their view, a Provincial legislature enters  on  the  field  of  banking
when it interferes with the right of depositors to receive payment of  their
deposits, as in their view it would if it confiscated loans made by  a  bank
to its customers.  Both are  in  a  sense  matters  of  property  and  civil
rights, but in essence they are included within the  category  of  banking.”
(At pages 44 and 46)



30.   What is of  significance  to  note  is  that  since  List  II  is  not
operative in the State of Jammu & Kashmir, there is 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.  Indeed,  in  a  converse
situation, this Court, in Union of India v. H.S. Dhillon,  1972(2)  SCR  33,
had this to say:


“It was also said that if this was the intention of the Constitution  makers
they need not have formulated List I at all. This is  the  point  which  was
taken by Sardar Hukam Singh and others in the debates referred to above  and
was answered by Dr. Ambedkar. But apart from what has  been  stated  by  Dr.
Ambedkar in his speech extracted above there is some merit and legal  effect
in having included specific items in List I for when there are  three  lists
it is easier to construe List II in the light of Lists I and  II.  If  there
had been no List I, many items in List II  would  perhaps  have  been  given
much wider interpretation than can be given under  the  present  scheme.  Be
that as it may, we have the three lists and a residuary power and  therefore
it seems to us that in this context if a Central Act is challenged as  being
beyond the legislative competence of Parliament, it is enough to enquire  if
it is a law with respect to matters or taxes enumerated in List  II.  If  it
is not, no further question arises.” (At page 67)



31.   At this juncture, it is important  to  advert  to  State  of  Jammu  &
Kashmir v. M.S. Farooqui, (1972) 1 SCC 872.  This judgment  dealt  with  the
interplay between the Jammu &  Kashmir  Government  Servants  Prevention  of
Corruption  (Commission)  Act,  1962  as  against  the  All  India  Services
(Discipline and Appeal) Rules, 1955. In  para  7  of  the  judgment  it  was
noticed that Parliament could legislate by virtue of Entry 70 List I on  All
India Services, and Rules made under Article 309  of  the  Constitution  are
referable to this Entry.  This being the case, the question that this  Court
had to answer was as to whether the appellant,  who  was  a  member  of  the
Indian Police Service, which is  an  All  India  Service,  in  the  Jammu  &
Kashmir cadre, was liable to  be  governed  by  the   All   India   Services
Rules or by the Jammu & Kashmir Act.  After  dealing  in  some  detail  with
judgments of this Court on legislative competence, this Court concluded:-

“From the perusal of the provisions of the two statutory laws,  namely,  the
All India Services (Discipline and Appeal) Rules, 1955, and  the  Jammu  and
Kashmir government servants'  Prevention  of  Corruption  (Commission)  Act,
1962, it is impossible to escape from the conclusion that the two cannot  go
together. The impugned Act provides for additional punishments not  provided
in the Discipline and Appeal Rules. It  also  provides  for  suspension  and
infliction of  some  punishments.  It  seems  to  us  that  insofar  as  the
Commission Act deals with the infliction of disciplinary punishments  it  is
repugnant to the Discipline and Appeal Rules. Parliament  has  occupied  the
field and given clear indication that this was the only manner in which  any
disciplinary action should be taken against the members  of  the  All  India
Services. Insofar as the Commission Act deals  with  a  preliminary  enquiry
for the purposes of enabling any  prosecution  to  be  launched  it  may  be
within the legislative competence of the Jammu and  Kashmir  State  and  not
repugnant to the provisions of the Discipline and Appeal Rules. But  as  the
provisions dealing with investigation for possible criminal prosecution  are
inextricably intertwined with the  provisions  dealing  with  infliction  of
disciplinary punishment the whole Act must be read down so as to  leave  the
members of the All India Service outside its purview.

