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

A non derogant. It is obvious that if Entry 26 is to be construed as comprehending Forward Contracts, then “Futures Markets” in Entry 48 will be rendered useless. We are therefore of opinion that legislation on Forward Contracts must be held to fall within the exclusive competence of the Union under Entry 48 in List I.” B (Emphasis Supplied)

19Copy pinpoint19. Qua the general entry “banking” under Entry 45, List I, which deals with banks of all kinds and the lending by banks as well as recovery of debts by banks generally, Entry 30, List II, which deals with relief of agricultural indebtedness, is special, for the reason that indebtedness itself is only one species of banking and agricultural indebtedness is a sub-species thereof. The species of indebtedness is within Entry 45, List I, whereas the sub-species of agricultural indebtedness is within Entry 18, List II. It is only relief of agricultural indebtedness, which is a sub- sub-species of indebtedness, which is relatable to Entry 30, List II. Also, we must at this juncture keep in mind the amendment sought to be moved by Shri Shibban Lal Saxena in the Constituent Assembly to move Draft Entry 34 (i.e. Entry 30), List II to the Concurrent List. This was done as follows: “Entry 34

E Prof.Shibban Lal Saksena: Sir, I beg to move: “That entry 34 of List II be transferred to List III.” This is an important amendment. I would like the House to realise the magnitude of the problem. We all want to wipe out rural indebtedness. Sir, in this connection I would like to read an extract from the People’s Plan for Economic Development of India, which runs as follows: “The other problem that will have to be tackled, along with this problem of the outmoded land tenure system, will be the problem of rural indebtedness. The total rural indebtedness was estimated by the Central Banking Inquiry Committee, in the year 1929, at about 900 crores of rupees. Subsequent estimates have however, put the figure at a much higher level. The estimate according to the report of the Agricultural Credit Department of the Reserve Bank of India in the year 1937 is about 1800 crores of rupees. It is not possible that this might have reduced to any significant H

JAYANT VERMA & ORS. v. UNION OF INDIA & ORS. 723 [R. F. NARIMAN, J.]

extent since the year 1937, nor can the so-called agricultural boom A at present be said to have produced very substantial reductions. The money-lender in the country dominates more in that strata of the agricultural population which is relatively worse off.” “The boom can hardly be said to have benefited that strata. On the other hand, the debt represents accumulations of decades. B The debt legislation in the various provinces has not, admittedly, been able to touch even the fringe of the problem. We feel it necessary, therefore, that the debt should be compulsorily scaled down and then taken over by the State. Experiments made in this direction in the Province of Madras, for example, serve as a useful pointer. Under the working of the Madras Agriculturist’ C Relief Act of 1938, debts were scaled down by about 47 per cent and the provisions of the Act can, by no logic be characterized as drastic. In the Punjab, under the operations of the Debt Conciliation Boards, debts amounting to 40 lakhs were settled for about 14 lakhs. It should, therefore, be possible and just be D considered as necessary to scale down the present debts to about 25 per cent before they are taken over by the State. Assuming the present indebtedness to amount to about Rs. 1,000 crores the debt to be taken over by the State will come to about Rs. 250 crores.” E The compensation to be paid to the rent-receivers as well as to the usurers will thus amount to Rs. 1985 crores. This should be paid in the form of self-liquidating bonds issued by the State. These should be for a period of 40 years at the rate of interest of 3 per cent and should be compulsorily retained by the State in its possession. The annual payments to be made by the State for these bonds will come to about Rs. 60 crores. On the carrying out of these initial measures will depend the success of the planned economy for raising the productivity of agriculture in the interests of the cultivators. Unless the status quo is changed in this manner there can be no hope of improving the standard of living of the vast bulk of our peasantry, and therefore, no hope of building up an industrial structure in the country on sound, stable and secure foundations. We are aware of the difficulties in the way of carrying out the above measures but we are unnamable to see any alternative to them whatsoever.” H

