CENTRAL BANK OF INDIA v. STATE OF KERALA AND ORS.

The Judgment of the Court was delivered by

G.S. SINGHVI, J. 1. Leave granted in S.L.P. (C) No.24767 G of 2005.

2Copy pinpoint2. Whether Section 38C of the Bombay Sales Tax Act, 1959 [for short "the Bombay Act"] and Section 268 of the Kerala General Sales Tax Act, 1963 [for short "the Kerala Act"] H and similar provision contained in other State legislations by

<-- .

CENTRAL BANK OF INDIA v. STATE OF KERALA AND 747 ORS. [G.S. SINGHVI, J.] ', which first charge has been created on the property of the A dealer or such other person, who is liable to pay sales tax etc., are inconsistent with the provisions contained in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short 'the ORT Act') for recovery of ·debt' and the Securitisation and Reconstruction of Financial Assets and Enforcement of B Security Interest Act, 2002 (for short 'the Securitisation Act') for ~ enforcement of· security interest' and whether by virtue of non obstante clauses contained in Section 34(1) of the ORT Act and Section 35 of the Securitisation Act, two Central legislations will have primacy over State legislations are the c questions which arise for determination in these appeals.

3Copy pinpoint3. For the sake of convenience, we have taken notice of the facts of Civil Appeal Nos.95/2005 and 2811/2006 and the ; reasons contained in the orders passed by Kerala and Bombay High Courts, which are under challenge in these appeals. D

4Copy pinpoint4. C.A. No.9512005 - Central Bank of India vs. State of Kera/a & others- Central Bank of India, which is a nationalized bank, gave cash/ credit facility to the tune of Rs.12 lakhs to Kerala Refineries (P) Ltd. The borrower executed mortgage of movable and immovable properties for securing repayment. As the borrower failed to repay the dues, the bank filed civil suit bearing O.S. No.234/1996 in the Court of Sub-Judge at •• Mavelikara. Later on the suit was transferred to Ernakulam Bench of the Debts Recovery Tribunal (hereinafter referred to as "the Tribunal"). By an order dated 1.12.2000, the Tribunal decreed the suit for an amount of Rs.55 lakhs with future interest. As a sequel to this, Recovery Certificate dated 1.11.2001 was issued in favour of the bank and the Recovery Officer issued notice for sale of the movable and immovable properties of the borrower. At that stage, Tehsildar, Mavelikara • -J issued notice dated 26.11.2001 to the borrower for recovery of Rs.40,38,481/- as arrears of sales tax stating therein that its moveable and immovable properties had been attached on 2.2.2000 and 4.9.2000 and that steps are being taken to sell H

p. 748

• . A the attached property by public auction. The Tehsildar claimed that by virtue of Section 268 of the Kerala Act, as amended by Act No.23/1999, the State Government has got first charge over the attached properties. The bank challenged the notice of the Tehsildar by filing a petition under Article 226 of the B Constitution of India, which was registered as O.P. No.7835/ 2002(G). The bank relied on the decisions of this Court in A.P. State Financial Corporation v. Official Liquidator [(2000) 7 SCC 291] and Allahabad Bank v. Canara Bank and another [(2000) 4 SCC 406], and pleaded that being a Central c legislation, the ORT Act would prevail over the Kerala Act by which first charge was created in favour of the State. The learned Single Judge of the Kerala High Court negatived the bank's challenge by observing that proceedings under the Kerala Act had been initiated before the issue of certificate by ~ the Tribunal and that even if the Tribunal has got exclusive jurisdiction to recover the amount due to the bank, the Tehsildar was not obliged to approach it for recovery of the State dues. The learned Single Judge referred to Section 46 of the Kerala Revenue Recovery Act, 1968, which provides that within 14 days from the date of attachment of any immovable property any person other than the defaulter can lodge objection to the attachment of the whole or any portion of such property on the ground that such property was not liable for the arrears of public > revenue, and held that as the bank had claimed first charge or 4

prior charge over the attached property, it can file appropriate objections under Section 46 of the Kera la Revenue Recovery Act, 1968 and make a prayer that public revenue can be recovered after paying its dues. The learned Single Judge further observed that in terms of Section 47 of the Kerala Revenue Recovery Act, 1968 the petitioner can obtain release of the attached property by paying arrears of the public w----- revenue. The appeal preferred against the order of the learned Single Judge was dismissed by the Division Bench which held that the bank can avail remedy by filing objections under Sections 46 to 48 of the Kerala Revenue Recovery Act, 1968. H

CENTRAL BANK OF INDIA v. STATE OF KERALA AND 749 ORS. [G.S. SINGHVI, J.] -~

5Copy pinpoint5. C.A. No.281112006 - The Thane Janata Sahakari A Bank Ltd. vs. The Commissioner of Sales Tax & others - Appellant - Thane Janata Sahakari Bank Ltd., which is a scheduled cooperative society incorporated under the Maharashtra Cooperative Society Act, 1960 granted credit facilities to Mis. Charishma Cosmetics Pvt. Ltd. Co. (for short B 'the Company'). As on 30.6.2004, the company had availed .I credit facility to the tune of Rs.2,32,00,000/- by creating equitable mortgage of its factory, land and building in favour of the bank. Due to the company's failure to repay the amount, its account was classified as non-performing asset and the bank c initiated proceedings under the Securitisation Act by issuing notice under Section 13(2). The possession of movable and immovable properties of the company is said to have been taken by the bank on 15.2.2005 and the same were sold for a sum of Rs.66,31,001/-. On 11.7.2005, Assistant Commissioner " of Sales Tax informed the bank that sales tax dues amounting to Rs.3,62,82,768/- constitute first charge against the company D

and, therefore, it could not have taken possession of the mortgaged assets and sold the same. After some correspondence, the Assistant Commissioner issued notice dated 16.8.2005 to the bank to show cause as to why action may not be taken against it under Section 39 of the Bombay Sales Tax Act, 1959 (for short "the Bombay Act") for recovery (

' ... of Rs.49,68,614/- in addition to the auction proceeds. The bank unsuccessfully contested the notice and then filed writ petition for quashing the same. It was urged on behalf of the bank that in view of the conflict between Section 38C of the Bombay Act and Section 35 of the Securitisation Act, the latter being a Central legislation, the first charge created by the State Act cannot have priority over debts of the bank because while enacting the Securitisation Act the Parliament will be deemed G • -J to be aware of the provisions of the State legislation. It was also contended that under Section 169 of Maharashtra Land Revenue Code, 1966, the State Government can claim priority over unsecured dues, but being secured creditor, the bank has H

p. 750

. A first and exclusive charge over the properties of the company ' and has priority over the sales tax dues of the State. The Division Bench of the High Court analysed the provisions of the Securitisation Act, the State Act and observed:-

"......... if any Central Act provides for first charge, the B charge created under Section 38C of Bombay Sales Tax Act is overridden. Conversely, if the Central Act does not provide for first charge in respect of the liability under the said Act, the first charge created under Section 38C of Bombay Sales Tax Act shall hold the field." c The Division Bench then noted that Section 13 of the Securitisation Act does not create first charge in favour of the banks; that it merely provides the machinery for realization by a secured creditor of the security interest without intervention of the Court or Tribunal; that it overrides the provisions contained in Sections 69 or 69A of the Transfer of Property Act which empower the mortgagee to sell or concur in selling the mortgaged property or any part thereof in default of payment of the mortgage money without intervention of the Court in the circumstances referred to in Section 69 and for payment of Court Receiver as provided in Section 69A and held:

