TMI Blog2020 (5) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... of the BR Act, 1949 respectively, and when reading with Section 56(a), it means co-operative banks also. The co-operative bank falls within the definition of Section 5(c), and its activity is of banking, and in addition to the business of banking, a co-operative bank may engage in any of the business as enumerated in Section 6 - the recovery of dues would be an essential function of any banking institution and the Parliament can enact a law under Entry 45 of List I as the activity of banking done by co-operative banks is within the purview of Entry 45 of List I. Obviously, it is open to the Parliament to provide the remedy for recovery under Section 13 of the SARFAESI Act. Co-operative bank's entire operation and activity of banking are governed by a law enacted under Entry 45 of List I, i.e., the BR Act, 1949, and the RBI Act under Entry 38 of List I - There can be various aspects of an activity. The co-operative societies may be formed under the provisions of the State Co-operative Acts. The State law provides for 'incorporation, regulation and winding up' under Entry 32 of List II, a membership registration, and other matters can be governed by Entry 32 of List II, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould have become necessary to amend all the provisions wherever words 'banking company' occur in the BR Act, 1949 in the application to co-operative banks - the Parliament considered it appropriate to provide additional remedy for speedy recovery which is an alternative even if there is an incidental encroachment on the field reserved for the State under Entry 32 of List II, as in pith and substance, the 'banking' is part of Entry 45 of List I and recovery procedure is covered within the ken of Entry 45 of List I. Thus, considering the Doctrine of Pith and Substance and incorporation by amendment made, we are of the considered opinion that co-operative banks are included in the definition of 'bank' and 'banking company' under Section 2(1)(c) and 2(1)(d) of the SARFAESI Act. The co-operative banks, which are governed by the BR Act, 1949, are involved in banking activities within the meaning of Section 5(b) thereof. They accept money from the public, repayable on demand or otherwise and withdrawal by cheque, draft, order or otherwise. Merely by the fact that lending of money is limited to members, they cannot be said to be out of the purview of bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F 2020, (@ SPECIAL LEAVE PETITION (CIVIL) NOS. 72957298, OF 2011), WRIT PETITION (CIVIL) NO. 41 OF 2011, WRIT PETITION (CIVIL) NO. 220 OF 2011, WRIT PETITION (CIVIL) NO. 293 OF 2011, WRIT PETITION (CIVIL) NO. 306 OF 2011, CIVIL APPEAL NOS. 239192, OF 2020, (@ SPECIAL LEAVE PETITION (CIVIL) NOS. 2230422305, OF 2011), WRIT PETITION (CIVIL) NO. 338 OF 2011, WRIT PETITION (CIVIL) NO. 375 OF 2011, CIVIL APPEAL NOS. 239394, OF 2020, (@ SPECIAL LEAVE PETITION (CIVIL) NOS. 2447924480, OF 2011), WRIT PETITION (CIVIL) NO. 122 OF 2012, WRIT PETITION (CIVIL) NO. 199 OF 2012, CIVIL APPEAL NO. 2395 OF 2020, (@ SPECIAL LEAVE PETITION (CIVIL) NO. 24276 OF 2012), WRIT PETITION (CIVIL) NO. 250 OF 2012, WRIT PETITION (CIVIL) NO. 291 OF 2012, WRIT PETITION (CIVIL) NO. 386 OF 2012, WRIT PETITION (CIVIL) NO. 487 OF 2012, WRIT PETITION (CIVIL) NO. 537 OF 2012, WRIT PETITION (CIVIL) NO. 554 OF 2012, WRIT PETITION (CIVIL) NO. 36 OF 2013, WRIT PETITION (CIVIL) NO. 146 OF 2013, WRIT PETITION (CIVIL) NO. 138 OF 2013, WRIT PETITION (CIVIL) NO. 179 OF 2013, WRIT PETITION (CIVIL) NO. 192 OF 2013, WRIT PETITION (CIVIL) NO. 191 OF 2013, WRIT PETITION (CIVIL) NO. 112 OF 2013, WRIT PETITION (CIVIL) NO. 111 OF 2013, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TION (CIVIL) NO. ........... OF 2020), (@ CC NO. 7586 OF 2014), WRIT PETITION (CIVIL) NO. 408 OF 2014, WRIT PETITION (CIVIL) NO. 420 OF 2014, WRIT PETITION (CIVIL) NO. 421 OF 2014, WRIT PETITION (CIVIL) NO. 492 OF 2014, WRIT PETITION (CIVIL) NO. 712 OF 2014, WRIT PETITION (CIVIL) NO. 714 OF 2014, WRIT PETITION (CIVIL) NO. 795 OF 2014, WRIT PETITION (CIVIL) NO. 754 OF 2014, WRIT PETITION (CIVIL) NO. 827 OF 2014, WRIT PETITION (CIVIL) NO. 849 OF 2014, WRIT PETITION (CIVIL) NO. 838 OF 2014, CIVIL APPEAL NO. 2406 OF 2020, (@ SPECIAL LEAVE PETITION (CIVIL) NO. 32589 OF 2014), WRIT PETITION (CIVIL) NO. 26 OF 2015, WRIT PETITION (CIVIL) NO. 1020 OF 2014, WRIT PETITION (CIVIL) NO. 86 OF 2015, CIVIL APPEAL NO. 2407 OF 2020, (@ SPECIAL LEAVE PETITION (CIVIL) NO. 7694 OF 2015), WRIT PETITION (CIVIL) NO. 186 OF 2015, WRIT PETITION (CIVIL) NO. 733 OF 2015, WRIT PETITION (CIVIL) NO. 131 OF 2015, WRIT PETITION (CIVIL) NO. 264 OF 2015, WRIT PETITION (CIVIL) NO. 247 OF 2016, CIVIL APPEAL NO. 2408 OF 2020, (@ SPECIAL LEAVE PETITION (CIVIL) NO. 27645 OF 2015), WRIT PETITION (CIVIL) NO. 868 OF 2015, WRIT PETITION (CIVIL) NO. 858 OF 2015, WRIT PETITION (CIVIL) NO. 14 OF 2018, WRIT PETITION (CIVIL) NO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. M. P. Vinod, AOR, Mr. Atul Shankar Vinod, Adv., Mr. Dileep Pillai, Adv., Mr. Ajay Kumar Jain, Adv., Mr. Sajith P., Adv., Mr. Kannan Gopal Vinod, Adv., Mr. Chinmoy Khaladkar, Adv., Mr. Sanjay Kharde, Adv., Ms. Chandan Ramamurthi, AOR, Mr. Pradhuman Gohil, Adv., Mrs. Taruna Singh, Adv., Ms. Ranu Purohit, Adv., Ms. Tanya Srivastava, Adv., Ms. Charu Mathur, AOR, Mr. Yadav Narender Singh, AOR, Ms. E.R. Sumathy, AOR, Mr. Sarad Kumar Singhania, AOR, Ms. Rashmi Singhania, Adv., Ms. Vanshaja Shukla, AOR, Mr. Rameshwar Prasad Goyal, AOR, Mr. Harish Pandey, AOR, Mr. H. Chandra Sekhar, AOR, Mrs. Rekha Chandra Sekhar, Adv., Mr. Karri Venkata Reddy, Adv., Mr. Chirag M. Shroff, AOR, Ms. Yashika Verma, Adv., Ms. Abhilasha Bharti, Adv., Mr. M.A. Chinnasamy, AOR, Mr. Arvind Gupta, AOR, Mr. Sandeep Kumar Singh, Adv., Mr. Piyush Sharma, Adv., Mr. Anil Kumar Sahu, Adv., Ms. Meera Mathew, Adv., Mr. Malay Swapnil. Adv., Mr. Prakash Gautam, Adv., Mr. Sujeet Kumar, Adv., Mr. J.N. Pathak, Adv., Mr. Sunil Kumar Pandey, Adv., Mr. Amol Nirmalkumar Suryawanshi, AOR, Ms. Nirmal Goenka, Adv., Mr. S. Sada Siva Reddy, Adv., Mr. Karri Venkata Reddy, Adv., Mrs. S. Usha Reddy, AOR, Mr. Santosh Krishnan, AOR, Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adv., Mr. P. S. Sudheer, AOR, Mr. Rishi Maheshwari, Adv., Mrs. Mayuri Nayyar Chawla, Adv., Ms. Anne Mathew, Adv., Mr. Bharat Sood, Adv., Ms. Shruti Jose, Adv., Mr. Amar Dave, Adv., Mr. Vishwas K. Shah, Adv., Mr. Massom K. Shah, Adv., Mr. Anup Jain, AOR, Mr. Udit Gupta, Adv., Mr. Pulkit Tare, Adv., Mr. Ashok Panigrahi, Adv., Mr. Apoorv Kurup, Adv., Ms. Upama Bhattacharjee, Adv., Ms. Nidhi Mittal, Adv., Mrs. Anil Katiyar, AOR, Mr. Pratap Venugopal, Adv., Ms. Surekha Raman, Adv., Ms. Ayushi Gaur, Adv., Mr. Akhil Abraham Roy, Adv., Mr. Vijay Valsan, Adv., M/S. K.J. John and Co., Mr. A.N. Arora, AOR, Mr. Piyush Sharma, AOR, Mr. M.T. George, AOR, Mrs. Susy Abraham, Adv., Mr. Johns George, Adv., Mr. Aniruddha P. Mayee, AOR, Mr. A. Rajarajan, Adv., Ms. N. Annapoorani, AOR, Mr. D. Bharat Kumar, Adv., Mr. Prasanna Kumar Parhi, Adv., Mr. Tadimalla Baskar Gowtham, Adv., Mr. Aman Shukla, Adv., Mr. D.V. Raghu Vamsu, Adv., Mr. Siddhartha Sinha, Adv., Mr. Hathindra Manda, Adv., Mr. Abhijit Sengupta, AOR, Mr. Anil Kumar Mishra, AOR, Mr. Anurag Singh, Adv., Ms. Praveena Gautam, AOR, Mr. Pawan Shukla, Adv., Ms. Sweety Pandey, Adv., Mr. Raja Ram, Adv., Mr. M. Khairati, Adv., Mr. Irshad Ahmad, AOR, Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adv., Mr. Raj Kishor Choudhary, AOR, Mr. Shakeel Ahmad, Adv., Mr. Rohit K. Singh, AOR, Mr. Uday Tiwary, Adv., Mr. P.N. Razdan, Adv., Mr. Mirza Kayesh Begg, Adv., Ms. Anshruta Maheshwari, Adv., Ms. Usha Nandini. V, AOR, Mr. Bineesh Karat, Adv., Mr. Biju P. Raman, Adv., Mr. M.S. Vishnu Sankar, Adv., Ms. Athira G. Nair, Adv., Mr. Sonal Jain, AOR, Ms. Heena Sharma, Adv., Mr. Ishkaran Singh, Adv., Mr. Kumar Shashank, Adv., Ms. Rukhmini Bobde, Adv., Mr. Aviral Kapoor, Adv., Ms. Shagufa Salim, Adv., Mr. Nivesh Kumar, Adv., Ms. Riya Dhingra, Adv., Mr. Satyavir Yadav, Adv., Mr. Vishal Prasad, AOR, Mr. Anil Nag, AOR, Mr. Arjun Vinod Bobde, Adv., Ms. Richa Relhan, Adv., Mr. Sathak Bhatia, Adv., Mr. S. Bushra Kazim, Adv., Mr. Rajat Joseph, AOR, Mr. Suresh Dutt Dobhal, AOR, Ms. Shreya Tandon, Adv., Mr. Anil Kumar Sangal, AOR, Mr. Harish Pandey, AOR, Ms. Pratibha Jain, AOR, Mr. Vijay Kumar, AOR, Mr. Dharmendra Kumar Sinha, AOR, Mr. Shashibhushan P. Adgaonkar, Adv., Mr. Rahul Chitnis, Adv., Mr. Sachin Patil, Adv., Mr. T.L.V. Rama Chari, Adv., Mr. Hitesh Kumar Sharma, Adv., Mr. Akhileshwar Jha, Adv., Mr. T. Ramamurty, Adv., Ms. Sushma Suri, Adv., Mr. Shreekant N. Terdal, Adv., Mr. Tanvir Nayar, Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rajeev Maheshwaranand Roy, AOR, Mr. V. N. Raghupathy, AOR, Mr. P. S. Sudheer, AOR, Mr. P. V. Dinesh, AOR, Mr. Uday B. Dube, AOR, Mr. Y. Raja Gopala Rao, AOR, Mr. Sanjeev Kumar, AOR, Mr. Raj Kishor Choudhary, AOR, Mr. Rohit K. Singh, AOR, Ms. Usha Nandini. V, AOR, Mr. B. K. Pal, AOR, Mr. G. Prakash, AOR, Mr. Sonal Jain, AOR, Mr. Vishal Prasad, AOR, Mr. Anil Nag, AOR, Mr. Rajat Joseph, AOR, Mr. Suresh Dutt Dobhal, AOR, Mr. Chirag M. Shroff, AOR, Mr. Anil Kumar Sangal, AOR, Mr. Harish Pandey, AOR, Ms. Pratibha Jain, AOR, Mr. Dharmendra Kumar Sinha, AOR, M/s. Udit Kishan Associates, AOR And Mr. Manoj Kr. Mishra, AOR JUDGMENT Arun Mishra, J. 1. The matters have been referred in view of conflicting decisions in Greater Bombay Coop. Bank Ltd. v. United Yarn Tex (P) Ltd. and Ors. (2007) 6 SCC 236 , Delhi Cloth General Mills Co. Ltd. v. Union of India and Ors. (1983) 4 SCC 166 , T. Velayudhan Achari and Anr. v. Union of India and Ors. (1993) 2 SCC 582 , and Union of India and Anr. v. Delhi High Court Bar Association and Ors. (2002) 4 SCC 275 . The question relates to the scope of the legislative field covered by Entry 45 of List I viz. Banking and Entry 32 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and authorities under the Maharashtra Co-operative Societies Act, 1960, as also the MSCS Act would cease to have jurisdiction to entertain the applications submitted by the co-operative banks for recovery of their dues. The decision in Narendra Kantilal Shah (supra) was set aside by this Court in Greater Bombay Coop. Bank Ltd. (supra). This Court opined that the co-operative banks established under the Maharashtra Co-operative Societies Act, 1960 and Andhra Pradesh Co-operative Societies Act, 1964, transacting the business of banking do not fall within the meaning of 'banking company' as defined in Section 5(c) of the BR Act, 1949. Therefore, the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, now renamed as The Recovery of Debts and Bankruptcy Act, 1993 (for short, 'the RDB Act, 1993'), by invoking the doctrine of incorporation do not apply to the recovery of dues by co-operative banks from their members. The field of co-operative societies cannot be said to have been covered by the Central legislation by reference to Entry 45 of List I of the Seventh Schedule of the Constitution of India. Co-operative banks constituted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (iva) multi-State co-operative bank inserted by way of Amendment Act, 2013. 