We accordingly hold that the provisions of the Commission Act do  not  apply
to the members of  the  All  India  Services.  Accordingly  we  dismiss  the
appeal. As the respondent was not represented there would be no order as  to
costs. We thank Mr. G.L. Sanghi for assisting us as amicus  curiae.”  [paras
47 – 48]



32.   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”.   In  fact,  in  so  far  as  banks  and  financial
institutions are concerned, it deals with recovery of debts  owing  to  such
banks and financial institutions and certain measures  which  can  be  taken
outside of the court process to enforce such recovery.  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
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”.  At this juncture it is necessary  to
point out that insofar as  the  State  of  Jammu  &  Kashmir  is  concerned,
Sections 17A 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.    These
provisions read as under:-
“Section 17-A. Making of application to Court of District Judge  in  certain
cases. In the case of  a  borrower  residing  in  the  State  of  Jammu  and
Kashmir, the application under Section 17 shall be  made  to  the  Court  of
District Judge in that State having jurisdiction  over  the  borrower  which
shall pass an order on such application.

Explanation.—For the removal of doubts,  it  is  hereby  declared  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  shall  not
entitle the person (including borrower) to make an application to the  Court
of District Judge under this section.

Section 18-B. Appeal to High Court in certain cases.

Any borrower residing in the State of Jammu and  Kashmir  and  aggrieved  by
any order made by the Court of District Judge under Section 17-A may  prefer
an appeal, to the High Court having jurisdiction  over  such  Court,  within
thirty days from the date of receipt of the order of the Court  of  District
Judge:

Provided  that  no  appeal  shall  be  preferred  unless  the  borrower  has
deposited, with the Jammu and Kashmir High Court,  fifty  per  cent  of  the
amount of the debt due from him  as  claimed  by  the  secured  creditor  or
determined by the Court of District Judge, whichever is less:

Provided further that the High Court may, for the reasons to be recorded  in
writing, reduce the amount to not less than  twenty-five  per  cent  of  the
debt referred to in the first proviso.”



33.   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.

34.   In State of Maharashtra v. Narottamdas  Jethabai,  (1950)  1  SCR  51,
this Court upheld the Bombay  City  Civil  Courts  Act,  and  in  so  doing,
referred specifically to the following Entries in the legislative  lists  of
the Government of India Act, 1935.

Entry 53, List I:
“Jurisdiction and powers of  all  courts  except  the  Federal  Court,  with
respect to any of the matters in this List ….”

Entries 1 and 2, List II:
“1. . . . the administration of justice; constitution  and  organisation  of
all courts except the Federal Court ….”
“2. Jurisdiction and powers of all courts except  the  Federal  Court,  with
respect to any of the matters in this List ….”

Entry 15, List III:
“Jurisdiction and powers of  all  courts  except  the  Federal  Court,  with
respect to any of the matters in this List.”
35.   Justices Fazal Ali, Mahajan, and Mukherjea held  that  ‘Administration
of Justice’ contained in Entry 1 of List 2 of the Government of  India  Act,
7th Schedule, would include jurisdiction and power of courts generally,  but
that Entry 53 of List 1  would  refer  to  special  powers  referable  to  a
particular entry  in  the  Union  List  as  opposed  to  the  general  power
contained in Entry 1 List 2.  It  was  held,  therefore,  that  but  for  an
express provision like Entry 53 List 1, Parliament may not  have  been  able
to confer special jurisdiction on courts in regard to  matters  set  out  in
legislative List 1.  Two learned Judges, namely, Patanjali Sastri  and  Das,
JJ. also upheld the Bombay  Act,  but  on  the  basis  that  the  expression
“Administration  of  Justice”  would  be  cut   down   by   the   expression
“jurisdiction and power of all courts”,  and  would  not  therefore  include
within its ken jurisdiction and power of courts.

36.   Similarly in Jamshed N. Guzdar v. State of Maharashtra, (2005)  2  SCC
591, this Court upheld the constitutional validity of the Bombay City  Civil
Court and the Bombay  Courts  of  Small  Causes  (Enhancement  of  Pecuniary
Jurisdiction and  Amendment)  Act,  1986  by  holding  in  paragraph  53  as
follows:

“Thus, on and after 3-1-1977 the situation appears to be as under:

(a) Parliament alone has the competence to legislate with respect  to  Entry
78 of List I to “constitute and organise” the High Court.