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A It is thus obvious that if we really want to remove agricultural indebtedness, the problem cannot be solved merely by action taken by individual States. Only a comprehensive plan and its bold execution with the fullest co-operation of the Union Government with the Government of the states can solve these problems. It is therefore that I have suggested that this entry should be transferred to List III. Sir, I have tabled my amendment only with this purpose in view. I feel and I am quite convinced that we cannot change the face of our country and we cannot realise the ‘India’ of our dreams unless we adopt a comprehensive plan and have powers to coordinate the activities of the Centre and the Provinces. I therefore commend my amendment for the earnest consideration of the House. Mr. President: The question is:

D “That entry 34 of List II be transferred to List Ill.” The amendment was negatived. Mr. President: The question is: “That entry No. 34 stand part of List II.” E The motion was adopted. Entry 34, was added to the State List.” (Emphasis Supplied) The amendment was obviously rejected in keeping with the fact that agriculture and aspects of agriculture are exclusively given to the F States. This will be clear from Entries 14, 18, 45 to 48 of List II, apart from Entry 30, List II, which read as under: “14. Agriculture, including agricultural education and research, protection against pests and prevention of plant diseases.

18. Land, that is to say, rights in or over land, land tenures including the relation of landlord and tenant, and the collection of rents; transfer and alienation of agricultural land; land improvement and agricultural loans; colonization.

45. Land revenue, including the assessment and collection of revenue, the maintenance of land records, survey for revenue purposes and records of rights, and alienation of revenues.

JAYANT VERMA & ORS. v. UNION OF INDIA & ORS. 725 [R. F. NARIMAN, J.]

46. Taxes on agricultural income. A

47. Duties in respect of succession to agricultural land.

48. Estate duty in respect of agricultural land.” Entries 82, 86, 87 and 88, List I and Entries 6 and 7, List III also specifically exclude agriculture as follows: B “82. Taxes on income other than agricultural income.

86. Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies.

87. Estate duty in respect of property other than agricultural land. C

88. Duties in respect of succession to property other than agricultural land. xxx xxx xxx

6. Transfer of property other than agricultural land; registration of D deeds and documents.

7. Contracts including partnership, agency, contracts of carriage, and other special forms of contracts, but not including contracts relating to agricultural land.” To complete the picture, it is also important to advert to Entry 41, E List III, which states as follows:- “41. Custody, management and disposal of property (including agricultural land) declared by law to be evacuee property.” The constitutional scheme, insofar as agriculture is concerned, is that it is an exclusive State subject to one exception – that the custody, F management and disposal of property, declared by law to be evacuee property includes agricultural land, and makes it a concurrent subject.

20Copy pinpoint20. This being the case, the two entries are best harmonised by giving effect to both. This can only be done if the relief of agricultural indebtedness is to include banks, both cooperative and otherwise. As G mentioned earlier, Entry 18, List II gives the States exclusive power to legislate on “land improvement and agricultural loans.” Entry 45, List I will remain intact and will have carved out of it the relief of agricultural indebtedness, which, as we have already seen, is a sub-sub-species of indebtedness, which itself is one of many aspects of banking. H

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21Copy pinpoint21. We now come to the doctrine of pith and substance and incidental trenching. Having thus delineated the respective spheres of “banking” in Entry 45, List I and “relief of agricultural indebtedness” in Entry 30, List II, we have to view the pith and substance of the Banking Regulation Act as a whole, inclusive of Section 21A.

22Copy pinpoint22. It has already been held by us that, in pith and substance, the Banking Regulation Act does fall within Entry 45, List I, but given our interpretation of Entry 45, List I and Entry 30, List II of the Seventh Schedule, it is clear that, insofar as relief of agricultural indebtedness is concerned, Section 21A certainly trenches upon Entry 30, List II, read in the manner indicated above. As is well settled, the doctrine of pith and substance is only to view a legislation as a whole and see whether, as a whole, it falls within one or other entry of List I or List II of the Seventh Schedule. While thus falling as a whole within one List, certain provisions in a particular Act enacted by one legislature may incidentally trench upon a forbidden field exclusively given to another legislature. What is the position in law with respect to such incidental trenching?