"The Bombay Sales Tax Act and the Securitisation Act have been enacted by the competent legislatures for ')

different purposes and operate in different fields. The F Bombay Sales Tax Act is enacted by the State Legislature under Entry 54 of List II in the Seventh Schedule for levy of tax on the sale or purchase of certain goods in the State of Bombay (now State of Maharashtra). On the other hand, the Securitisation Act has been enacted by the Parliament G under Entry 54 of List I for regulating the Securitisation and reconstruction of financial assets and for enforcement of ..-- security interest. There is neither any conflict in these two Acts nor Section 38 C of the Bombay Sales Tax Act can be said to be inconsistent with Section 35 of the H Securitisation Act. The area of operation is entirely different

CENTRAL BANK OF INDIA v. STATE OF KERALA AND 751 ORS. [G.S. SINGHVI, J.] ..... and there is no overlapping anywhere . A Section 35 of the Securitisation Act may have had some bearing, if there was some provision in the Securitisation Act for first charge in favour of the banks and financial institutions. But neither Section 13 nor any other provision B under the Securitisation Act makes a provision for first charge . . • There being no provision in the Securitisation Act providing for first charge in favour of the banks section 35 of the Securitisation Act cannot be held to override section c 38C of the Bombay Sales Tax Act, 1959 that specifically provides that the liability under the said Act shall be the first charge. The overriding provision contained in Section 38C is only subject to the provision of the first charge in ~ the Central Act holding the field. The case of the Bank is D not covered by the expression, "subject to any provision regarding first charge in any Central Act for the time being in force" and that being the position, Section 38C is not overridden by section 35 of the Securitisation Act." E

6Copy pinpoint6. S/Shri Shekhar Naphde, Dushyant Dave, Bishwajeet Bhattacharya, T.L.V. Iyer and Ms. lndu Malhotra, learned senior counsel appearing for the appellants argued that as the ORT ( Act and Securitisation Act have been enacted by the Parliament under Article 246( 1) read with Entry 45 in List I in the Seventh Schedule of the Constitution for speedy recovery F of debts due to banks or financial institutions or for enforcement of security interest by the secured creditors and overriding effect has been given tu these legislations vis-a-vis other laws, the provisions contained therein will have primacy over State legislations which have been enacted under Article 246(2) read G • -J with Entry 54 in List II in the Seventh Schedule and under which first charge has been created in favour of the State in respect of the dues of sales tax etc. Shri Dushyant Dave relied upon the judgments in State of West Bengal v. Kesoram Industries Ltd. and others [(2004) 10 sec 201] and Govt. of A.P. and H

p. 752

A anr. v. J.B. Educational Society and anr. [(2005) 3 sec 212], and argued that even though the Central and State legislations have not been enacted with reference to a particular entry in List Ill in the Seventh Schedule, Article 254 will get attracted, and the Kerala and Bombay High Courts committed an error B by refusing to accept the submission that banks, financial institutions and secured creditors have priority in the matter of recovery of debts or enforcement of security interest vis-a-vis the State's right to recover the dues of sales tax etc. Shri Bishwajeet Bhattacharya submitted that in view of Article 254(1) C of the Constitution, provisions contained in State laws which are repugnant to or inconsistent with Central legislations, are liable to be ignored. All the learned counsel laid considerable emphasis on the non obstante clauses contained in Section 34(1) of the ORT Act and Section 35 of the Securitisation Act, 0 and argued that even though the language of Section 38C of • the Bombay Act and Section 26B of the Kerala Act suggests that State legislations have been given overriding effect vis a vis other laws, the courts are duty bound to give full effect to the primacy of Central legislations over State legislations. Shri Shekhar Naphde and other learned counsel heavily relied on E Section 13(1), (7) and (9) of the Securitisation Act and argued that when Parliament has designedly given priority to the right of banks etc. to recover their dues or enforce security interest, first charge created under the State legislation must be treated sub-servient to such right. Learned senior counsel made a F pointed reference to the provisos incorporated in Section 13(9) for giving priority to the dues of the workers of the company in liquidation and argued that in the absence of similar provision in relation to sales tax dues etc. payable to the State, priority given to the dues of banks etc. cannot be diluted or stultified G by giving over stretched interpretation to the provisions contained in the State legislations relating to first charge.

7Copy pinpoint7. Shri Rakesh Dwivedi and Shri S.K. Oholakia, learned senior counsel appearing for the States of Kerala and H Maharashtra respectively argued that even though the ORT Act

CENTRAL BANK OF INDIA v. STATE OF KERALA AND 753 ORS. [G.S. SINGHVI, J.) -, and Securitisation Act contain non obstante clauses suggesting A that the provisions contained therein would prevail over other laws, the same must be interpreted keeping in view the legislative policy underlying those enactments and if they are so interpreted, Section 38C of the Bombay Act and Section 268 of the Kera la Act and similar provisions contained in other B State legislations by which first charge has been created on ;l the property of the dealer or any other person liable to pay sales tax etc. cannot be treated inconsistent with Central legislations. Shri Dwivedi submitted that the ORT Act and Securitisation Act have been enacted to speed up the recovery of the dues of c banks, financial institutions and secured creditors but there is no provision in the two enactments by which first charge has been created in favour of banks, etc. and, therefore, the provisions contained in State legislations creating first charge ~ in respect of the dues of sales tax etc. cannot be treated as 0 inconsistent with Central legislations. Shri Owivedi further submitted that levy and collection of tax etc. is sovereign function as well as necessity of the State and as such the State has exclusive plenary power to legislate on that subject and in the absence of any provision in the ORT Act or Securitisation E Act creating first charge In favour of the banks etc., in lieu of their dues, these legislations cannot be given overriding effect qua the provisions contained in the State legislations and right of the State to recover the dues of sales tax etc. cannot be frustrated merely because a bank or financial institution or secured creditor has initiated action for recovery of debt etc. F by filing application under Section 19 of the ORT Act or by resorting to the procedure contained in Section 13 of the Securitisation Act. In support of this argument, learned senior counsel invoked the doctrine of sub si/entio. G • -4 8. We have considered the respective arguments/ submissions. Article 245 of the Constitution is the source of legislative power of Parliament and State legislatures. It provides that subject to the provisions of the Constitution, Parliament may make laws for the whole or any part of the H

p. 754

A territory of India, and the legislature of a State may make laws for the whole or any part of the State. The legislative field of the Parliament and State legislatures has been specified in Article 246. In terms of Clause (1) of Article 246, Parliament has exclusive power to make laws with respect to any of the B matters enumerated in List I in the Seventh Schedule. Under Clause (2) the Parliament and subject to Clause (1 ), the legislature of any State also have power to make laws with respect to any of the matters enumerated in List Ill in the Seventh Schedule. Subject to Clauses (1) and (2), the c legislature of State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule. It is thus evident that Parliament has exclusive power to legislate with respect to any of the matters enumerated in List I and State legislatures enjoys similar power with respect to any of the matters enumerated in List II. The combined effect of the different clauses of Article 246 is that in respect of any matter falling within List I, Parliament has exclusive power of legislation, whereas the State legislature has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule and with respect to the matters enumerated in List Ill, both the Parliament and State legislature have power to make laws. Article 254 which contains mechanism for resolution of conflict )

between Central and State legislations enacted with respect to any matter enumerated in List Ill of the Seventh Schedule reads as under:

"254. Inconsistency between laws made by Parliament and laws made by the Legislatures of States.- (1) If any provision of a law made by the Legislature of a State is repugnant to any provision of a law made by Par.liament which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List, then, subject to the provisions of clause (2), the law made by Parliament,

CENTRAL BANK OF INDIA v. STATE OF KERALA AND 755 ORS. [G.S. SINGHVI, J.] .] whether passed before or after the law made by the A Legislature of such State, or, as the case may be, the existing law, shall prevail and the law made by the Legislature of the State shall, to the extent of the repugnancy, be void. B (2) Where a law made by the Legislature of a State with respect to one of the matters enumerated in the .~ Concurrent List contains any provision repugnant to the provisions of an earlier law made by Parliament or an existing law with respect to that matter, then, the law so made by the Legislature of such State shall, if it has been c reserved for the consideration of the President and has received his assent, prevail in that State:

Provided that nothing in this clause shall prevent /1 Parliament from enacting at any time any law with respect D to the same matter including a law adding to, amending, varying or repealing the law so made by the Legislature of the State."