7. On 30.7.2015, the matter was referred to a larger Bench. After that, on 26.2.2016, a threeJudge Bench referred the matter to a larger Bench, due to conflicting decisions mentioned earlier of the three Judge Bench of this Court. ARGUMENTS: 8. Shri Devansh A. Mohta, learned counsel appearing on behalf of the appellants, raised the following arguments: (a) The scope of banking under Entry 45 of List I is to be interpreted in light of the definition of expression 'banking' in terms of Section 5(b) of the BR Act, 1949. He has referred to Rustom Cavasjee Cooper v. Union of India (1970) 1 SCC 248 in which this Court held that 'banking' under Entry 45 did not include 'banker' or 'bank.' Banking is an activity. Entry pertains to the activity of banking alone. Section 5(b) read with Section 6(1) of the BR Act, 1949, recognizes two kinds of activities that a bank may undertake: (1) the banking business, i.e., 'core banking business'; and (2) any other business as provided in Section 6(1). He has also referred to the decision in Mahaluxmi Bank Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med by a bank is not a banking activity. (c) That Entry 43 of List I of the Seventh Schedule of the Constitution of India confers upon the Parliament the competence to pass law pertaining to 'incorporation, regulation and winding up' of a trading corporation, more particularly a banking corporation. However, 'co-operative societies' are expressly excluded from the purview of the Parliament's competence being a State subject under Entry 32 of List II. He argued that the legislative history of the BR Act, 1949, made a difference between 'entity' and 'activity.' The expression 'banking' was defined in Chapter XA of the Companies Act (VII of 1913). Sections 277F to 277N were inserted vide Amendment Act No.22 of 1936. After that, the BR Act, 1949, was enforced, providing a comprehensive definition of 'banking' to bring within its scope all institutions which receive deposits repayable on demand or otherwise for lending or investment. At that time, the relevant entries of the Government of India Act, 1935, which dealt with the subject of banking as well as trading corporation, were in List I (Federal Legislative List). Entry 38 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the RDB Act, 1993. Financial assistance to members is another form of business that is not a banking business. Therefore, an attempt to regulate the assets of a co-operative bank by bringing them within the purview of the SARFAESI Act is contrary to the original intent of the extending provisions of the BR Act, 1949 and that would amount to exercising control over the entities which are beyond the purview of competence of Parliament. (g) The Parliament lacks legislative competence to regulate financial assets related to the nonbanking activity of a co-operative society as they are expressly excluded from the purview of Entry 43 of List I. The regulation cannot be based upon an interpretation of only Entry 45 without any regard to Entry 43. The legislative action would be inconsistent with the limitation inherent in the federal scheme of distribution of legislative powers between the Union and the State. It would amount to regulation of co-operative society which subject matter is covered under Entry 32 of List II and also confer upon them a status of a banking corporation or a banking company. It would render an entity falling under Entry 32 of List II subject to the control of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. and Ors. (2003) 11 SCC 66 , it was observed that co-operative societies are in the purview of the State List . (j) The MSCS Act is relatable to Entry 44. This Court is not required to pronounce upon the validity of the said Act. The source of legislative authority to regulate such banks would be Entry 43. The purpose of Act No.23 of 1965 was to regulate the banking business of certain co-operative societies. They do not cease to be co-operative societies as held in Virendra Pal Singh and Ors. v. District Assistant Registrar, Co-operative Societies, Etah, and Anr. (1980) 4 SCC 109 . There is a difference in the Entries 43, 44 and 32 as held in S.S. Dhanoa v. Municipal Corporation, Delhi and Ors. (1981) 3 SCC 431 , Daman Singh and Ors. v. State of Punjab and Ors. (1985) 2 SCC 670 , and Dalco Engineering Private Limited v. Satish Prabhakar Padhye and Ors. (2010) 4 SCC 378 Ltd. (supra). The decision in Greater Bombay Coop. Bank Ltd. (supra) laid down the law correctly. (k) There has to be harmonious construction of the Entries in List I and List II. Any argument of alarm relating to an adverse effect on the banking sector would be of no consequence or relevanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1949. Thus, the definition of 'bank' contained in Section 5(c) of the BR Act, 1949 stands incorporated in Section 2(d) of the SARFAESI Act, that came into existence on 21.6.2002; hence, it is necessary to examine Section 5(c) of the BR Act, 1949, as it stood on 21.6.2002. It is covered by way of incorporation, w.e.f. 1.3.1966. Section 56(a) became part of Statute since 1.3.1966, the reference to a 'banking company' or a 'company' shall be construed as a reference to a co22 operative bank. Section 56(a) becomes part of Section 5(c) of the BR Act, 1949, and stands incorporated in Section 5(c) of the BR Act, 1949. Thus, a reference to the banking company has to be read as a reference to the co-operative bank. (a) Section 56(a) becomes part of Section 5(c) of the BR Act, 1949. Although Section 56(a) is located in a separate place, its impact on Section 5(c) results in a co-operative bank both on State level as well as multi-State level becoming part of a banking company. Therefore, the SARFAESI Act covers in its purview co-operative banks and multi-State co-operative banks. (b) The insertion of a multi-State co-operative bank in Section 2(1) (c)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that regulating the nonbanking affairs of society and regulating the banking business of society are two different things. Entry 32 of List II deals with regulation of nonbanking affairs of the co-operative society, on the other hand, Entry 45 of List I deals with banking; hence, any legislation dealing with regulation of banking will be traceable to Entry 45 of List I and only the Parliament will be competent to legislate. The SARFAESI Act does not deal with incorporation, regulation, and winding up of the corporation, company, or co-operative societies. It does not regulate the working of a corporation, company, or co-operative society. It only provides for the recovery of dues of banks, including co-operative banks, the procedure for recovery, the authority competent to recover the loan, and the judicial forum to deal with disputes arising out of recovery. Thus, the Act does not touch upon Entry 32 of List II. The decision in Greater Bombay Coop. Bank Ltd. (supra) requires reconsideration and clarification. There is no indepth consideration of its provisions and, more particularly, Section 56 of the BR Act, 1949. (f) The ratio of the judgment is material. The obiter rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operative bank is not included right from the beginning, nothing came in the way of Parliament to enact a law that provides for an additional remedy to co-operative banks. 13. Shri Jaideep Gupta, learned senior counsel appearing on behalf of the Reserve Bank of India, raised the following arguments: (a) The matter is covered by Entry 45 of List I of the Seventh Schedule of the Constitution of India. For the very reason, the Parliament has the right to legislate in respect of the banking business as defined in Section 5(b) of the BR Act, 1949. (a) Banking operations would inter alia include accepting of loans and deposits, the grant of loans and recovery of debts due to the bank. There can be little doubt that the Parliament can enact a law about the conduct of the business by a bank. Recovery of dues is an essential function of a banking institution. Entry 45 of List I would mean legislation regarding all aspects of banking, including ancillary or subsidiary matters relating to that. The SARFAESI Act falls within the ambit of Entry 45 of List I. (b) The Parliament can enact a law in respect of matters contained in Entry 45 of List I, even if the bank in question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to legislate. Certain observations made in Greater Bombay Coop. Bank Ltd. (supra) are incorrect and required to be overruled. The questions which arose in the said case were different. 14. Shri Vijay Hansaria, learned senior counsel appearing on behalf of Maharashtra State Co-operative Bank, reiterated the aforesaid arguments and additionally urged that the Maharashtra State Co-operative Bank has 41 branches in the State of Maharashtra. As on 31.3.2015, it had deposits of ₹ 9,992 crores and has granted loans and advances to the extent of ₹ 12,006 crores and has working capital to the extent of ₹ 20,947 crores. There are total 2115 members including 1818 co-operative institutions, 296 individuals and individual societies and 1 State Government and the number of total shares held by them is 45,67,280 (35,66,104 are held by co-operative institutions, 1176 are held by individuals and individual societies, and 10,00,000 are held by the State Government). The MSC Bank advances various terms loans and working capital loans to co-operative processing units like Sugar Factories, Private Sugar Mills, Spinning Mills, Oil Mills, Marketing Co-operatives, Educational I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of List II refers only to organisational aspects of the corporations. It does not have any bearing on the business/transactional aspects. He has relied upon decisions in Hindustan Lever and Anr. v. State of Maharashtra and Anr. (2004) 9 SCC 438 , Kerala State Electricity Board v. Indian Aluminium Co. Ltd. (1976) 1 SCC 466 and Sita Ram Sharma and Ors. v. State of Rajasthan and Ors. (1974) 2 SCC 301 . The framers of the Constitution deliberately did not define many terms used in the Lists in the Seventh Schedule. Wherever it was required, they defined such terms. Some of the subjects enumerated in Lists of the Seventh Schedule are defined in Article 366 of the Constitution, for instance, Agricultural Income (List I, Entry 82), Corporation Tax (List I, Entry 85), Debt (List II, Entry 42), Pension (List I, Entry 71) and (List II, Entry 42). The framers of the Constitution avoided defining the term 'banking' in Article 366. The intention was not to restrict its meaning. For certain Entries, the framers of the Constitution specified the meaning, such as in Entry 71 of List I and Entries 5, 8, 13, 17, 18 of List II. (a) There was a purpose for the framers not to defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very of their dues. Section 91 is akin to a civil suit, and Section 101 provides a summary procedure for issuance of a revenue recovery certificate. The SARFAESI Act does not take away the remedies of the co-operative banks under Section 91 or 101 of the said Act; it provides additional remedy under Section 13 to co-operative banks to recover the dues and enforce security interest. It is a classic case of co-operative/ collaborative federalism. 17. Shri Abhijet Sengupta, learned counsel appearing on behalf of Jana Seva Sahakari Bank Ltd., urged that petition under Article 32 of the Constitution cannot be said to be maintainable, given the decisions in Dewan Bahadur Seth Gopal Das Mohta v. Union of India and Ors. (1955) 1 SCR 773 , and Khyerbari Tea Co. Ltd. and Ors. v. State of Assam (1964) 5 SCR 975. Entry 45 of List I and Entry 32 of List II are to be read harmoniously. 18. Following questions arise for consideration: (1) Whether 'co-operative banks', which are co-operative societies also, are governed by Entry 45 of List I or by Entry 32 of List II of the Seventh Schedule of the Constitution of India, and to what extent? (2) Whether banking co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22. Section 6 in Part II of the BR Act, 1949 deals with forms of business in which banking companies may engage, is extracted hereunder: 6. Forms of business in which banking companies may engage .- (1) In addition to the business of banking, a banking company may engage in any one or more of the following forms of business, namely:- ( a ) the borrowing, raising, or taking up of money; the lending or advancing of money either upon or without security; the drawing, making, accepting; discounting, buying, selling collecting and dealing in bills of exchange, hoondees, promissory notes, coupons, drafts, bills of lading, railway receipts, warrants, debentures, certificates, scrips and other instruments, and securities whether transferable or negotiable or not; the granting and issuing of letters of credit, traveller s cheques and circular notes; the buying, selling and dealing in bullion and specie; the buying and selling of foreign exchange including foreign bank notes; the acquiring, holding, issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock, bonds, obligations, securities and investments of all kinds; the purchasing and sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging, developing, exchanging, leasing, mortgaging, disposing of or turning into account or otherwise dealing with all or any part of the property and rights of the company; ( m ) acquiring and undertaking the whole or any part of the business of any person or company, when such business is of a nature enumerated or described in this subsection; ( n ) doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company; ( o ) any other form of business which the Central Government may, by notification in the Official Gazette, specify as a form of business in which it is lawful for a banking company to engage. (2) No banking company shall engage in any form of business other than those referred to in subsection (1). 