23Copy pinpoint23. In Subrahmanyan Chettiar v. Muttuswami Goundan, AIR 1941 FC 47, the Federal Court was faced with the constitutional validity of the Madras Agriculturists Relief Act, 1938. Gwyer, CJ, speaking for the majority, found that the Madras Act is an attempt to deal, in a very drastic manner, with the problem of rural indebtedness “which has vexed legislators since the days of Solon”. The precise question that arose before the Federal Court was whether the Madras Act trespassed into the federal field covered by Entry 28, List I, where the Federal legislature has an exclusive power to legislate with respect, inter alia, to promissory notes. Section 79 of the Negotiable Instruments Act, 1881, expressly clashed with the Madras Act in that, in a promissory note where interest at a specified rate is expressly made payable, interest is to be calculated at that rate until payment or until such date after the institution of a suit to recover the amount, as the Court directs. Inasmuch as the Madras Act scales down such interest, a direct clash between the provisions of G Madras Act and the Negotiable Instruments Act became inevitable.

24Copy pinpoint24. The majority answered the question by upholding the Madras Act in its entirety as it was an Act, in pith and substance, relatable to “money lending and money lenders” inasmuch as the Madras Act operated not on the promissory note, but on a decree in which the H

JAYANT VERMA & ORS. v. UNION OF INDIA & ORS. 727 [R. F. NARIMAN, J.]

promissory note had merged, and had, thus, become a judgment-debt. It A was held that the Act neither affected nor purported to affect any liability on a promissory note.

25Copy pinpoint25. Having held this, the majority, however, speaking through Gwyer, C.J., said: “But though, as I have said, I reserve my opinion upon all of them, B I do not wish it to be assumed that I accept in its entirety the view of the Madras High Court that the impugned Act does not really affect the principles embodied in the Negotiable Instruments Act, for, that proposition seems to me much too broadly stated. I doubt whether any provincial Act could, in the form of a debtors’ relief C Act, fundamentally affect the principle of negotiability, or the rights of a bonafide transferee for value. Perhaps the position is different where the promissory note has never changed hands and is sued upon by the original payee; and it may be (though I do not decide the question) that an Act such as the Court is now considering can operate upon the original debt in such cases, even though the creditor has taken a promissory note in respect of his debt. If it were otherwise, the power of Provincial Legislatures to enact remedial legislation in a field peculiarly their own would be very greatly hampered; so much so, indeed, that the Central Legislature might well find itself compelled to review the situation. But it would perhaps be inadvisable that I should say more on this occasion.” (at page 52) (Emphasis Supplied) Sulaiman, J., however, dissented, and held that as there was a clash between the Madras Act and the Negotiable Instruments Act, the latter would prevail. Despite the fact that the law thus laid down cannot be said to be of persuasive value, being in a dissenting judgment, yet, the learned Judge dealt with the doctrine of incidental trenching in great detail, and followed Canadian cases, summarised by Lord Tomlin in Attorney General for Canada v. Attorney General for British G Columbia (1930 A.C. 111 at 118) in four neat propositions on the subject, as follows: “The doctrine which has been evolved with regard to the Canadian cases is that if the encroachment is merely incidental, then there H