9Copy pinpoint9. Article 254 was interpreted by the Constitution Bench E in Zaverbhai Amaidas v. State of Bombay [(1955) SCR 799) in the context of challenge to Bombay Act No. 36/1947 on the ground that the same is repugnant to Section 7(1) of the .J ' Essential Supplies (Temporary Powers) Act, 1946. The Constitution Bench referred to the judgment in The Attorney General of Ontario v. The Attorney General for the Dominion F '· [1896 A.C. 348) and held "now by the proviso to Article 254(2) the Constitution has enlarged the powers of Parliament, and under that proviso, Parliament can do what the Central legislature could not under Section 107(2) of the Government of India Act and en.i::::t a law adding to, amending, varying, G • -.J repealing a law of the State, when it relates to a matter mentioned in the Concurrent List. The proposition then is that under the Constitution Parliament can, acting under the proviso to Article 254(2), repeal a State law. But when it does not expressly do so, even then the State law will be void under H

p. 756

A that provision if it conflicts with a later "law" with respect to the ' same matter'', that may be enacted by Parliament. In A.S. Krishna v. State of Madras [(1957) SCR 399] the Constitution Bench considered challenge to validity of Madras Prohibition Act 1937 on the ground that the same is repugnant to the Indian B Evidence Act, 1872 and the Code of Criminal Procedure, 1898 which were enacted by the Parliament. The Constitution Bench repelled the challenge and held:

'The position, then, might thus be summed up: When a law is impugned on the ground that it is ultra vires the powers c 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 enactme1~t as a whole, to its objects and to the scope and effect of its provisions. If on such examination it is found that the legislation is in D ~. substance one on a matter assigned to the legislature, then it must be held to be valid in its entirety, even though it might incidentally trench on matters which are beyond its competence. It would be quite an erroneous approach to the question to view such a statute not as an organic whole, but as a mere collection of sections, then disintegrate it into parts, examine under what heads of legislation those parts would severally fall, and by that process determine what portions thereof are intra vires, and what are not. Now, the Madras Prohibition Act is, as already stated, both in form and in substance, a law relating to intoxicating liquors. The presumptions in Section 4(2) are not presumptions which are to be raised in the trial of all criminal cases, as are those enacted in the Evidence Act. They are to be raised only in the trial of offences under Section 4( 1) of the Act. They are therefore purely ancillary to the exercise of the legislative power in respect of Entry 31 in List II. So also, the provisions ". relating to search, seizure and arrest in Sections 28 to 32 are only with reference to offences committed or suspected to have been committed under the Act. They have no

CENTRAL BANK OF INDIA v. STATE OF KERALA AND 757 ORS. [G.S. SINGHVI, J.] > -( operation generally or to offences which fall outside the A Act. Neither the presumptions in Section 4(2) nor the provisions contained in Sections 28 to 32 have any operation apart from offences created by the Act, and must, in our opinion, be held to be wholly ancillary to the legislation under Entry 31 in List II. The Madras Prohibition B Act is thus in its entirety a law within the exclusive competence of the Provincial Legislature, and the question of repugnancy under Section 107(1) does not arise."

10Copy pinpoint10. In Mis. Hoechst Pharmaceuticals Ltd. and others v. State of Bihar and others ((1983) 4 SCC 45], this Court c considered the question whether there is any conflict between Drugs (Price Control) Order, 1979 made under Section 3 of the Essential Commodities Act, 1955 which is a Central legislation and Section 5(3) of the Bihar Finance Act, 1981 by which surcharge was levied on certain dealers engaged in D selling drugs. While negating challenge to the State legislation, a three-Judge Bench laid down the following principles:

(1) The various entries in the three lists are not "powers" of legislation but "fields" of legislation. The Constitution E effects a complete separation of the taxing power of the Union and of the States under Article 246. There is no overlapping anywhere in the taxing power and the Constitution gives independent sources of taxation to the Union and the States. F (2) In spite of the fields of legislation having been demarcated, the question of repugnancy between law made by Parliament and a law made by the State Legislature may arise only in cases when both the legislations occupy ihe same field with respect to one of G ~-.,/ the matters enumerated in the Concurrent List and a direct conflict is seen. If there is a repugnancy due to overlapping found between List II on the one hand and List I and List Ill on the other, the State law will be ultra vires and shall have to give way to the Union law. H

p. 758

A (3) Taxation is considered to be a distinct matter for ;. . purposes of legislative competence. There is a distinction made between general subjects of legislation and taxation. The general subjects of legislation are dealt with in one group of entries and power of taxation in a separate group. B The power to tax cannot be deduced from a general legislative entry as an ancillary power.

(4) The entries in the lists being merely topics or fields of legislation, they must receive a liberal construction inspired by a broad and generous spirit and not in a narrow C· pedantic sense. The words and expressions employed in " drafting the entries must be given the widest-possible ~·

interpretation. This is because, to quote V. Ramaswami, J., the allocation of the subjects to the lists is not by way of scientific or logical definition but by way of a mere D simplex numeration of broad categories. A power to •·. legislate as to the principal matter specifically mentioned in the entry shall also include within its expanse the legislations touching incidental and ancillary matters.

E (5) Where the legislative competence of the legislature of ~

any State is questioned on the ground that it encroaches upon the legislative competence of Parliament to enact a law, the question one has to ask is whether the legislation " relates to any of the entries in List I or Ill. If it does, no further question need be asked and Parliament's legislative competence must be upheld. Where there are three lists containing a large number of entries, there is bound .to be some overlapping among them. In such a situation the doctrine of pith and substance has to be applied to determine as to which entry does a given piece of legislation relate. Once it is so determined, any incidental trenching on the field reserved to the other ... . legislature is of no consequence. The court has to look at the substance of the matter. The doctrine of pith and substance is sometimes expressed in terms of H

CENTRAL BANK OF INDIA v. STATE OF KERALA AND 759 j ORS. [G.S. SINGHVI, J.] ~) ascertaining the true character of legislation. The name A given by the legislature to the legislation is immaterial. Regard must be had to the enactment as a whole, to its main objects and to the scope and effect of its provisions. Incidental and superficial encroachments are to be disregarded. B

(6) The doctrine of occupied field applies only when there is a clash between the Union and the State Lists within an area common to both. There the doctrine of pith and substance is to be applied and if the impugned legislation substantially falls within the power expressly conferred upon c the legislature which enacted it, an incidental encroaching in the field assigned to another legislature is to be ignored. While reading the three lists, List I has priority over Lists Ill and II and List Ill has priority over List II. However, still, /t the predominance of the Union List would not prevent the D State Legislature from dealing with any matter within List II though it may incidentally affect any item in List I.