23. Initially, the provisions of the BR Act, 1949, applied only to banking companies. The provisions of the BR Act, 1949, were extended to co-operative banks by Act No.23 of 1965, w.e.f. 1.3.1966. Earlier Section 56 was repealed by Act No.36 of 1957, w.e.f. 17.9.1957. Bill No.85 of 1964 was introduced in Parliament on 17.12.1964 to amend the Reserve Bank of India Act, 1934 and the Banking Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1949 became necessary concerning matters covered under Entry 32 of List II; as such various amendments were separately reflected in a separate chapter, amendments were incorporated under various provisions of the Act in Parts IIA, III and IIIA. The provisions relatable directly or indirectly to incorporation, management and winding up of co-operative banks were proposed to be omitted as these Parts or provisions were not in pith and substance within the scope of any entry in the Central or Concurrent List of subjects in the Seventh Schedule of the Constitution of India. Following is the relevant extract of the Notes appended to President's recommendation under Article 117 of the Constitution of India: According to the scheme of control as it is envisaged in the Reserve Bank of India Act and in the Banking Companies Act, (a) all the State or apex co-operative banks, (b) all central co-operative banks and (c) such of the primary non-agricultural credit societies, including in particular urban co-operative banks, as have paid-up capital and reserves of a nominal value of ₹ 1 lakh or more, will be deemed to be co-operative banks. The definition of the expression co- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be omitted, as these Parts or provisions are not in pith and substance within the scope of any entry in the Central or Concurrent List of subjects in the Seventh Schedule to the Constitution . (emphasis supplied) The provisions of Bankers' Books Evidence Act, 1891 were also proposed to be suitably modified to apply to the co-operative banks thus: The provisions of the Bankers' Books Evidence Act, 1891 and the Banking Companies (Legal Practitioners' Clients' Accounts) Act, 1949 are proposed to be modified suitably, so that the special procedure as to evidence or the protection in respect of certain accounts may be extended to or be available in future in relation to co-operative banks [clause (zk)]. The Third Schedule as proposed to be amended provides for the prescribed Forms in which the ba1ancesheets and profit and loss accounts of co-operative banks will have to be maintained. The Forms may, if necessary, be modified in future in the light of further experience and in accordance with the procedure which is already prescribed in the Act for this purpose. The co-operative banks were also required to submit the balance sheet and profit and loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er than a primary agricultural credit society,- (1) the primary object or principal business of which is the transaction of banking business; (2) the paidup share capital and reserves of which are less than one lakh of rupees; and (3) the byelaws of which do not permit admission of any other co-operative society as a member; Explanation .- If any dispute arises to the primary object or principal business of any co-operative society referred to in this clause or clause (cii) or clause (ciii), a determination thereof by the Bank shall be final.'; Other corresponding changes were brought in the provisions to apply the Reserve Bank of India Act to co-operative banks. (a) Various amendments have been carried out in the Banking Companies Act, 1949, it was renamed as the BR Act, 1949. The 'primary agricultural credit society' was excluded from the purview of the Reserve Bank of India Act and the BR Act, 1949. Co-operative land mortgage banks and any other co-operative society except in the manner and to the extent specified in Part V were also excluded. Section 3 of the BR Act, 1949 was substituted as under: 3. Nothing in this Act shall apply to( a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed, before or after the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1964. Section 5A is extracted hereunder: 5A. (1) The provisions of this Part shall have effect, notwithstanding anything to the contrary contained in the byelaws of a co-operative society, or in any agreement executed by it, or in any resolution passed by it in general meeting, or by its Board of directors or other body entrusted with the management of its affairs, whether the same be registered, executed or passed, as the case may be, before or after the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1964. (2) Any provision contained in the byelaws, agreement or resolution aforesaid shall, to the extent to which it is repugnant to the provisions of this Part, become or be void, as the case may be. ; (e) By virtue of provisions contained in Section 56(e) in Part V of the BR Act, 1949 so far as it extends to co-operative society/banks, the modification has been made in Section 6(1)(b) to the extent 'but excluding the business of a managing agent or secretary and treasurer of the company' shall be omitted. In clause (d) after the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... showing the amount so held on Friday of each week of the preceding month with particulars of its time and demand liabilities in India on each such Friday, or, if any such Friday is a public holiday under the Negotiable Instruments Act, 1881, at the close of business on the preceding working day. (i) Section 19 was substituted concerning the application to the co-operative societies. The relevant portion of Section 19 is as under: 19. No co-operative bank shall hold shares in any other co-operative society except to such extent and subject to such conditions as the Reserve Bank may specify in that behalf: ... The restriction was imposed under Section 19 on holding shares in other co-operative societies except as provided by the Reserve Bank of India. (j) Section 22 of the BR Act, 1949, as amended in its application with respect to the co-operative banks, provides that no co-operative society shall carry on banking business in India unless it is a primary credit society or a co-operative bank and holds a licence issued in that behalf by the Reserve Bank. Thus, it was necessary that only primary credit society could involve in the banking business in India and to hold a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange otherwise than within the same city, town or village, the location of an existing place of business: It has been made necessary by substituting Sections 29 and 30 for every co-operative bank to submit accounts and balance sheets to the Reserve Bank of India. Reserve Bank of India has also been given power under Section 35 to inspect primary co-operative banks. In Section 35A(1)(c), after the words 'banking company', the words 'banking business of any co-operative bank' has been substituted. Forms have also been prescribed for submitting balance sheet, property, and assets, and profit and loss account. Thus, it is apparent that deep and pervasive control by the Reserve Bank of India is provided on primary credit society, which is involved in banking. As per the provisions of the BR Act, 1949, no business can be done by any co-operative society without obtaining a licence from the Reserve Bank of India. The very existence of the co-operative banks is dependent and is governed by the Reserve Bank of India Act as well as the BR Act, 1949. The aforesaid legislations are under Entry 38 and Entry 45, respectively, of List I of the Constitution of India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enforcement of security interest and for matters connected therewith or incidental thereto. The provisions of the Ordinance would enable banks and financial institutions to realise longterm assets, manage problem of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce nonperforming assets by adopting measures for recovery or reconstruction. 2. It is now proposed to replace the Ordinance by a Bill, which, inter alia , contains provisions of the Ordinance to provide for- ( g ) defining security interest as any type of security including mortgage and charge on immovable properties given for due repayment of any financial assistance given by any bank or financial institution; ( h ) empowering banks and financial institutions to take possession of securities given for financial assistance and sell or lease the same or take over management in the event of default, i.e. classification of the borrower s account as nonperforming asset in accordance with the directions given or guidelines issued by the Reserve Bank of India from time to time; 28. Under Section 13 of the SARFAESI Act, it is op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndment was made to the RDB Act, 1993, in Section 2(d) by inserting clause (vi) 'a multi-State co-operative bank.' Section 2(d) is extracted hereunder: 2. Definitions .-In this Act, unless the context otherwise requires,- ( d ) bank means- ( i ) a banking company; ( ii ) a corresponding new bank; ( iii ) State Bank of India; ( iv ) a subsidiary bank; or ( v ) a Regional Rural Bank; ( vi ) a multi-Stateco-operative bank; 32. We have to examine the legislative competence of the Parliament with respect to co-operative banks within the State as the MSCS Act, 2002 is enacted in exercise of power under Entry 44 List I of the Seventh Schedule of the Constitution of India. The legislative competence of Parliament regarding the MSCS Act, 2002 is not in issue. MEANING OF BANKING 33. The main issue is as to the meaning of banking used in Entry 45 of List I of the Seventh Schedule of the Constitution of India. It is necessary to understand the meaning of 'bank' and 'banking.' Before the Constitution was promulgated, banking was dealt with by the erstwhile Banking Companies Act, 1949. Upon its extension to co-operative banks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank' to mean the National Bank for Agriculture and Rural Development established under Section 3 of the National Bank for Agriculture and Rural Development Act, 1981. The 'State Bank of India' is defined in Section 5(nc) to mean the State Bank of India constituted under Section 3 of the State Bank of India Act, 1955 (23 of 1955). 35. The term banking used in Entry 45 List I, came up for consideration in Rustom Cavasjee Cooper (supra), in which 11Judge Bench of this Court considered the question of banking and observed: 27. The argument raised by Mr Setalvad, intervening on behalf of the State of Maharashtra and the State of Jammu and Kashmir, that the Parliament is competent to enact Act 22 of 1969, because the subjectmatter of the Act is with respect to regulation of trading corporations and matters subsidiary and incidental thereto, and on that account is covered in its entirety by Entries 43 and 44 of List I of the Seventh Schedule, cannot be upheld. Entry 43 deals with incorporation, regulation and winding up of trading corporations including banking companies. Law regulating the business of a corporation is not a law with respect to regulation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation to stock exchange transactions, and banks have functions under certain financial legislation, X X X . These functions are not strictly banking business. 33. The AttorneyGeneral said that the expression banking in Entry 45, List I means all forms of business which since the introduction of western methods of banking in India, banking institutions have been carrying on in addition to banking as defined in Section 5( b ) of the Banking Regulation Act, and on that account all forms of business described in Section 6(1) of the Banking Regulation Act in clauses ( a ) to ( n ) are, if carried on in addition to the hardcore of banking banking and the Parliament is competent to legislate in respect of that business under Entry 45, List I. In support of his contention that apart from the business of accepting money from the public for lending or investment, and withdrawable by cheque, draft or otherwise, banking includes many allied business activities which banking institutions were engaged in, the AttorneyGeneral invited our attention to clause 21 of the Charter of the Bank of Bengal (Act 6 of 1839); Section 27 of Act 4 of 1862; to Sections 36 and 37 of the Presidency B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egislative 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. 