(b) Both Parliament and the State Legislature can invest such a  High  Court
with general jurisdiction by enacting an appropriate  legislation  referable
to “administration of justice” under Entry 11-A of List III.

(c) Parliament may under Entry 95 of List  I  invest  the  High  Court  with
jurisdiction and powers with respect to any of  the  matters  enumerated  in
List I.

(d) The State Legislature may invest the High Court  with  the  jurisdiction
and powers with respect to any of the matters enumerated in List II.

(e)  Both  Parliament  and  the  State  Legislature   may   by   appropriate
legislation referable to Entry 46 of List III invest  the  High  Court  with
jurisdiction and powers with respect to any of  the  matters  enumerated  in
List III.” [para 53]



37.   It is thus clear on a reading of these judgments that  SARFAESI  as  a
whole would be referable to Entries 45 and 95 of List I.  We  must  remember
the admonition given by this Court in A.S. Krishna and others  v.  State  of
Madras, 1957 SCR 399, that 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 17A 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.


38.   The judgment of the High Court is wholly  incorrect  in  referring  to
Entry 11A of the Concurrent List.  First and foremost, as has been noted  by
us above, the Entry is not extended to the State of Jammu &  Kashmir.   From
this, the counsel for the respondents  sought  to  contend  that  Parliament
would, therefore, have no power under the Concurrent List  to  legislate  on
the subject matter “Administration of  Justice”.  Under  Section  5  of  the
Jammu & Kashmir Constitution, we have seen that “Administration of  Justice”
would come into play only  when  Entries  45  and  95  of  List  1  are  not
attracted. Even if this were not so, we  have  seen  in  the  two  judgments
cited hereinabove, 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.  The relevant part of Section 140 of the Jammu  &  Kashmir  Transfer
of Property Act, on which great reliance has been placed by learned  counsel
for the respondents, provides:-

 “140.  Exemptions  of  certain  instruments  from  restriction  imposed  on
transfer of immovable property.

Nothing contained in Irshad dated  29th  Maghar,  1943,  or  any  law,  rule
order, notification, regulation, hidyat, ailan, circular,  robkar,  yadasht,
irshad, State Council resolution or any other instrument having   the  force
of law prohibiting or restricting the  transfer  of  immovable  property  in
favour of a person who is not a permanent resident of the State shall  apply
to-

(h) a simple mortgage of immovable property executed or  created  in  favour
of a public financial institution, l as specified  in  section  4-A  of  the
Companies Act, 1956, a Scheduled bank for the time  being  included  in  the
Second Schedule to the Reserve Bank of India Act, 1934 and the Trustees  for
the holders  of  debentures  to  secure  the  loans,  guarantees,  issue  of
debentures or other form of financial assistance provided for  developmental
projects in the State of Jammu and Kashmir Like Baghliar  Project  of  Jammu
and Kashmir State Power Development Corporation Limited.  Provided  that  in
any suit based on such mortgage, the mortgaged property  shall  be  sold  or
transferred only to a permanent resident  of  the  State  or  any  financial
institution or corporation managed and owned by the Government of India;



39.   At this juncture, it is necessary to refer to  Rule  8(5)  proviso  of
the Security Interest (Enforcement) Rules, 2002, which states as follows:-

“Provided that in case of sale of immovable property in the State  of  Jammu
and Kashmir, the provisions of Jammu and Kashmir Transfer of  Property  Act,
1977 shall apply to the person who acquires such property in the State.”

40.   This Rule 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,  and
therefore it is clear that the High Court is  absolutely  wrong  in  finding
that as Section 140 of the Transfer  of  Property  Act  will  be  infracted,
SARFAESI cannot be held to apply to the State of Jammu &  Kashmir.   Rule  8
has been noticed but brushed aside  by  the  aforesaid  judgment.  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 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.
The whole approach is erroneous.  As has been  stated  hereinabove,  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, 7th 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 & Kashmir.  This being the case, it is clear that Sections  13(1)  and
(4) cannot be held to be beyond the legislative competence of Parliament  as
has wrongly been held by the High Court.