[Emphasis supplied] E

11Copy pinpoint11. The three-Judge Bench also dealt with the scope of Article 254 and held:

"Article 254 of the Constitution makes provision first, as ... ~ to what would happen in the case of conflict between a Central and State law with regard to the subjects enumerated in the Concurrent List, and secondly, for resolving such conflict. Article 254( 1) enunciates the normal rule that in the event of a conflict between a Union and a State law in the concurrent field, the former prevails over the latter. Clause (1) lays down that if a State law relating to a concurrent subject is 'repugnant' to a Union ""-4 law relating to that subject, then, whether the Union law is prior or later in time, the Union law will prevail and the State law shall, to the extent of such repugnancy, be void. To the general rule laid down in clause (1 ), clause (2) engrafts an H

p. 760

A exception viz. that if the President assents to a State law I " which has been reserved for his consideration, it will prevail notwithstanding its repugnancy to an earlier law of the Union, both laws dealing with a concurrent subject. In such a case, the Central Act, will give way to the State Act B only to the extent of inconsistency between the two, and no more. In short, the result of obtaining the assent of the President to a State Act which is inconsistent with a previous Union law relating to a concurrent subject would be that the State Act will prevail in that State and override c the provisions of the Central Act in their applicability to that State only. The predominance of the State law may however be taken away if Parliament legislates under the proviso to clause (2). The proviso to Article 254(2) empowers the Union Parliament to repeal or amend a D repugnant State law, either directly, or by itself enacting a t\ law repugnant to the State law with respect to the 'same matter'. Even though the subsequent law made by Parliament does not expressly repeal a State law, even then, the State law will become void as soon as the subsequent law of Parliament creating repugnancy is E made. A State law would be repugnant to the Union law when there is direct conflict between the two laws. Such repugnancy may also arise where both laws operate in the same field and the two cannot possibly stand together." ..

12Copy pinpoint12. In State of West Bengal v. Kesoram Industries Ltd. (supra), the majority of the Constitution Bench recognized the possibility of overlapping of legislations enacted under different entries in Lists I and II in the Seventh Schedule and observed:

"While reading the three lists, List I has priority over Lists G Ill and II and List Ill has priority over List II. However, still, ...... the predominance of the Union List would not prevent the State Legislature from dealing with any matter within List ,. II though it may incidentally affect any item in List I. H

CENTRAL BANK OF INDIA v. STATE OF KERALA AND 761 ORS. [G.S. SINGHVI, J.)

•• In spite of the fields of legislation having been demarcated, A the question of repugnancy between law made by Parliament and a law made by the State Legislature may arise only in cases when both the legislations occupy the same field with respect to one of the matters enumerated in List Ill and a direct conflict is seen. If there is a B repugnancy due to overlapping found between List II on the one hand and List I and List 111 on the other, the State law ·- /> will be ultra vires and shall have to give way to the Union law.

.... If there is conflict, the correct approach is to find an c answer to three questions step by step as under:

One-ls it still possible to effect reconciliation between two entries so as to avoid conflict and overlapping? D Two-In which entry the impugned legislation falls, by finding out the pith and substance of the legislation. In this regard the court has to look at the substance of the matter. The doctrine of pith and substance is sometimes expressed in terms of ascertaining the true character of legislation. The name given by the legislature to the legislation is immaterial. Regard must be had to the enactment as a whole, to its main objects and to the scope and effect of its provisions. Incidental and superficial encroachments are to be disregarded. Interpretation is the exclusive privilege of the Constitutional Courts and the court embarking upon the task of interpretation would place such meaning on the words as would effectuate the purpose of legislation avoiding absurdity, unreasonableness, incongruity and conflict. As is with the words used so is with the language employed in drafting G a piece of legislation. That interpretation would be preferred which would avoid conflict between two fields of legislation and would rather import homogeneity. It follows as a corollary of the abovesaid statement that while H

-'

p. 762

A interpreting tax laws the courts would be guided by the gist • of the legislation instead of by the apparent meaning of the words used and the language employed. The courts shall have regard to the object and the scheme of the tax law under consideration and the purpose for which the cess B is levied, collected and intended to be used. The courts shall make endeavour to search where the impact of the cess falls. The subject-matter of levy is not to be confused with the method and manner of assessment or realization.

and c Three - Having determined the field of legislation where in the impugned legislation falls by applying the doctrine of pith and substance, can an incidental trenching upon another field of legislation be ignored? Once it is so D determined if the impugned legislation substantially falls within the power expressly conferred upon the legislature which enacted it, an incidental encroaching in/trenching on the field assigned to another legislature is to be ignored."

13Copy pinpoint13. In Govt. of A.P. and anr. v. J.B. Educational Society and anr. (supra), the Court was called upon to decide whether there was any conflict between the provisions of All India Council for Technical Education Act, 1987 and the A.P. Education Act, 1982 and· whether the State legislation was liable to be declared void and inoperative on the ground that the State legislature was not competent to enact law in the field occupied by the Central legislation. A two-Judge Bench analysed the provisions of the two enactments arid held:

"Parliament has exclusive power to legislatewith respect to any of the matters enumerated in List I, notwithstanding anything contained in clauses (2) and (3) of Article 246. The non obstante clause under Article 246(1) indicates the predominance or supremacy of the law made by the Union Legislature in the event of an overlap of the law made by H Parliament with respect to a matter enumerated in List I

CENTRAL BANK OF INDIA v. STATE OF KERALA AND 763 ORS. [G.S. SINGHVI, J.] • • and a law made by the State Legislature with respect to a A matter enumerated in List II of the Seventh Schedule .

... ... ...... ...... ... ... .... With respect to matters enumerated in List Ill (Concurrent List), both Parliament and the State Legislature have equal B competence to legislate. Here again, the courts are f charged with the duty of interpreting the enactments of Parliament and the State Legislature in such manner as to avoid a conflict. If the conflict becomes unavoidable, then Article 245 indicates the manner of resolution of such c a conflict.

Thus, the question of repugnancy between the parliamentary legislation and the State legislation can arise j-- in two ways. First, where the legislations, though enacted with respect to matters in their allotted sphere, overlap and conflict. Second, where the two legislations are with respect to matters in the Concurrent List and there is a conflict. In both the situations, parliamentary legislation will predominate, in the first, by virtue of the non obstante clause in Article 246(1), in the second, by reason of Article 254(1). Clause (2) of Article 254 deals with a situation where the State legislation having been reserved and .. having obtained President's assent, prevails in that State; this again is subject to the proviso that Parliament can again bring a legislation to override even such State F legislation."

14Copy pinpoint14. The ratio of the above noted judgments is that Article 254 gets attracted only when both Central and State legislations have been enacted on any of the matters enumerated in List Ill G in Seventh Schedule and there is conflict between two ·~ legislations. Though in State of West Bengal v. Kesoram Industries Ltd. (supra) some observations appear to have been made suggesting that Article 254 gets attracted even though legislations may have been enacted in different entries in Lists H '

p. 764

. • A I and II, but the same have to be read in consonance with the plain language of the said Article and other judgments including the three-Judge Bench judgment in Mis. Hoechst Pharmaceuticals Ltd. and others v. State of Bihar and others (supra), which has been expressly approved by the Constitution B Bench.

15Copy pinpoint15. Undisputedly, the DRT Act and Securitisation Act have been enacted by Parliament under Entry 45 in List I in the Seventh Schedule whereas Bombay and Kerala Acts have been enacted by the concerned State legislatures under Entry C 54 in List II in the Seventh Schedule. To put it differently, two sets of legislations have been enacted with reference to entries in different lists in the Seventh Schedule. Therefore, Article 254 cannot be invoked per se for striking down State legislations on the ground that the same are in conflict with the Central D legislations. That apart, as will be seen hereafter, there is no ostensible overlapping between two sets of legislations. Therefore, even if the observations contained in Kesoram Industries' case (supra) are treated as law declared under Article 141 of the Constitution, the State legislations cannot be struck down on the ground that the same are in conflict with Central legislations.