148. Counsel for the petitioner contended that the word banking would have the same meaning as the definition of banking occurring in Section 5( b ) of the Banking Regulation Act of 1949 hereinafter referred to for the sake of brevity as the 1949 Act. This contention was amplified to exclude four types of business from the banking business and therefore the Act of 1969 was said to be not within the legislative competence of Banking under Entry 45 in List I. These four types of business are: ( 1 ) the receiving of scrips or other valuables on deposit or for safe custody and providing of safe deposit vaults, ( 2 ) agency business, ( 3 ) business of guarantee, giving of indemnity and underwriting a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 6(1) of the 1949 Act. Receiving valuables on deposit or for safe custody and providing for safe custody vaults which are contemplated in clause ( a ) of Section 6(1) of the 1949 Act cannot be dissociated from other forms of unchallenged business of a bank mentioned in that clause because any such severance would be illogical particularly when deposit for safe custody and safe deposit vaults are mentioned in the long catalouge of businesses in clause ( a ). The agency business which is mentioned in clause ( b ) of Section 6(1) is one of the recognised forms of business of commercial banks with regard to mercantile transactions and payment or collection of price. Agency is after all a comprehensive word to describe the relationship of appointment of the bank as the constituent s representative. The forms of agency transactions may be varied. It may be acting as collecting agent or disbursing agent or as depository of parties. The categories of agency can be multiplied in terms of transactions. That is why the business of agency mentioned in clause ( b ) is first in the general form of acting as an agent for any Government or local authority, secondly carrying on of agency business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain purposes related to some of the businesses enumerated in the aforesaid Section 6(1). These provisions also establish that businesses mentioned in Section 6 of the 1949 Act are incidental and conducive to banking business. A bank cannot employ any person whose remuneration is in the form of a commission or a share in the profits of the banking company or whose remuneration is in the opinion of the Reserve Bank excessive. One of the most important provisions is Section 35 of the 1949 Act, which states that the Reserve Bank at any time may and on being directed so to do by the Central Government cause an inspection to be made by one or more of its officers of the books of account and to report to the Central Government on any inspection and the Central Government thereafter if it is of opinion after considering the report that the affairs of the banking company are being conducted to the detriment of the interests of its depositors, may prohibit the banking company from receiving fresh deposits or direct the Reserve Bank to apply under Section 38 for the winding up of the banking company. Another important provision in the 1949 Act, is found in Section 27 which provides for mont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the application was heard, gave effect to the contentions raised by the Registrar and dismissed the application. In dismissing the application the learned Judge made inter alia the following observations in his judgment: At the outset it must be said that it is a curious application. If the object is to lend money to such person or persons or firms and at such terms as may seem expedient, then it may amount to some kind of a banking in disguise. It is quite true that under the Banking Companies Act, banking' is defined to mean the acceptance, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise. With a little clever manipulation, the petitioner might go on doing the banking business under the proposed amendment although by allowing such amendment it will put on the garb of a nonbanking company. It has been argued that these observations of the learned Judge are due to a misconception of the true nature and character of a banking business. Reliance is placed by the learned counsel for the appellant company on the definition of the word 'banking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated in Sec. 5 (1)(b) of the Act but banking companies usually carry on and are permitted to carry on other kinds of business which are auxiliary or incidental to the main business. Subsection (2) of Sec. 6 Iays down that no banking company shall engage in any form of business other than those referred to in subsection (1). So the banking company is expressly prohibited from carrying on any kind of incidental or allied business other than those enumerated in subclauses (a) to (o) of subsection (1) of Sec. 6 of the Act. Thus it is abundantly clear that the essence of banking is the relationship which is brought into existence at the time of the deposit; that is the core of banking. It is true that the business of banking covers every possible phase or combination of deposit, custody, investment, loan, exchange, issue and transmission of money, creation and transfer of credit and other kindred activities but if the essential characteristic of banking, namely, the power to receive deposits from the public which are repayable in the manner indicated in Sec. 5 (1) (b) of the Banking Companies Act is absent and merely the power of granting loans is retained and exercised that, in my ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the spread or what is called as interest income . Thus, we may broadly categorise the functions of the banking company into two parts viz. core banking of accepting deposits and lending and miscellaneous functions and services. Section 6 of the BR Act, 1949 provides for the form of business in which banking companies may engage. Thus, RBI is empowered to enact a policy which would enable banking companies to engage in activities in addition to core banking and in the process it defines as to what constitutes banking business . 38. Learned counsel urged that performing core banking function is the sine qua non for being regulated by the BR Act, 1949. The BR Act, 1949 applies to a primary credit society which has been brought within its purview, leaving out primary agricultural credit society and a co-operative land mortgage bank. The business of banking cannot be carried out in India as per Section 22 of the BR Act, 1949 as applicable to the co-operative banks/societies, unless it is a primary credit society, and it is a co-operative bank and holds a licence issued by the Reserve Bank of India. It is not in dispute that all co-operative banks run by co-operative societie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construed in the sense which it has in the Sale of Goods Act. (37) A contention was also urged on behalf of the respondents that even assuming that the expression sale of goods in Entry 48 could be construed as having the wider sense sought to be given to it by the appellant and that the provisions of the Madras General Sales Tax Act imposing a tax on construction contracts could be sustained as within that entry in that sense, the impugned provisions would still be bad under S. 107 of the Government of India Act, and the decision in Dukhineswar Sarkar v. Commercial Tax Officer, (S) AIR 1957 Cal 283 (Z19) was relied on in support of this contention. Section 107, so far as is material, runs as follows: S. 107 - (1) If any provision of a Provincial law is repugnant to any provision of a Dominion law which the Dominion Legislature is competent to enact or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent Legislative List, then, subject to the provisions of this section, the Dominion law, whether passed before or after the Provincial law, or, as the case may be, the existing law, shall prevail and the Provincial law shall, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Lubricants Taxation Act, 1938, 1939 FCR 18 at p. 37: (AIR 1939 FC 1 at p. 4) Sir Maurice Gwyer, C.J., observed: I conceive that a broad and liberal spirit should inspire those whose duty it is to interpret it; but I do not imply by this that they are free to stretch or pervert the language of the enactment in the interests of any legal or constitutional theory, or even for the purpose of correcting any supposed errors. Again, in Navinchandra Mafatlal v. Commissioner of Income Tax, Bombay City, 1955 1 SCR 829: ( (S) AIR 1955 SC 58) Das, J. (as he then was) delivering the judgment of this Court observed: - . The cardinal rule of interpretation however, is that words should be read in their ordinary, natural and grammatical meaning subject to this rider that in construing words in a constitutional enactment conferring legislative power the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude. (25) It is true that when words and phrases previously interpreted by the courts are used by the Legislature in a later enactment replacing the previous statute, there is a presumption that the Legislature intende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pith and substance considering forms of business of co-operative banks performing the activities of banking under a licence. The same is covered within the purview of Entry 45 of List I. 41. On the strength of Sections 32 and 33 of the State Bank of India Act, 1955, learned counsel on behalf of appellants argued that Section 32 recognises that State Bank of India can carry on 'agency business' on behalf of Reserve Bank of India. Section 33 enables the State Bank of India to carry on banking business under Section 5(b) and other forms of business under Section 6(1) of the BR Act, 1949. The argument is of no avail. The State Bank of India Act, 1955, is independent and is not corelated with the co-operative banks, and the State Bank of India has been established as a corporation under the Act. Thus, the provision is of no help to take home the submission espoused on behalf of appellants to take them out of the purview of Entry 45 of List I. 42. Learned Counsel on behalf of appellants argued that there is a difference between entity and activity. On a plain reading of Section 6(1) of the BR Act, 1949, it becomes evident that there is a distinction between the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter XA of the Companies Act (VII of 1913). It was inserted vide Amendment Act No.22 of 1936. On 10.3.1949, the Banking Companies Act, 1949, was enforced. The primary objective of the Banking Companies Act, 1949, was to provide a comprehensive definition of 'banking' to bring within its scope all the institutions which receive deposits repayable on demand or otherwise for lending or investment. At the relevant time, the Government of India Act, 1935, which dealt with the subject of 'banking' as well as 'trading corporation,' was in List I (Federal Legislative List), thus: Entry 38 in relation to banking : Banking, that is to say, the conduct of banking business by corporations other than corporations owned and controlled by a federated state and carrying on business only within that State. Entry 33 in relation to corporation: Corporations, that is to say, the incorporation, regulation, and windingup of trading corporations, including banking, insurance, and financial corporations, but not including corporations owned or controlled by a Federated State and carrying on business only within that State or co-operative societies, and of corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ti-State co-operative society, which undertakes the banking business. Under Section 84(2), a claim for any debt or demand due shall be deemed to be a dispute touching the constitution, management, or business of a multi-State co-operative society. The Parliament has extended specific provisions of the BR Act, 1949, and the Reserve Bank of India Act, 1934, which legislations are relatable to Entry 45 of List I and Entry 38 of List I, respectively. The Parliament lacks legislative competence to regulate any other business, function, or facet of co-operative societies. It could not have provided a recovery procedure as that is within the domain of the State legislature. We cannot accept the aforesaid submission raised by the learned Counsel. 46. In Delhi High Court Bar Association (supra), this Court in the context of the RDB Act, 1993 held that Parliament has the legislative competence to enact the Act. 