41.   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.  Section 147 of the Jammu  &
Kashmir Constitution states:-

“147. Amendment of the Constitution. - An  amendment  of  this  Constitution
may be initiated only by the introduction of a Bill for the purpose  in  the
Legislative Assembly and when  the  Bill  is  passed  in  each  House  by  a
majority of not less than two-thirds of the total membership of  the  House,
it shall be presented to the Sadar-i-Riyasat for his assent and,  upon  such
assent being given to the Bill, the  Constitution  shall  stand  amended  in
accordance with the terms of the Bill:

Provided that a Bill providing for the abolition of the Legislative  Council
may be introduced in the Legislative Assembly and passed by it  majority  of
the total membership of the Assembly and by a majority of not less than two-
thirds of the members of the Assembly present and voting:

Provided further that no Bill or amendment seeking to make any change in:

(a) this section;

(b) the provisions of the sections 3 and 5; or

(c) the provisions of the Constitution of India as  applicable  in  relation
to the State;

shall be introduced or moved in either House of the Legislature.”


42.   It is also significant in this context to refer  to  the  Preamble  to
the Constitution of Jammu & Kashmir, 1957 and compare  it  to  that  of  the
Constitution of India, 1950.
The Preamble of the Constitution of Jammu and Kashmir reads as follows:

"WE, THE  PEOPLE  OF  THE  STATE  OF  JAMMU  AND  KASHMIR,  having  solemnly
resolved, in pursuance of the accession of this State to  India  which  took
place on the twenty-sixth day  of  October,  1947,  to  further  define  the
existing relationship of the State with the Union of India  as  an  integral
part thereof, and to secure to ourselves-


JUSTICE, social, economic and political;


LIBERTY of thought, expression, belief, faith and worship;


EQUALITY of status and of opportunity; and to promote among us all;


FRATERNITY assuring dignity of the individual and the unity of the nation;


IN OUR CONSTITUENT ASSEMBLY this  seventeenth  day  of  November,  1956,  do
HEREBY ADOPT, ENACT AND GIVE TO OURSELVES THIS CONSTITUTION."





      It is to be noted that 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…” has been wholly omitted in the  Constitution
of Jammu & Kashmir.  There is  no  reference  to  sovereignty.   Neither  is
there any use of the expression “citizen” while  referring  to  its  people.
The people 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  Jammu  &
Kashmir has been made to further define the  existing  relationship  of  the
State with the Union of India as an integral part thereof.




43.    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  of  its  residents
constituting a separate and distinct class  in  themselves.  The   residents
 of  Jammu  &  Kashmir,  we  need  to  remind the High Court, are first  and
foremost citizens of India. Indeed, this is recognized by Section 6  of  the
Jammu & Kashmir Constitution which states:

“6. Permanent residents:-(1) Every person who is, or  is  deemed  to  be,  a
citizen of India under the provisions of the Constitution of India shall  be
a permanent resident of the State, if on the fourteenth day of May, 1954-

(a) he was a State Subject of Class I or of Class II ; or

(b) having lawfully acquired immovable property in the State,  he  has  been
ordinarily resident in the State for not less than ten years prior  to  that
date.

(2) Any person who, before the fourteenth day of  May,  1954,  was  a  State
Subject of Class I or of Class II and who having migrated  after  the  first
day of March, 1947, to the territory now included in  Pakistan,  returns  to
the State under a permit for resettlement in  the  State  or  for  permanent
return issued by or under the  authority  of  any  law  made  by  the  State
Legislature shall on such return be a permanent resident of the State.

(3) In this section, the expression "State Subject of Class I  or  of  Class
II" shall have the same meaning as in State Notification  No.  1-L/84  dated
the twentieth April, 1927, read with State Notification No. 13/L  dated  the
twenty 7th June, 1932.”