16Copy pinpoint16. Before proceeding further we may notice the background in which the DRT and Securitisation Acts were enacted, and schemes of the two legislations. After independence, the Government of India decided to give impetus to the industrial development of the country. Central and State Governments encouraged banks and other financial institutions to liberalize the grant of loans and other credit facilities to the industrial entrepreneurs. With the nationalization of banks, this policy got a boost and the country witnessed rapid industrialization. The issue of repaymenUrecovery of loans etc. given by banks and financial institutions did not pose any serious problem in first three decades. However, with the passage of time, the human greed took over the righteousness H

CENTRAL BANK OF INDIA v. STATE OF KERALA AND 765 ORS. [G.S. SINGHVI, J.] and those who were granted loans and/or other financial facilities did not bother to repay. Not only this, the efforts made by banks and financial institutions for recovery of their dues were stultified by the defaulting borrowers who indulged in unwarranted and protracted litigation in civil courts. The slow and tardy progress of cases instituted in civil courts resulted in blocking of several thousand crores of public money, which was ,_ considered critical to the successful implementation of fiscal -' reform. The pioneers of financial sector reforms called for early solution of this problem. Therefore, the Government of India constituted a committee under the Chairmanship of Shri T. c Tiwari to examine the legal and other difficulties faced by banks and financial institutions in the recovery of their dues and suggest remedial measures. The Tiwari Committee noted that the existing procedure for recovery was very cumbersome and suggested that special tribunals be set up for recovery of the dues of banks and financial institutions by following a summary procedure. The Tiwari Committee also prepared a draft of the proposed legislation which contained a provision for disposal of cases in three months and conferment of power upon the recov~ry officer for expeditious execution of orders made by adjudicating bodies. The issue was further examined by the Committee on the Financial System headed by Shri M. Narasimham. In its first report, Narasimham Committee also • suggested setting up of special tribunals with special powers for adjudication of cases involving the dues of banks and financial institutions. Even in regard to priority among creditors, F Narasimham Committee made the following suggestion:

"The Adjudication Officer will have such power to distribute the sale proceeds to the banks arid financial institutions being secured creditors, in accordance with inter se G ~~ agreement/arrangement between them and to the other persons entitled thereto in accordance with the priorities in the law."

17Copy pinpoint17. After considering the reports of two Committees and H

p. 766

A taking cognizance of the fact that as on 30th September, 1990 more than 15 lakhs cases filed by public sector banks and 304 cases filed by financial institutions were pending in various courts for recovery of debts etc. amounting to Rs.6,000 crores, the Central Government introduced ''The Recovery of Debts B Due to Banks and Financial Institutions Bill, 1993" in Lok Sabha on 13.5.1993. It, however, appears that before the Bill could be passed, Lok Sabha was adjourned. Therefore, the President of India in exercise of the powers conferred by Article 123(1) of the Constitution, promulgated "The Recovery of Debts Due c to Banks and Financial Institutions Ordinance, 1993", which was replaced by the ORT Act. The new legislation facilitated creation of specialized forums, i.e., the Debts Recovery Tribunals and Debts Recovery Appellate Tribunals for expeditious adjudication of disputes relating to recovery of the debts due to banks and financial institutions. Simultaneously, the jurisdiction of the civil courts was barred and all pending matters were transferred to the Tribunals from the date of their establishment. For some years, the new dispensation of adjudication worked well. However, with the passage of time, proceedings before the Debts Recovery Tribunals also started getting bogged down due to invoking of technicalities by the borrowers. Faced with this situation, the Government again asked the Narasimham Committee to suggest measures for expediting recovery of debts etc. due to banks and financial institutions. In its 2nd Report, Narasimham Committee observed that the non-performing assets of most of the public sector banks were abnormally high and the existing mechanism for recovery of the same was wholly insufficient. In Chapter VIII of the report, the Committee observed that the evaluation of legal frame work has not kept pace with the changing commercial practice and financial sector reforms and as a result of this the economy has not been able to reap full benefits of the reform process. By way of illustration, the Committee referred to the scheme of mortgage under the Transfer of Property Act and suggested that the existing laws should be changed not only H

CENTRAL BANK OF INDIA v. STATE OF KERALA AND 767 ORS. [G.S. SINGHVI, J.]

for facilitating speedy recovery of the dues of banks etc. but A also for quick resolution of disputes arising out of the action taken for recovery of such dues. Andhyarujina Committee constituted by the Central Government for examining banking sector reforms also considered the need for changes in the legal system. Both Narasimham and Andhyarujina Committees B suggested enactment of new legislation for securitisation and empowering the banks and financial institutions to take possession of the securities and sell them without intervention of the court. In the backdrop of these recommendations, the Parliament enacted the Securitisation Act. c Scheme of the ORT Act and Rules made thereunder

18Copy pinpoint18. Section 2(g) of the ORT Act (as it stood before being . j amended by Act No. 30/2004) defined "debt" as - "any liability (inclusive of interest) which is alleged as due from any person D by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by bank or financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or whether payable under a E decree or order of any civil court or otherwise and subsisting on, and legally recoverable on, the date of the application." After ~ the amendment of 2004, "debt" means "any liability (inclusive of interest) which is alleged as due from any person by a bank

- or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally ,..~ recoverable on, the date of the application." The provisions contained in Chapter 11 envisage establishment of the Debts Recovery Tribunals and the Debts Recovery Appellate Tribunals, qualifications of Presiding Officers and Members, H

p. 768

A term of their office, staff of the tribunals, salaries, allowances, etc. Section 17(1) of the ORT Act declares that a Tribunal shall have the jurisdiction, powers and authority to entertain and decide applications made by banks and financial institutions for recovery of debts due to them. Under Section 17(2), the B Appellate Tribunal has been vested with jurisdiction, powers and authority to entertain appeal against any order made or deemed to have been made by a Tribunal. Section 18 expressly bars the jurisdiction, powers and authority of all courts except the Supreme Court and a High Court exercising c jurisdiction under Articles 226 and 227 of the Constitution of India in relation to matters specified in Section 17. Section 19, which finds place in Chapter IV of the ORT Act contains procedure required to be followed by the Tribunal for deciding an application made for recovery of debt. It envisages making of application by a bank or a financial institution for recovery \ . 0 of any debt from any person, issue of summons to the defendant to show cause as to why relief prayed for may not be granted to the applicant and also provides for passing of appropriate orders. By amending Act No.30/2004, three provisos were inserted in Section 19(1 ). In terms of first proviso, E a bank or a financial institution can, after obtaining permission of the ORT, withdraw the original application for the purpose of taking action under the Securitisation Act. Second proviso lays down that an application for withdrawal filed under first proviso must be disposed of within 30 days. The third proviso requires recording of reasons in case the Tribunal refuses permission or leave for withdrawal of application under Section 19(1). Section 19(6) provides for the defendant's claim to set- - off against the bank's demand for a certain sum of money. Section 19(8) gives right to the defendant to set up a counter claim. Section 19(12) empowers the Tribunal to make an interim order by way of injunction, stay or attachment before judgment debarring the defendant from transferring, alienating or otherwise dealing with, or disposing of, his properties and assets. Under Section 19(13), the Tribunal is empowered to direct the defendant to furnish security where it is satisfied that

CENTRAL BANK OF INDIA v. STATE OF KERALA AND 769 ORS. [G.S. SINGHVI, J.]