'Banking' in Entry 45 of List I would comprehend legislation in respect of matters ancillary or subsidiary to it. The Parliament can enact a law regarding the conduct of the banking business, which includes recovery of banks' dues, and for that purpose, set up the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide the remedy for recovery under Section 13 of the SARFAESI Act. Co-operative bank's entire operation and activity of banking are governed by a law enacted under Entry 45 of List I, i.e., the BR Act, 1949, and the RBI Act under Entry 38 of List I. 48. In UCO Bank and Anr. v. Dipak Debbarma and Ors. (2017) 2 SCC 585 , the question arose under the SARFAESI Act visavis the provisions of Section 187 of Tripura Land Revenue and Land Reforms Act, 1960 as under the Tripura Act there was a legislative embargo on the sale of mortgaged properties by the bank to any person who is not a member of a Scheduled Tribe. The auction purchasers in the case were not members of the Scheduled Tribe. This Court observed that provisions of the SARFAESI Act enable the bank to take possession of any property where a security interest has been created in its favour and sell such property to any person to realise dues. This Court observed that the Parliament enacted the law traceable to Entry 45 dealing exclusively with activities relating to the sale of secured assets, which being Central legislation would prevail, thus: 15. In the present case the conflict between the Central and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 920, conflicts with the SARFAESI Act. Thus, the transfer of property by way of sale or assignment is only one of the several ways for recovery of debts and, thus, the SARFAESI Act as a whole cannot be said to be in pith and substance an Act relatable to the subject of transfer of property. The sale and mortgage of property for recovering loans/debts is also an integral part of 'banking'. The setting up of an adjudicatory body like the banking tribunal would also fall under Entry 45 of List I of the Seventh Schedule. Thus, State law can operate if there is no Central law regarding the same. The State law cannot encroach upon the Central law by operation of the principle of repugnancy if there is a Central law. The Parliament is qualified with exclusive power to make law concerning banking. It is not possible to dissect the provisions of the SARFAESI Act and attach them to different entries under different lists. In pith and substance, the SARFAESI Act does not deal with the transfer of property in Entry 6 of List III of the Seventh Schedule but deals with the recovery of debt owing to banks and financial institutions. It was observed: 30. When it came to SARFAESI itsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d above is an essential part of the business of banking. In this view of the matter, the Privy Council further held: (AC p. 46) 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. 37. 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 securitisation 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, insofar as banks and financial institutions are concerned, it deals with recovery of debts owing to such banks and financial institutions and certain measures wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Banking and therefore any legislation relating to banking would be referable to Entry 45 in the Union List. Entry 43 in the Union List is: Incorporation, regulation and winding up of trading corporations, including banking, insurance and financial corporations but not including co-operative societies . Entry 44 refers to incorporation, regulation, and winding up of corporation whether trading or not when business is not confined to one State but not including universities . Obviously the power to legislate about the companies is referable to Entry 44 when the objects of the company are not confined to one State and irrespective of the fact whether it is trading or not. When a law is impugned on the ground that it is ultra vires the powers of the legislature which enacted it, what has to be ascertained is the true character of the legislation. To do that one must have regard to the enactment as a whole, to its objects and to the scope and effect of its provisions (see A.S. Krishna v. State of Madras, 1957 SCR 399, 410). To resolve the controversy if it becomes necessary to ascertain to which entry in the three Lists, the legislation is referable, the court has evolved the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the sale of tobacco in market areas, cannot coexist. The State legislatures were competent to pass legislation concerning such goods. In I.T.C. Ltd. (supra), it was observed: 87. Further, in Belsund Sugar Co. , (1999) 9 SCC 620, the Constitution Bench cited with approval the decision in SIEL case, (1998) 7 SCC 26 and reiterated that merely because the industry is controlled by a declaration under Section 2 of the IDR Act enacted by Entry 52 of the Union List, the State Legislature would not be denied of its power to regulate the products of such an industry by exercise of its legislative power under the State List. It would be useful to extract para 119 of Belsund Sugar Co. case, (1999) 9 SCC 620, as under: (SCC pp. 67071) 119 . However, so far as the IDR Act is concerned, it is enacted under Entry 52 of the First Schedule which deals with industries in general. Simultaneously in the State List itself there is Entry 24 which deals with industries subject to the provisions of Entries 7 and 52 of List I. Consequently, the products of such controlled industries would necessarily not be governed by the sweep of the general legislation pertaining to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State of U.P. or the State of Bihar, the question of repugnancy between the Molasses Control Order, 1961 and the U.P. Sheera Niyantran Adhiniyam, 1964 does not arise. Consequently, it must be held that in the absence of a statutory order promulgated under Section 18G of the IDR Act, it cannot be said that the field for regulation of sale and purchase of products of the flour industry like atta, maida, suji, bran, etc. would remain outside the domain of the State Legislature. 93. That the legislative power of Parliament in certain areas is paramount under the Constitution is not in dispute. What is in dispute is the limits of those areas as judicially defined. Broadly speaking, parliamentary paramountcy is provided for under Articles 246 and 254 of the Constitution. The first three clauses of Article 246 of the Constitution relate to the demarcation of legislative powers between Parliament and the State Legislatures. Under clause (1), notwithstanding anything contained in clauses (2) and (3), Parliament has been given the exclusive power to make laws with respect to any of the matters enumerated in List I or the Union List in the Seventh Schedule. Clause (2) empowers Parli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other Constitution Benches have reaffirmed that Tika Ramji case, AIR 1956 SC 676 authoritatively defined the word industry - to mean the process of manufacture or production and that it does not include the raw materials used in the industry or the distribution of the products of the industry. Given the constitutional framework, and the weight of judicial authority it is not possible to accept an argument canvassing a wider meaning of the word industry . Whatever the word may mean in any other context, it must be understood in the constitutional context as meaning manufacture or production . 130. It was held that: (AIR pp. 9495, para 10) Market no doubt ordinarily means a place where business is being transacted. That was probably all that it meant at a time when trade was not developed and when transactions took place at specified places. But with the development of commerce, bargains came to be concluded more often than not through correspondence and the connotation of the word market underwent a corresponding expansion. In modern parlance the word market has come to mean business as well as the place where business is carried on. 163. As noticed earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gas and gasworks falls under both the entries, that is, there is a real overlapping of the said entries. Having regard to the aforesaid principle, while giving the widest scope to both the entries, we shall adopt the interpretation which reconciles and harmonizes them. 53. In Central Bank of India v. State of Kerala and Ors. (2009) 4 SCC 94 , the question came up for consideration concerning Entry 45 of List I and Entry 54 of List II. The question arose whether Section 38C of the Bombay Sales Tax Act, 1959 and Section 26B of the Kerala General Sales Tax Act, 1963 and similar provisions contained in other State legislation by which a first charge was created on the property of the dealer or such other person, who was liable to pay sales tax, were inconsistent with the provisions contained in the RDB Act, 1993 and the SARFAESI Act and whether central legislations would have primacy over the state legislations. It was observed: 92. An analysis of the abovenoted provisions makes it clear that the primary object of the DRT Act was to facilitate creation of special machinery for speedy recovery of the dues of banks and financial institutions. This is the reason why the DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f there is anything inconsistent contained in any other law or instrument having effect by virtue of any other law. In other words, if there is no provision in the other enactments which are inconsistent with the DRT Act or the Securitisation Act, the provisions contained in those Acts cannot override other legislations. Section 38C of the Bombay Act and Section 26B of the Kerala Act also contain non obstante clauses and give statutory recognition to the priority of the State s charge over other debts, which was recognised by Indian High Courts even before 1950. In other words, these sections and similar provisions contained in other State legislations not only create first charge on the property of the dealer or any other person liable to pay sales tax, etc. but also give them overriding effect over other laws. This Court found no conflict in the provisions of the Central Act and that of the State. 54. Learned counsel on behalf of appellants relying on the decisions in S.S. Dhanoa, Daman Singh, and Dalco Engineering Private Limited (supra), argued that the Parliament was conscious of the distinction between a corporation falling under Entries 43 and 44 of Lis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of individuals entitled to act as an individual. But that certainly is not the sense in which it is used here. Corporation established by or under an Act of Legislature can only mean a body corporate which owes its existence, and not merely its corporate status, to the Act. For example, a Municipality, a Zilla Parishad or a Gram Panchayat owes its existence and status to an Act of Legislature. On the other hand, an association of persons constituting themselves into a company under the Companies Act or a society under the Societies Registration Act owes its existence not to the Act of Legislature but to acts of parties though, it may owe its status as a body corporate to an Act of Legislature. In Daman Singh (supra), a Constitution Bench of this Court considered Entry 43 of List I and Entry 32 of List II of the Seventh Schedule of the Constitution of India and observed: 5. What is a corporation? In Halsbury s Laws of England , Fourth Edition, Volume 9, Paragraph 1201, it is said, A corporation may be defined as a body of persons (in the case of a corporation aggregate) or an office (in the case of a corporation sole) which is recognised by the law as having a perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l persona just as much as an individual. Thus, it has been held that a name is essential to a corporation; that a corporation aggregate can, as a general rule, only act or express its will by deed under its common seal; that at the present day in England a corporation is created by one or other of two methods, namely, by Royal Charter of incorporation from the Crown or by the authority of Parliament that is to say, by or by virtue of statute. There is authority of long standing for saying that the essence of a corporation consists in ( 1 ) lawful authority of incorporation, ( 2 ) the persons to be incorporated, ( 3 ) a name by which the persons are incorporated, ( 4 ) a place, and ( 5 ) words sufficient in law to show incorporation. No particular words are necessary for the creation of a corporation; any expression showing an intention to incorporate will be sufficient. The Court then noticed the various provisions of the Societies Registration Act, 1860 which according to them contained no sufficient words to indicate an intention to incorporate but on the contrary contained provisions showing that there was an absence of such intention. Therefore, they observed, We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.S. Dhanoa (supra) and opined that there is a difference between a corporation established by law and established under the law. However, the question involved in the instant case is different. 