      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 which states:

“10. Rights of the permanent residents:- The  permanent,  residents  of  the
State shall have all the rights guaranteed to them  under  the  Constitution
of India.”



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.





44.   Again it is wholly incorrect to refer to Entry 11A of List  3  and  to
state that since it is not  extended  to  the  State  of  Jammu  &  Kashmir,
Parliament would have no legislative competence to enact  Sections  17A  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.   As
has been held by us, 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  of  legislative  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.   We
are afraid that despite the judgment in  Narottamdas  Jethabai  and  Jamshed
Guzdar’s case (supra), the High Court, even though it refers to  Narottamdas
Jethabai, has completely missed  this  crucial  aspect.   Most  importantly,
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 Jammu & Kashmir, yet, as  has  been  held  hereinabove,  Rule  8(5)
proviso 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  &  Kashmir
Transfer of Property Act has to give way to SARFAESI, and not the other  way
around.



45.   Reliance has also been placed on Article 35A of  the  Constitution  as
it applies to the State of Jammu &  Kashmir.   The  said  Article  reads  as
follows:

“35A. Saving of laws with respect to permanent residents and  their  rights-
Notwithstanding anything contained in this Constitution, no existing law  in
force in the State of Jammu and Kashmir, and no  law  hereafter  enacted  by
the Legislature of the State,-

 Defining the classes of persons who are, or shall be,  permanent  residents
of the State of Jammu and Kashmir; or



Conferring on such permanent residents any special rights and privileges  or
imposing upon other persons any restrictions as respects-

employment under the State Government;

acquisition of immovable property in the State;

settlement in the State; or

right to scholarships and such other forms of aid as  the  State  Government
may provide,

Shall be void on the ground that it is inconsistent with or  takes  away  or
abridges any rights  conferred  on  the  other  citizens  of  India  by  any
provision of this Part.”



46.   We fail to understand how Article 35A carries the matter any  further.
 This Article only states that the  conferring  on  permanent  residents  of
Jammu & Kashmir special rights and privileges regarding the  acquisition  of
immovable property in the State cannot be challenged on the ground  that  it
is  inconsistent  with  the  fundamental  rights  chapter  of   the   Indian
Constitution.  The conferring of such rights and privileges as mentioned  in
Section 140 of the Jammu & Kashmir Transfer  of  Property  Act  is  not  the
subject matter of challenge on the ground that it violates  any  fundamental
right of the Constitution of India.   Furthermore,  in  view  of  Rule  8(5)
proviso, such rights are expressly preserved.

47.   We find that the High Court judgment ultimately states:

“It is held that the Union Parliament does not have  legislative  competence
to make laws contained in section 13, section 17(A), section  18(B)  section
34, 35 and section 36, so far as they relate to the State of J&K;

It  is  further  held  that  in  view  of  the  aforesaid  declaration,  the
Securitisation and Reconstruction of Financial  Assets  and  Enforcement  of
Security Interest Act, 2002 cannot be enforced in the State of J&K;

It  is  further  held  that  the  provisions  of  the   Securitisation   and
Reconstruction of Financial Assets  and  Enforcement  of  Security  Interest
Act, 2002 can be availed of by the banks, which originate from the State  of
J&K for securing the monies which are  due  to  them  and  which  have  been
advanced to the borrowers, who are not State subjects and residents  of  the
State of J&K and who are non State subjects/ non citizens of  the  State  of
J&K and residents of any other State of India excepting the State of J&K.”



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.

48.   We therefore set aside the judgment of the High Court.  As  a  result,
notices issued by banks in terms of Section 13 and  other  coercive  methods
taken under the said Section are valid and can be  proceeded  with  further.
The appeals are accordingly allowed with no order as to costs.


………………………….J.
(Kurian Joseph)



………………………….J.
(R.F. Nariman)
      New Delhi;
December 16, 2016.