"' the defendant is likely to dispose of the property or cause damage to the property in order to defeat the decree which may ultimately be passed in favour of bank or financial institution. Section 19(18), empowers the Tribunal to appoint a receiver of any property on the ground of equity. This can be done before or after grant of certificate for recovery of debt. Under B Section 19(19), a recovery certificate issued against a ~ company can be enforced by the Tribunal which can order the property to be sold and the sale proceeds distributed amongst the secured creditors in accordance with the provisions of Section 529A of the Companies Act, 1956 and pay the c balance/surplus, if any, to the debtor-company. Section 20(1) lays down that any person aggrieved by an order made, or deemed to have been made, by a Tribunal may prefer an appeal to the Appellate Tribunal. Sub-section (2) of Section 20 declares that no appeal shall lie from an order made by the D Tribunal with the consent of the parties. Sub-section (3) prescribes the period of limitation i.e. 45 days. Proviso to this sub-section empowers the Tribunal to entertain an appeal after the expiry of 45 days if it is satisfied that there was sufficient cause for not filing the appeal within the prescribed period. Sub- sections (4) to (6) contain the procedure to be followed by the E Appellate Tribunal for disposal of an appeal. Section 21 lays down that the Appellate Tribunal shall not entertain an appeal ,. unless the person preferring appeal deposits 75 per cent of the amount determined by the Tribunal under Section 19. Section 22 lays down that the Tribunal and the Appellate Tribunal shall F not be bound by the procedure contained in the Code of Civil Procedure, but shall be guided by the principles of natural justice and subject to the other provisions of the Act or rules made thereunder, the Tribunal and the Appellate Tribunal shall be free to regulate their own procedure. Section 25 specifies G . ~ three modes of recovery of debt, namely, (a) attachment and sale, (b) arrest of the defendant and (c) appointment of a receiver for the management of the properties of the defendant. Other modes of recovery are specified in Section 28 which states that where a certificate has been issued by the Tribunal H

p. 770

A under Section 19(7), the Recovery Officer may, without • prejudice to the modes of recovery specified in Section 25, recover the amount of debt by any one or more of the modes mentioned in Section 28. By Section 29, the provisions of Second and Third Schedules to the Income Tax Act, 1961 and B the Income Tax (Certificate Proceedings) Rules, 1962 have been made applicable to the recovery proceedings. Section 31 (1) states that every suit or other proceeding pending before any court immediately before the date of establishment of a Tribunal, shall stand transferred to the Tribunal if the subject c matter thereof would have been within its jurisdiction had the cause of action arisen after establishment of the Tribunal. Section 31A lays down that where a decree or order was passed by any court before the commencement of the Recovery of Debts Due to Banks and Financial Institutions (Amendment) 0 Act, 2000 and the same had not been executed, then the decree-holder can apply to the Tribunal for recovery of the amount. Sub-section (1) of Section 34 contains a non obstante clause and declares that save as otherwise provided in sub- section (2), provisions of the ORT Act shall have effect E notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than that Act. Amended sub- section (2) of Section 34 lays down that the provisions of the ORT Act or rules made thereunder shall be in addition to and not in derogation of Industrial Finance Corporation Act, 1948, F The State Financial Corporation Act, 1951, The Unit Trust of India Act, 1963, Industrial Reconstruction Bank of India Act, 1984 and the Small Industries Development Bank of India Act, 1989.

19Copy pinpoint19. In exercise of the power conferred upon it under Section 36 of the ORT Act, the Central Government has framed the Debts Recovery Tribunal (Procedure) Rules, 1993. These rules regulate the procedure for filing application in the prescribed form, scrutiny thereof, fee for application, contents of application, documents to be filed with the application, filing of

CENTRAL BANK OF INDIA v. STATE OF KERALA AND 771 ORS. [G.S. SINGHVI, J.] > • reply and documents by the respondent, date and place of hearing of the application, the manner of recording the order, publication of order and communication thereof to the parties. By an amendment made in 1997, Rule SA was added to enable a party to apply for review of the order made by the Tribunal on the ground of some mistake or error apparent on the face of the record. For regulating the procedure of the Appellate Tribunal, the Central Government has framed the " Debts Recovery Appellate Tribunal (Procedure) Rules, 1994. The provisions contained in these rules are similar to those contained in the rules regulating the procedure of the Tribunal. c Scheme of the Securitisation Act and Rules made thereunder

20Copy pinpoint20. Section 2(b) defines "asset reconstruction" to mean acquisition by any Securitisation company or reconstruction company of any right or interest of any bank or financial institution in any financial assistance for the purpose of realisation of such financial assistance. Section 2(f) defines the word "borrower" to mean, any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or .. financial institution. It includes a person who becomes borrower of a securitisation company or reconstruction company ~

consequent upon acquisition by it of any right or interest of any F ,.. ' bank or financial institution in relation to such financial assistance. Section 2(ha) declares that "debt" shall have the meaning assigned to it in clause (g) of Section 2 of the ORT Act. Section 2(k) defines "financial assistance" to mean any loan or advance or any debentures or bonds subscribed or any G guarantees given or leiters of credit established or any other ' ~ credit facility extended by any bank or financial institution. Section 2(1) defines "financial asset" to mean any debt or receivables and includes a claim to any debt or receivables or part thereof, whether secured or unsecured or any debt or H

p. 772

A receivables secured by, mortgage of, or charge on, immovable • property, or a mortgage, charge, hypothecation or pledge of movable property or any right or interest in the security, whether full or part underlying such debt or receivables or any beneficial interest in property, whether movable or immovable, or in such B debt, receivables, whether such interest is existing, future, accruing, conditional or contingent or any financial assistance. Section 2(n) defines "hypothecation" to mean a charge created by a borrower in favour of a secured creditor as a security for financial assistance. Section 2(o) defines "non-performing c asset" to mean an asset or account of a borrower which has been classified by a bank or financial institution as sub- standard, doubtful or loss asset. Section 2(z) defines "Securitisation" to mean acquisition of financial assets by any securitisation company or reconstruction company from any originator whether by raising of funds by such securitisation company or reconstruction company from qualified institutional buyers by issue of security receipts representing undivided interest in such financial assets or otherwise. Section 2(zc) defines "secured asset" to mean the property on which security interest is created. Section 2(zd) defines "secured creditor" to mean any bank or financial institution or any consortium or group of banks or financial institutions and includes (i) debenture trustee appointed by any bank or financial institutions, or (ii) securitisation company or reconstruction company, whether ~

acting as such or managing a trust set up by such securitization company or reconstruction company for the securitisation or reconstruction, as the case may be, or (iii) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance. Section 2(ze) defines G a "secured debt" to mean a debt which is secured by any security interest. Section 2(zf) defines "security interest" to mean } . right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation and assignment." Chapter II H which contains Sections 3 to 12 deals with regulation of

CENTRAL BANK OF INDIA v. STATE OF KERALA AND 773 ORS. [G.S. SINGHVI, J.] • securitisation and reconstruction of financial assets of banks A and financial institutions. Chapter Ill deals with enforcement of security interest. It comprises of seven sections including Section 13 which is crucial for decision of these appeals. Sub- section ( 1) of Section 13 contains a non obstante clause. It lays down that notwithstanding anything contained in Sections 69 B or 69A of the Transfer of Property Act, any security interest created in favour of any secured creditor may be enforced, ,,. ! without the intervention of the Court or Tribunal, by such creditor in accordance with the provisions of this Act. Sub-section (2) of Section 13 enumerates first of many steps needed to be c taken by the secured creditor for enforcement of security interest. This sub-section provides that if a borrower, who is under a liability to a secured creditor, makes any default in repayment of secured debt and his account in respect of such debt is classified as non-performing asset, then the secured creditor may require the borrower by notice in writing to discharge his liabilities within sixty days from the date of the notice with an indication that if he fails to do so, the secured creditor shall be entitled to exercise all or any of its rights in terms of Section 13(4). Sub-section (3) of Section 13 lays down that notice issued under Section 13(2) shall contain details of the amount payable by the borrower as also the details of the secured assets intended to be enforced by bank or financial institution. Sub-section (3-A) of Section 13 lays down that the "" borrower may make a representation in response to the notice issued under Section 13(2) and challenge the classification of his account as non-performing asset as also the quantum of amount specified in the notice. If the bank or financial institution comes to the conclusion that the representation/objection of the borrower is not acceptable, then reasons for non acceptance