55. In Hindustan Lever (supra), question was considered, whether there was an encroachment on the field of the Parliament reserved under Entry 43 of List I of the Seventh Schedule of the Constitution of India, which empowers the Union Government to make law relating to 'incorporation, regulation and winding up of trading corporations including banks, insurance, and finance corporations'. It was held that the levy of stamp duty and prescribing rate of stamp duty on such documents is a different aspect. The Bombay Stamp Act does not provide for incorporation, regulation and winding up of corporations . The Court held: 42. It was next contended that provisions of Section 2( g )( iv ) read with Section 34 of the Bombay Stamp Act which provide that an instrument not duly stamped would be inadmissible in evidence are repugnant to Section 394 of the Companies Act and that the State legislation cannot prevail over the provisions of the Companies Act. It was also contended t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrol might fall within either the State list or the concurrent list, Entry 3 in List I of Seventh Schedule carves out the subject of rent control and house accommodation in Cantonments from the general subject of house accommodation and rent control (see Indu Bhusan v. Sundari Devi, (1970) 1 SCR 443). Furthermore, the word notwithstanding in clause (1) also means that if it is not possible to reconcile the two entries the entry in List I will prevail. But before that happens attempt should be made to decide in which list a particular legislation falls. For deciding under which entry a particular legislation falls the theory of pith and substance has been evolved by the courts. If in pith and substance a legislation falls within one list or the other but some portion of the subjectmatter of that legislation incidentally trenches upon and might come to fall under another list, the Act as a whole would be valid notwithstanding such incidental trenching. These principles have been laid down in a number of decisions. 16. It would be obvious that one part of the Act does deal with the constitution of the Board, the incorporation of the Board and the regulation of its activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment may acquire land by publishing a notice specifying the particular purpose for which such land is required .... Where the land has been acquired for the corporation or any local authority, the State Government shall, after it has taken possession of the land, transfer the land to the corporation or that local authority .... * * * * It is in the background of the purposes of the Act and powers and functions of the corporation that the real and true character of the legislation will be determined .... Industries come within Entry 24 of the State list. The establishment, growth and development of industries in the State of Maharashtra does not fall within Entry 7 and Entry 52 of the Union list. Establishment, growth and development of industries in the State is within the State list of industries .... Acquisition or requisition of land falls under Entry 42 of the concurrent list. In order to achieve growth of industries it is necessary not only to acquire land but also to implement the purposes of the Act. The corporation is therefore established for carrying out the purposes of the Act, The pith and substance of the Act is establishment, growth and organisation of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try 43 of List I of Schedule VII, the rest of it will fall under Entry 38 of List III. That part of the Act relating to the regulation of the activities regarding production and distribution of electricity would, as we have shown, fall under the entry Electricity . The Kerala Act has nothing to do with the incorporation and regulation of the Electricity Board and, therefore, it can only relate to Entry 38 of List III, if at all. It was held that repugnancy could only arise if both the legislations of Parliament and State fell within List III. 57. In Sita Ram Sharma and Ors. (supra) the question concerning Entry 43 of List I and Entries 35 and 42 of List III was considered. It was held: 9. The main argument is that the subject-matter of Section 4 falls within Item 43 of List I of the Seventh Schedule to the Constitution. So the State Legislature could not enact Section 4. The rival contention of Dr L.M. Singhvi, Advocate General of Rajasthan, is that the subject-matter of Section 4 in its true nature and character falls within Items 35 and 42 of List III of the Seventh Schedule to the Constitution. 10. Item 43 of List I reads: Incorporation, regulation and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try 32 of List II of the Seventh Schedule of the Constitution of India, whereas 'banking' is covered by Entry 45 of List I. Thus, aspect of 'incorporation, regulation and winding up' would be covered under Entry 32 of List II. However, banking activity of such co-operative societies/banks shall be governed by Entry 45 of List I. The said banks are governed and regulated by legislation related to Entry 45 of List I, the BR Act, 1949 as well as the Reserve Bank of India Act under Entry 38 of List I. In the matter of licencing and doing business, a deep and pervasive control is carved out under the provisions of the BR Act, 1949 and banking activity done by any entity, primary credit societies, is a bank and is required to submit the accounts to the Reserve Bank of India, and there is complete control under the aforesaid Act. For activity of banking, these banks are governed by the legislation under Entry 45 of List I. Thus, recovery being an essential part of the banking, no conflict has been created by providing additional procedures under Section 13 of the SARFAESI Act. It is open to the bank to adopt a procedure which it may so choose. When banking in pith and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stance is the settled principles of law, and incidental trenching is permissible. Thus, we are of the opinion that section 2(c)(iv)(a) of the SARFAESI Act and the notification dated 28.2.2003 cannot be said to be ultra vires . They are within the ken of Entry 45 List I of the Seventh Schedule to the Constitution of India. EFFECT OF CONSTITUTIONAL PROVISIONS 60. Our aforesaid conclusion finds support by the Constitutional provisions inserted by way of the Constitution (Ninety Seventh Amendment) Act, 2011. Article 43B has been added concerning the management of co-operative societies. Article 43B is extracted hereunder: 43B. Promotion of co-operative societies.- The State shall endeavour to promote voluntary formation, autonomous functioning, democratic control and professional management of co-operative societies. 61. Article 243ZI provides that the legislature of a State may, by law, make provisions with respect to incorporation, regulation and winding up of co-operative societies. Article 243ZI is extracted hereunder: 243ZI. Incorporation of co-operative societies. - Subject to the provisions of this Part, the Legislature of a State may, by law, make p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, the provisions of the BR Act, 1949 shall also apply besides the State Act. The fourth proviso to clause (1) of Article 243ZL also contains an exception with respect to multi-State co-operative society carrying on the business of banking, the provisions of this clause shall have the effect as if for the words 'six months', had been substituted by words 'one year.' Thus, the constitutional provision itself makes a distinction between a co-operative bank and other co-operative societies and applied law enacted under Entry 45 of List I of the Seventh Schedule. It set at rest any controversy concerning the applicability of the BR Act, 1949 to banks run by co-operative societies. It also makes it clear that such banks are governed by Entry 45 of List I of the Seventh Schedule. 63. A threeJudge Bench decision in Greater Bombay Coop. Bank Ltd. (supra) is heavily relied upon by the appellants, and due to conflict noted by a threeJudge Bench, the matter has been referred. In Greater Bombay Coop. Bank Ltd. (supra) the question arose whether co-operative banks constituted under the Co-operative Societies Act would have the right to recover the amount from debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t imperative. The BR Act deals with the regulation of the banking business. There is no provision whatsoever relating to proceedings for recovery by any bank of its dues. Recovery was initially governed by the Code of Civil Procedure by way of civil suits and after the RDB Act came into force, the recovery of the dues of the banks and financial institutions was by filing applications to the Tribunal. The Tribunal has been established with the sole object to provide speedy remedy for recovery of debts of the banks and financial institutions since there has been considerable difficulties experienced therefor from normal remedy of civil court. 89. In R.C. Cooper v. Union of India, (1970) 1 SCC 248, this Court observed that power to legislate for setting up corporations to carry on banking and other business and to acquire, hold and dispose of property and to provide for administration of the corporations is conferred upon Parliament by Entries 43, 44 and 45 of the Constitution. Therefore, the express exclusion of co-operative societies in Entry 43 of List I and the express inclusion of co-operative societies in Entry 32 of List II separately and apart from but along wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ist II. Whereas in Nagpur District Central Co-operative Bank Ltd. (supra), the question arose whether Registrar had the power under Section 78 of the Maharashtra Co-operative Societies Act to issue show cause notice to any committee of the society or any member of such committee including the Directors in respect of any default or negligence in the performance of the duties imposed on it or him by the Act or the rule or the byelaws and power of the Registrar to remove the Committee or the members thereof if any such action is called for. The argument was rejected that the co-operative societies indulged in the banking business, hence, the State did not have the legislative competence under Entry 32 of List II, and only the Parliament had the legislative competence under Entry 45 of List I. The question involved as to management was clearly covered under Entry 32 of List II. It was with respect to incorporation, management, and winding up of a society. Thus, both the abovementioned decisions could not be said to be applicable with regard to the aspect of banking and were wrongly relied upon while forming an opinion in Greater Bombay Coop. Bank Ltd. (supra). 67. At the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing. The Privy Council upheld the vires of the whole of the Act because it dealt, in pith and substance, with moneylending. They observed: Subjects must still overlap, and where they do the question must be asked what in pith and substance is the effect of the enactment of which complaint is made, and in what list is its true nature and character to be found. If these questions could not be asked, much beneficent legislation would be stifled at birth, and many of the subjects entrusted to provincial legislation could never effectively be dealt with. Examining the provisions of the U.P. Co-operative Societies Act in the light of the observations of the Privy Council we do not have the slightest doubt that in pith and substance the Act deals with co-operative societies . That it trenches upon banking incidentally does not take it beyond the competence of the State Legislature. It is obvious that for the proper financing and effective functioning of co-operative societies there must also be co-operative societies which do banking business to facilitate the working of other co-operative societies. Merely because they do banking business such co-operative societies do not cease t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the regulation of 'banking' covered under Entry 45 of List I. The Court did not deal with the aspect of the regulation of banking in the said decision as it was not required to be decided. Thus, the ratio of the decision operates in a different field. Moreover, the U.P. Co-operative Services Act was saved on the ground of incidental trenching on the subject of another list, i.e., Entry 45 List I, which is permissible. IN REFERENCE QUESTION NO.2: 70. The next question is of the effect of Section 56(a) on the definition of 'banking company' as defined in Section 5(1)(b) of the BR Act, 1949. It is necessary to consider the definition of 'banking' as contained in the SARFAESI Act. The term 'bank' has been defined in Section 2(1)(c) to mean 'banking company', a corresponding new bank, a subsidiary bank or a multi-State co-operative bank or such other bank which the Central Government may by notification specify for the Act. The term 'banking company' under Section 2(d) shall have the meaning assigned to it in Section 5(c) of the BR Act, 1949. Thus, the definition of 'banking company' stands incorporated in Section 2(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a later Act is a legislative device adopted for the sake of convenience in order to avoid verbatim reproduction of the provisions of the earlier Act into the later. (Mary Roy v. State of Kerala, (1986) 2 SCC 209, p. 216 : AIR 1986 SC 1011; Nagpur Improvement Trust v. Amrik Singh, AIR 2002 SC 3499, p. 3512 : (2002) 7 SCC 657.) When an earlier Act or certain of its provisions are incorporated by reference into a later Act, the provisions so incorporated become part and parcel of the later Act as if they had been bodily transposed into it . (Ramsarup v. Munshi, AIR 1963 SC 553, p. 558 : 1963 (3) SCR 858 ; Nagpur Improvement Trust v. Amrik Singh, AIR 2002 SC 3499, p. 3512 : (2002) 7 SCC 657.) The effect of incorporation is admirably stated by LORD ESHER, M.R.: If a subsequent Act brings into itself by reference some of the clauses of a former Act, the legal effect of that, as has often been held, is to write those sections into the new Act as if they had been actually written in it with the pen, or printed in it. (Re, Wood's Estate, Ex parte, Works and Buildings Commrs., (1886) 31 Ch D 607, p. 615; Ram Kripal Bhagat v. State of Bihar, AIR 1970 SC 951, p. 957 : (19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. State of Orissa, AIR 1975 SC 17, p. 29 : 1974 (2) SCC 777 ; Mahindra and Mahindra Ltd. v. Union of India, AIR 1979 SC 798, pp. 810, 811 : (1979) 2 SCC 529.) Ordinarily if an Act is incorporated in a later Act, the intention is to incorporate the earlier Act, with all the amendments made in it up to the date of incorporation. (State of Maharashtra v. Madhavrao Damodar Patil, AIR 1968 SC 1395, p. 1400 : 1968 (3) SCR 712.) The rule that the repeal or amendment of the Act which is incorporated by reference in a later Act is not applicable for purposes of the later Act is subject to qualifications and exceptions. (See text and notes 941, pp. 324332.) A distinction is in this context drawn between incorporation and mere reference of an earlier Act into a later Act. (See text and notes 1421, pp. 326328.) Further, a distinction is also drawn when what is referred to is not an earlier Act or any provision from it but law on a subject in general. (See text and notes 1013, pp. 325, 326.) There is, however, no controversy on the point that when any Act or rules are adopted in any later Act or rules, such adoption normally whether by incorporation or mere reference take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reason for it is the Courts prime duty to assume that any law made by the Legislature is enacted to serve public interest. 74. In Portsmouth Corporation v. Smith (1885) 10 AC 364 , it was opined: Where a single section of an Act of Parliament is introduced into another Act, I think, it must be read in the sense which it bore in the original Act from which it is taken, and that consequently it is perfectly legitimate to refer to all the rest of that Act in order to ascertain what the section meant, though those other sections are not incorporated in the new Act. Lord Blackburn further observed thus: I do not mean that if there was in the original Act a section not incorporated, which came by way of a proviso or exception on that which is incorporated, that should be referred to, but all others, including the interpretation clause, if there be one, may be referred to. It is dangerous mode of draftsmanship to incorporate a section from a former Act, for unless the draftsman has a much clearer recollection of the whole of the former Act than can always be excepted, there is great risk that something may be expressed which was not intended. 75. In Surana St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up and Ors. v. Munshi and Ors. AIR 1963 SC 553 , it was opined: (11) The problem here raised is dependent upon the construction which the several provisions which we have set out earlier would bear after the repeal of the Punjab Alienation of Land Act, 1900. One thing is clear and that is that the authority which enacted the repeal of the Punjab Alienation of Land Act did not consider that Punjab Act 1 of 1913 had itself to be repealed. We shall now consider the effect of the repeal of the Punjab Alienation of Land Act with reference to each of the provisions:- (1) Definition of agricultural land under S. 3(1): Where the provisions of an Act are incorporated by reference in a later Act the repeal of the earlier Act has, in general, no effect upon the construction or effect of the Act in which its provisions have been incorporated. The effect of incorporation is stated by Brett, L.J. in Clarke v Bradlugh, (1881) 8 QBD 63: Where a statute is incorporated, by reference, into a second statute the repeal of the first statute by a third does not affect the second. In the circumstances, therefore, the repeal of the Punjab Alienation of Land Act of 1900 has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank' which was included in the definition and interpretation clause of Section 5 of the BR Act, 1949. It was open to the Parliament to deal with the subject of 'banking' in Entry 45 of List I and this Court in Greater Bombay Coop. Bank Ltd. (supra) itself opined that the BR Act, 1949 applies to co-operative banks which is the enactment related to Entry 45 of List I and third proviso to Article 243ZL( 1) of the Constitution of India also provides that the BR Act shall also apply. Thus, the Parliament considered it appropriate to provide additional remedy for speedy recovery which is an alternative even if there is an incidental encroachment on the field reserved for the State under Entry 32 of List II, as in pith and substance, the 'banking' is part of Entry 45 of List I and recovery procedure is covered within the ken of Entry 45 of List I. Thus, considering the Doctrine of Pith and Substance and incorporation by amendment made, we are of the considered opinion that co-operative banks are included in the definition of 'bank' and 'banking company' under Section 2(1)(c) and 2(1)(d) of the SARFAESI Act. 79. In Greater Bombay Coop. Bank Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king companies to co-operative societies. According to the expression co-operative societies used in Section 56 means a co-operative society , the primary object or principal business of which is the transaction of banking business. In other words, first it is a co-operative society, but carrying on banking business having the specified paidup share capital. Other definitions also make it clear that the entities are basically co-operative societies. (a) Concerning the SARFAESI Act, following observations were made: 41. Parliament had enacted the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ( the Securitisation Act ) which shall be deemed to have come into force on 21-6-2002. In Section 2( d ) of the Securitisation Act same meaning is given to the words banking company as is assigned to it in clause ( e ) of Section 5 of the BR Act. Again the definition of banking company was lifted from the BR Act but while defining bank , Parliament gave five meanings to it under Section 2( c ) and one of which is banking company . The Central Government is authorised by Section 2( c )( v ) of the Act to specify any othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nking company as defined in Section 5( c ) and shall include co-operative bank and primary co-operative bank as inserted in clauses ( cci ) and ( ccv ) in Section 5 of Act 23 of 1965. (b) Concerning incorporation by reference to Section 56 (a) of the BR Act, 1949, it was opined: 70. The dues of co-operatives and recovery proceedings in connection therewith are covered by specific Acts, such as the MCS Act, 1960 and the APCS Act, 1964, which are comprehensive and selfcontained legislations. Similarly, for multi-State co-operatives there is a specific enactment in the form of the MSCS Act, 2002 comprehensively providing the legal framework in respect to issues pertaining to such co-operatives. Therefore, when there is an admittedly existing legal framework specifically dealing with issues pertaining to co-operatives and especially when the co-operative banks are, in any case, not covered by the provisions of the RDB Act specifically, there is no justification of covering the co-operative banks under the provisions of the RDB Act by invoking the doctrine of incorporation . (c) Regarding the definition of banking company in the BR Act, 1949, it was observed: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , judicial decisions and general principles of law. The elementary rule of interpretation of the statute is that the words used in the section must be given their plain grammatical meaning. Therefore, we cannot afford to add any words to read something into the section, which the legislature had not intended. 81. Finally, it could not be said that amendments in Chapter V, Section 56 of the BR Act by Act 23 of 1965 inserting co-operative bank in clause ( cci ) and primary co-operative bank in clause ( ccv ) either expressly or by necessary intendment ( sic make the RDB Act) apply to the co-operative banks transacting business of banking. (d) The questions were answered thus: 97. For the reasons stated above and adopting pervasive and meaningful interpretation of the provisions of the relevant statutes and Entries 43, 44 and 45 of List I and Entry 32 of List II of the Seventh Schedule of the Constitution, we answer the reference as under: Co-operative banks established under the Maharashtra Co-operative Societies Act, 1960 (the MCS Act, 1960), the Andhra Pradesh Co-operative Societies Act, 1964 (the APCS Act, 1964), and the Multi-State Co-operative Societies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e context of the RDB Act, 1993, signifies 'civil court.' It is clear that the Registrar or an officer designated by him or an arbitrator under Sections 61, 62, 70, and 71 of the Andhra Pradesh Co-operative Societies Act, 1964 and under Section 91 and other provisions of Maharashtra Co-operative Societies Act, 1960 are not 'civil courts.' Thus, it was opined that the RDB Act, 1993 is consistent with the general banks and their creditors/loaners where the Maharashtra Co-operative Societies Act, 1960; the Andhra Pradesh Co-operative Societies Act, 1964 and the MSCS Act are concerned with the regulation of co-operative societies only. Due to the amendments in Chapter V of the BR Act, 1949 inserting 'co-operative bank' in clause (cci) to Section 56 and 'primary co-operative bank' in clause (ccv) to Section 56 it could not be said that RDB Act, 1993 applies to the co-operative banks transacting the business of banking. 81. In Greater Bombay Coop. Bank Ltd. (supra), the provisions of the BR Act, 1949 were simply noted; there was no indepth consideration of the various provisions and, more particularly of those contained in Section 56 of the Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable on demand or otherwise and withdrawal by cheque, draft, order or otherwise. Merely by the fact that lending of money is limited to members, they cannot be said to be out of the purview of banking. They perform commercial functions. A society shall receive deposits and loans from members and other persons. They give loans also, and it is their primary function. Thus, they are covered under 'banking' in Entry 45 of List I. IN REFERENCE QUESTION NOS. 3(a) AND 3(b) 84. Learned Counsel appearing on behalf of appellants argued that securitisation is not a banking business. The SARFAESI Act is to regulate securitisation and reconstruction of financial assets. Emphasis was laid on the financial assets and financial assistance. The definition of 'debt' in Section 2(1)(ha) of the SARFAESI Act is the same as defined in Section 2(g) of the RDB Act, 1993, the 'debt' is defined as any liability which is claimed as due during any business activity undertaken by the bank or the financial institution. In our opinion, the submission ignores and overlooks the purpose of the SARFAESI Act, i.e., enforcement of security interest, and that is precisely s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, it is permissible for the Parliament to enact the law to provide recovery procedures for bank dues that have been done by providing speedy recovery of secured interest without intervention of the court/tribunal. 