. ..( are required to be communicated within one week. Sub-section (4) of Section 13 specifies various modes which can be adopted by the secured creditor for recovery of secured debt. G

The secured creditor can take possession of the secured assets of the borrower and transfer the same by way of lease, assignment or sale for realizing the secured assets. This is H

p. 774

... A subject to the condition that the right to transfer by way of lease etc. shall be exercised only where substantial part of the business of the borrower is held as secured debt. If the management of whole or part of the business is severable, then the secured creditor can take over management only of such B business of the borrower which is relatable to security. The secured creditor can appoint any person to manage the secured asset, the possession of which has been taken over. -" The secured creditor can also, by notice in writing, call upon a person who has acquired any of the secured assets from the c borrower to pay the money, which may be sufficient to discharge the liability of the borrower. Sub-section (7) of Section 13 lays down that where any action has been taken against a borrower under sub-section (4), all costs, charges and expenses properly incurred by the secured creditor or any expenses incidental D thereto can be recovered from the borrower. The money which is received by the secured creditor is required to be held by him in trust and applied, in the first instance, for such costs, charges and expenses and then in discharge of dues of the secured creditor. Residue of the money is payable to the person entitled thereto according to his rights and interest. Sub- E section (8) imposes a restriction on the sale or transfer of the secured asset if the amount due to the secured creditor together with costs, charges and expenses incurred by him are tendered at any time before the time fixed for such sale or transfer. Sub-section (9) deals with the situation in which more . F than one secured creditor has stakes in the secured assets and lays down that in the case of financing a financial asset by more than one secured creditor or joint financing of a financial asset by secured creditors, no individual secured creditor shall be entitled to exercise any or all of the rights under sub-section (4) G unless all of them agree for such a course. There are five unnumbered provisos to Section 13(9) which deal with pari >• passu charge of the workers of a company in liquidation. The first of these provisos lays down that in the case of a company in liquidation, the amount realized from the sale of secured assets shall be distributed in accordance with the provisions

CENTRAL BANK OF INDIA v. STATE OF KERALA AND 775 ORS. [G.S. SINGHVI, J.] • of Section 529A of the Companies Act, 1956. The second proviso deals with the case of a company being wound up on or after the commencement of this Act. If the secured creditor of such company opts to realize its security instead of relinquishing the same and proving its debt under Section 529(1) of the Companies Act, then it can retain sale proceeds after depositing the workmen's dues with the liquidator in accordance with Section 529A. The third proviso requires the .~ liquidator to inform the secured creditor about the dues payable to the workmen in terms of Section 529A. If the amount payable to the workmen is not certain, then the liquidator has to intimate c the estimated amount to the secured creditor. The fourth proviso lays down that in case the secured creditor deposits the estimated amount of the workmen's dues, then such creditor shall be liable to pay the balance of the workmen's dues or entitled to receive the excess amount, if any, deposited with the D liquidator. In terms of fifth proviso, the secured creditor is required to give an undertaking to the liquidator to pay the balance of the workmen's dues, if any. Sub-section (10) lays down that where dues of the secured creditor are not fully satisfied by the sale proceeds of the secured assets, the secured creditor may file an application before the Tribunal E under Section 17 for recovery of balance amount from the borrower. Sub-section (11) states that without prejudice to the ... rights conferred on the secured creditor under or by this section, it shall be entitled to proceed against the guarantors or sell the pledged assets without resorting to the measures specified in clauses (a) to (d) of sub-section (4) in relation to the secured assets. Sub-section (12) lays down that rights available to the secured creditor under the Act may be exercised by one or more of its officers authorised in this behalf. Sub-section (13) lays down that after receipt of notice under sub-section (2), the borrower shall not transfer by way of sale, lease or otherwise '~ (other than in the ordinary course of his business) any of his secured assets referred to in the notice without prior written consent of the secured creditor. Section 14 represents semblance of court's intervention by way of assistance to a H

p. 776

A secured creditor in taking possession of the secured asset. The secured creditor can, for the purpose of taking possession or control of any secured asset, request in writing to the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction the secured asset or other document relating theretp B is situated or found to take possession thereof. If such request is made, the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, is obliged to take possession ~.

of such asset and document and forward the same to the secured creditor. Section 17 speaks of the remedies available c totheany person including borrower who may feel aggrieved by action taken by the secured creditor under sub-section (4) of Section 13. Such an aggrieved person can make an application to the Tribunal within 45 days from the date on which action is taken under that sub-section. By way of abundant caution, an explanation has been added to Section •, 17(1) and it has been clarified that the communication of reasons to the borrower in terms of Section 13(3A) shall not constitute a ground for filing application under Section 17(1 ). Sub-section (2) of Section 17 casts a duty on the Tribunal to consider whether the measures taken by the secured creditor for enforcement of security interest are in accordance with the provisions of the Act and rules made thereunder. If the Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that ... the measures taken by the secured creditor are not in consonance with sub-section (4) of Section 13, then it can direct the secured creditor to restore management of the business or possession of the secured assets to the borrower. On the other hand, if the Tribunal finds that the recourse taken by the secured creditor under sub-section (4) of Section 13 is in accordance with the provisions of the Act and the rules made thereunder, then, notwithstanding anything contained in any >• other law for the time being in force, the secured creditor can take recourse to one or more of the measures specified in Section 13(4) for recovery of its secured debt. Sub-section (5) H of Section 17 prescribes the time limit of sixty days within which

CENTRAL BANK OF INDIA v. STATE OF KERALA AND 777 ORS. [G.S. SINGHVI, J.] " i' an application made under Section 17 is required to be disposed of. Proviso to this sub-section envisages extension of time, but the outer limit for adjudication of an application is four months. If the Tribunal fails to decide the application within a maximum period of four months, then either party can move the Appellate Tribunal for issue of a direction to the Tribunal to dispose of the application expeditiously. Section 18 provides -' ~ for an appeal to the Appellate Tribunal. Section 34 lays down that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Tribunal or Appellate Tribunal is empowered to determine. It further lays c down that no injunction shall be granted by any court or other authority in respect of any action taken or to be taken under the Securitisation Act or ORT Act. Section 35 of the Securitisation Act is substantially similar to Section 34(1) of the ORT Act. It declares that the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. Section 37, which is similar to Section 34(2) of the ORT Act lays down that the provisions of this Act or the Rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956, the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992, the Recovery of Debts ,. Due to Banks and Financial Institutions Act, 1993 or any other law for the time being in force. F

21Copy pinpoint21. In exercise of powers vested in it under Sections 38(1) and (2)(b) read with Sections 13(4), (10) and (12) of the Securitisation Act, the Central Government framed the Security Interest (Enforcement) Rules, 2002. Rule 3 prescribes the mode of service of demand notice. Rule 4 details the procedure G , -+ to be followed after issue of demand notice. Various sub-rules of

this rule specify the mode of taking possession of moveable security assets, their preservation and protection, H

p. 778

A

A valuation and sale. Rule 8 lays down similar procedure in respect of immovable security assets. Rule 9 regulates time of sale, issue of sale certificate and delivery of possession to the purchaser. Rule 10 provides for appointment of manager of the security assets of which possession has been taken over by B the secured creditor. Rule 11 regulates procedure for recovery of shortfall of secured debt. ~ .._

22Copy pinpoint22. An analysis of the above noted provisions makes it clear that the primary object of the ORT Act was to facilitate c creation of special machinery for speedy recovery of the dues of banks and financial institutions. This is the reason why the ORT Act not only provides for establishment of the Tribunals and Appellate Tribunals with the jurisdiction, powers and authority to make summary adjudication of applications made by banks or financial institutions and specifies the modes of • 0 recovery of the amount determined by the Tribunal or Appellate Tribunal but also bars the jurisdiction of all courts except the Supreme Court and High Courts in relation to the matters specified in Section 17. The Tribunals and Appellate Tribunals have also been freed from the shackles of procedure contained in the Code of Civil Procedure. To put it differently, the ORT Act has not only brought into existence special procedural mechanism for speedy recovery of the dues of banks and financial institutions, but also made provision for ensuring that ... defaulting borrowers are not able to invoke the jurisdiction of civil courts for frustrating the proceedings initiated by the banks and financial institutions.