87. In Soma Suresh Kumar v. Government of Andhra Pradesh and Ors. (2013) 10 SCC 677 , it was observed that there were several occasions when the laws enacted by the State as well as by the banking regulation carved out by Central Government acted in their field. This Court considered the Andhra Pradesh Protection of Depositors of Financial Establishments Act, 1999, and the effects of the BR Act, 1949. It was held that ambit of respective Acts and field covered is required to be considered and it was permissible for the State legislature also to enact the provisions notwithstanding the BR Act, 1949 with respect to the matters which were not covered by the said Act to protect the interest of the investors. It was held that Andhra Pradesh Protection of Depositors of Financial Establishments Act, 1999, did not create any repugnancy to any Central law. It was observed: 6. Further, it is also pointed out that the Banking Regulations Act, enacted by the Central G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have to look at the legislation as a whole and there is a presumption that the legislature does not exceed its constitutional limits. 21. The doctrine of pith and substance means that an enactment which substantially falls within the powers expressly conferred by the Constitution upon a legislature which enacted it cannot be held to be invalid merely because it incidentally encroaches on matters assigned to another legislature. The Court must consider what constitutes in pith and substance the true subjectmatter of the legislation. If on such examination it is found that the legislation is in substance one on a matter assigned to the legislature then it must be held to be valid even though it incidentally trenches on matters beyond its legislative competence, vide Union of India v. Shah Goverdhan L. Kabra Teachers College , (2002) 8 SCC 228 (SCC para 7). 22. For applying the doctrine of pith and substance regard is to be had to the enactment as a whole, its main objects and the scope and effect of its provisions vide Special Reference No. 1 of 2001, In re , (2004) 4 SCC 489 (SCC para 15). For this purpose the language of the entries in the Seventh Schedule should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a specified period (a term loan). In such a case repayment is due at the end of the specified period and, in the absence of any express provision or implication to the contrary, no further demand for repayment is necessary. - Chitty on Contracts , Vol. II, 30th Edn., p. 913. In other words, such loans are repayable in instalments over a period of time the terms of which are evidenced by a written agreement between the parties. A default in the repayment (in terms of the agreed schedule) generally provides a cause of action for the creditor to initiate legal proceedings for the recovery of the entire amount due and outstanding from the borrower. Normally such term loans are also accompanied by some security interest in a secured asset of the borrower. Such a recovery is to be made normally by instituting a suit for recovery of the amounts by enforcing the security interest . The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 created an exclusive forum for a speedy ascertainment of the amounts actually due from the defaulting borrower and also provided for a mechanism for speedy recovery of the amounts so ascertained from such borrowers. 32. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the result of registration is concerned. The High Court observed: (4) Now turning to the language of the notification what is urged by Mr. Parpia is that the notification only contemplates the Indian Companies Act and Acts similar to that Act. In our opinion, there is no reason why such a limited interpretation should be put upon the general words used in the notification. If the intention of the State Government was, that the notification should only apply to the companies registered under the Indian Companies Act or Acts corresponding to Indian Companies Act nothing was easier than for the Government to have stated so. If the intention was to exclude the banking companies registered under the Co-operative Societies Act that also could have been set out in the notification itself. Neither counsel has been able to draw our attention to any Indian Legislation under which an association doing banking business can be registered other than the Indian Companies Act and the Co-operative Societies Act. Therefore, nothing was simpler or easier than for the State Government to have stated doing business of Banking Companies registered under enactments other than the Co-operative S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness of banking. We must not forget that the entries in the Lists to the Seventh Schedule have to be read in the widest possible manner, and we have seen from the judgments quoted by us above that the expression banking contained in List I Entry 45 is to be given a wide meaning. There can be no doubt that the statute as a whole and the aforesaid section does fall within List I Entry 45. (emphasis supplied) 93. In Federation of Hotel Restaurant Association of India, etc. v. Union of India and Ors. (1989) 3 SCC 634 , the question of overlapping of the law was considered with respect to a subject which might incidentally affect another subject in some way or the other and held that that is not the same thing as the law being on the latter subject. The same transaction may involve two or more taxable events in its different aspects. 94. In Apex Co-operative Bank of Urban Bank of Maharashtra Goa Ltd. (supra) the question arose concerning licensing of co-operative societies by the Reserve Bank of India to carry on banking business under the provisions of the BR Act, 1949. It was held that co-operative banks, which are not State co-operative banks or Central co- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king company'. This Court further held that the I.D. Act was a complete and self-contained code in itself, and its working was not dependent on the BR Act, 1949. 96. In Reserve Bank of India v. M. Hanumaiah and Ors. (2008) 1 SCC 770 , the question arose of supersession of the Committee of the management of Co-operative Bank. There was a written requisition from the Reserve Bank of India to the Registrar, Co-operative Societies, to supersede the management under Section 30(5) of the Karnataka Co-operative Societies Act, 1959. It was held that principles of natural justice were not applicable, and the Committee of the management had no right of hearing. Thus, there are various instances where the Central legislation has controlled co-operative societies' aspects relating to banking. 97. In State of Gujarat and Anr. v. Shri Ambica Mills Ltd., Ahmedabad, and Anr. (1974) 4 SCC 656 , the definition clause in a provision when it is under inclusion and overinclusive was considered, thus: 54 . A reasonable classification is one which includes all who are similarly situated and none who are not. The question then is: what does the phrase similarly situated mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly called legislation by incorporation. General reference, ordinarily, will imply exclusion of specific reference and this is precisely the fine line of distinction between these two doctrines. Both are referential legislations, one merely by way of reference and the other by incorporation. It, normally, will depend on the language used in the later law and other relevant considerations. While the principle of legislation by incorporation has well-defined exceptions, the law enunciated as of now provides for no exceptions to the principle of legislation by reference. Furthermore, despite strict application of doctrine of incorporation, it may still not operate in certain legislations and such legislation may fall within one of the stated exceptions. 88. In this regard, the judgment of this Court in M.V. Narasimhan , (1975) 2 SCC 377, can be usefully noticed where the Court after analysing various judgments, summed up the exceptions to this rule as follows: (SCC p. 385, para 15) ( a ) where the subsequent Act and the previous Act are supplemental to each other; ( b ) where the two Acts are in pari materia; ( c ) where the amendment in the previous Act, if not importe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be said to be over inclusion to cover provisions of recovery by co-operative banks in the SARFAESI Act. It cannot be said to be overinclusion on the anvil of the principles laid down by this Court. 100. Learned Counsel on behalf of appellants argued that notification dated 28.1.2003 is ultra vires and beyond the purview of the parent statute, i.e. , the SARFAESI Act. The amendment is colourable legislation, and it encroaches upon a field outside its scope and is also an indirect method of achieving the result of bringing 'co-operative banks' within the purview of the SARFAESI Act and RDB Act, 1993 and is an attempt to regulate entities expressly excluded by Entry 43 of List I. Reliance has been placed on K.C. Gajapati Narayan Deo (supra), in which it was held: (9) It may be made clear at the outset that the doctrine of colourable legislation does not involve any question of bona fides or mala fides on the part of the legislature. The whole doctrine resolves itself into the question of competency of a particular legislature to enact a particular law. If the legislature is competent to pass a particular law, the motives which impelled it to act are really ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the true nature and character of the challenged legislation and it is the result of such investigation and not the form alone that will determine as to whether or not it relates to a subject which is within the power of the legislative authority - Vide 1924 A C 328 p. 337 (B) . For the purpose of this investigation the court could certainly examine the effect of the legislation and take into consideration its object, purpose or design - Vide Attorney General for Alberta v. Attorney General for Canada , 1939 A C 117 at p. 130 (C). But these are only relevant for the purpose of ascertaining the true character and substance of the enactment and the class of subjects of legislation to which it really belongs and not for finding out the motives which induced the legislature to exercise its powers. It is said by Lefroy in his wellknown work on Canadian Constitution that even if the legislature avow on the face of an Act that it intends thereby to legislate in reference to a subject over which it has no jurisdiction, yet if the enacting clauses of the Act bring the legislation within its powers, the Act cannot be considered ultra vires See Lefroy on Canadian Constitution page 75. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the MSCS Act, 2002 with respect to 'banking' are governed by the legislation relatable to Entry 45 of List I of the Seventh Schedule of the Constitution of India. (b) The co-operative banks run by the co-operative societies registered under the State legislation with respect to the aspects of 'incorporation, regulation and winding up', in particular, with respect to the matters which are outside the purview of Entry 45 of List I of the Seventh Schedule of the Constitution of India, are governed by the said legislation relatable to Entry 32 of List II of the Seventh Schedule of the Constitution of India. (2) The co-operative banks involved in the activities related to banking are covered within the meaning of 'Banking Company' defined under Section 5(c) read with Section 56(a) of the Banking Regulation Act, 1949, which is a legislation relatable to Entry 45 of List I. It governs the aspect of 'banking' of co-operative banks run by the co-operative societies. The co-operative banks cannot carry on any activity without compliance of the provisions of the Banking Regulation Act, 1949 and any other legislation applicable to such banks relatable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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