23Copy pinpoint23. The enactment of the Securitisation Act can be treated as one of the most radical legislative measures taken by the Government for ensuring that dues of secured creditors including banks, financial institutions are recovered from the t , defaulting borrowers without any obstruction. For the first time, the secured creditors have been empowered to take measures for recovery of their dues without the intervention of the Courts or Tribunals. The Securitisation Act has also brought into H

CENTRAL BANK OF INDIA v. STATE OF KERALA AND 779 ORS. [G.S. SINGHVI, J.] ,.__ ~ existence a new dispensation for registration and regulation of securitisation companies or reconstruction companies, facilitating securitisation of financial assets of banks and financial institutions, easy transferability of financial assets by the securitisation company or reconstruction company to acquire financial assets of banks and financial institutions by issue of debentures or bonds or any other security in the nature of debenture, empowering the securitisation companies or ,• ,. reconstruction companies to raise funds by issue of security receipts to qualified institutional buyers, facilitating reconstruction of financial assets acquired by exercising power c of enforcement of securities or change of management, declaration of any securitisation company or reconstruction company as a public financial institution for the purpose of Section 4A of the Companies Act, defining 'security interest' i- as any type of security including mortgage and charge on D immovable properties given for due payment of any financial assistance given by any bank or financial institution, classification of borrowers account as non-performing asset and above all empowering banks and financial institutions to take possession of securities given for financial assistance and sale or lease the same or take over management. E

24Copy pinpoint24. In the light of the above, we shall now consider whether there is any conflict between the ORT Act and Securitisation ~ Act on one hand and the Bombay and Kerala Acts and similar State legislations on the other, and whether by virtue of non obstante clauses contained in Section 34(1) of the ORT Act and Section 35 of the Securitisation Act, the provisions contained in those legislations override Section 38C of the Bombay Act, Section 268 of the Kerala Act and similar other State legislations. For reference sake, these provisions are reproduced below: ' 1' c

ORT Act

"34. Act to have over-riding effect.-(1) Save as otherwise H

p. 780

A provided in sub-section (2), the provisions of this Act shall .. have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. B (2) The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the ~ Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (63of1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial c Reconstruction Bank of India Act, 1984 (62of1984), the Sick Industrial Companies (Special Provisions) Act, 1985 and the Small Industries Development Bank of India Act, 1989."

D Securitisation Act • "35. The provisions of this Act to override other laws. -The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law ' for the time being in force or any instrument having effect E by virtue of any such law."

37. Application of other laws not barred.-The provisions of this Act or the rules made thereunder shall be in addition "' to, and not in derogation of, the Companies Act, 1956 (1 F of 1956), the Securities Contracts (Regulation) Act, 1956 (42of1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force." G Bombay Sales Tax Act, 1959 / ~

"38C. Liability Under this Act to be First Charge- Notwithstanding anything contained in any contract to the contrary but subject to any provision regarding first charge H

p. 782

,.. A Provisions Act, 1952

"11. Priority of payment of contributions over other debts.- (1) Where any employer is adjudicated insolvent or, being a company, an order for winding up is made, the amount due- 8 (a) from the employer in relation to an establishment ~ to which any Scheme or the Insurance Scheme applies in respect of any contribution payable to the Fund or, as the case may be, the Insurance Fund, c damages recoverable under section 148, accumulations required to be transferred under sub- section (2) of section 15 or any charges payable by him under any other provision of this Act or of any provision of the Scheme or the Insurance D Scheme; or •' (b) from the employer in relation to an exempted establishment in report of any contribution to the provident fund or any insurance fund in so far it relates to exempted employees, under the rules of E the provident fund or any insurance fund, any contribution payable by him towards the Pension Fund under sub-section (6) of section 17, damages .,. recoverable under section 148 or any charges payable by him to the appropriate Government F under any provision of this Act or under any of the conditions specified under section 17,

shall, where the liability therefor has accrued before the order of adjudication or winding up is made, be deemed to be included among the debts which under section 49 of the Presidency-towns Insolvency Act, 1909 (3of1909), t • or under section 61 of the Provincial Insolvency Act, 1920 (5 of 1920), or under section 530 of the Companies Act, 1956 (1 of 1956) are to be paid in priority to all other debts in the distribution of the property of the insolvent or the

CENTRAL BANK OF INDIA v. STATE OF KERALA AND 783 ORS. [G.S. SINGHVI, J.] .. assets of the company being wound up, as the case may A ---4 be.

Explanation. - In this sub-section and in section 17, "insurance fund" means any fund established by an employer under any scheme for providing benefits in the B nature of life insurance to employees, whether linked to · their deposits in provident fund or not, without payment by ~ t the employees of any separate contribution or premium in that behalf.

11 (2) Without prejudice to the provisions of sub-section c (1), if any amount is due from an employer, whether in respect of the employee's contribution deducted from the wages of the employee or the employer's contribution, the amount so due shall be deemed to be the first charge on ... I the assets of the establishment, and shall, notwithstanding anything contained in any other law, for the time being in force, be paid in priority to all other debts."

Estate Duty Act, 1953

"74(1). Estate duty a first charge on property liable thereto.- (1) Subject to the provisions of section 19, the estate duty payable in respect of property, movable or _,-" immovable, passing on the death of the deceased, shall be a first charge on the immovable property so passing ....._ (including agricultural land) in whomsoever it may vest on his death after the debts and encumbrances allowable under Part VI of this Act; and any private transfer or delivery of such property shall be void against any claim in respect of such estate duty." G Mines and Minerals (Development and Regulation) Act, ' -~ 1957 .

"25(2). Any rent, royalty, tax, fee or other sum due to the Government either under this Act or any rule made H

CENTRAL BANK OF INDIA v. STATE OF KERALA AND 785 ORS. [G.S. SINGHVI, J.)

sub-section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions."

Section 468 of the State Financial Corporations Act, 1951 (for short 'the SFC Act') which contains a non obstante clause similar to the one contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act and the effect of which _;. t was considered by a Division Bench of the Kerala High Court vis a vis Section 11 (2) of the EPF Act also read as under:-

State Financial Corporations Act, 1951 c "468. Effect of Act on other laws.- The provisions of this Act and of any rules or orders made thereunder shall have effect notwithstanding anything inconsistent therewith /' contained in any other law for the time being in force or in the memorandum or articles of association of an industrial concern or in any other instrument having effect by virtue of any law other than this Act, but save as aforesaid, the provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being applicable to an industrial concern."

25Copy pinpoint25. As a prelude to the consideration of question relating ..,. 1( to conflict between Central and State legislations and priority, if any, given to the dues of banks, financial institutions and other secured creditors under the DRT Act and Securitisation Act, it will be useful to notice some rules of interpretation of statutes, one of which is the rule of contextual interpretation. This rule requires that the court should examine every word of a statute in its context. In doing so, the Court has to keep in view preamble of the statute, other provisions thereof, pari materia G .... ~ statutes, if any, and the mischief intended to be remedied . Context often provides the key to the meaning of the word and the sense it carries. Its setting gives colour to it and provides a cue to the intention of the legislature in using it. In his famous work on Statutory Interpretation, Justice G.P. Singh has quoted H