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A is no defect so long as the trespass is upon an unoccupied field. Engrafted upon the doctrine of incidental encroachment there is the further doctrine of unoccupied field. xxx xxx xxx In Jai Gobind Singh v. Lachmi Narain Ram (1940) 3 F.L.J. 46 B p. 51, where the amount due on an earlier promissory note had formed part of the mortgage money, I distinguished the case by pointing out that the suit being on a mortgage the field was apparently clear, and, therefore, the question of interfering with the interest due on the promissory note did not directly arise. No C Canadian case has been cited before us in which although the subject of legislation was substantially within S. 92, it not only incidentally encroached upon a subject mentioned in S. 91, but at the same time actually clashed with an existing Dominion legislation.6 The principles laid down by their Lordships have gone only so far as to permit an incidental encroachment, provided the D Dominion field is unoccupied. In no case so far decided have their Lordships tolerated a trespass as well as a clash. If a clash with the Dominion legislation were also allowed, then a Provincial Legislature would be in a position, though indirectly, to nullify the Dominion legislation, even inside the field exclusively open to the E Dominion, which would make the position intolerable. xxx xxx xxx The scheme of S. 100 of the Act is to exclude completely from the authority of the Provincial Legislature the power to legislate with respect to subjects in List I. If in consequence of certain difficulties that Provincial Legislatures would experience by a rigid enforcement of such an exclusion we must in interpreting the words “with respect to” import the Canadian doctrine of permissibility of incidental encroachment, we must then at the same time import the other allied doctrine also that such an encroachment is permissible only when the field is actually unoccupied. It is only in this way that actual clash between the 6 Lord Tomlin’s fourth proposition, in Attorney General for Canada (supra), namely, ”There can be a domain in which provincial and Dominion legislation may overlap, in which case neither legislation will be ultra vires if the field is clear, but if the field is not clear and the two legislations meet the Dominion legislation must prevail”, must be read subject to this caveat.

JAYANT VERMA & ORS. v. UNION OF INDIA & ORS. 729 [R. F. NARIMAN, J.]

Centre and the Provinces can be avoided, which I think we must. A This will also explain the apparent gap in S. 107(1) of the Act, that gap being filled in by the provisions of S. 100.” (at pages 62-64) (Emphasis Supplied)

26Copy pinpoint26. However, Shri Bhushan sought to impress upon us that certain B observations in Fatehchand (supra) make it clear that the doctrine of incidental trenching and unoccupied field is a one way street, as was held in the dissenting judgment of Sulaiman, J. in Subrahmanyan Chettiar (supra), i.e. that all State legislations have to give way to a Central legislation, even if a Central legislation incidentally trenches upon a State subject, covered by State legislation. He relied upon paragraph C 56 in Fatehchand (supra) in particular. Paragraph 56 is part of a long discussion, beginning from paragraph 55 and ending with paragraph 67, which deals with an argument made that that part of the Maharashtra Debt Relief Act, which deals with gold loans, is void because Parliament has occupied the field. This question was answered by referring to Entry D 52, List I and Entry 24, List II. It was held that the Industrial Development and Regulation Act, 1951 has occupied the field of the gold industry under Entry 52, List I, as has the Gold Control Act, 1968, and that, therefore, Entry 24, List II, being subject to Entry 52, List I, has become inoperative. This does not however mean that Entry 30, List II, which deals with money lending, has been rendered inoperative and, therefore, E the Maharashtra Debt Relief Act, made under Entry 30, List II, would remain intact. The learned Judge also went on to refer to Entries 6 and 7 of List III and to Article 254(2) of the Constitution stating that if it were to be held that the Debt Relief Act related to contracts, then, having received Presidential assent, it would prevail over the aforesaid Central F enactments in the State of Maharashtra in light of Article 254(2). It is in this context that the general observation as to Parliamentary paramountcy, in paragraph 56 of the judgment, is made. Obviously where an entry in List II is itself subject to the corresponding entry in List I and, by the requisite declaration, Parliament occupies the field, the State legislatures are denuded of legislative competence only because the particular entry, G namely Entry 24, List II, is expressly subject to Entry 52, List I. This is not the case insofar as Entry 45, List I and Entry 30, List II is concerned.

27Copy pinpoint27. Shri Bhushan then relied upon a concurring judgment of Ranganathan, J. in Federation of Hotels and Restaurants v. Union H

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A of India, (1989) 3 SCC 634. In paragraph 74, the learned Judge, while upholding the Hotel Receipts Tax Act, 1980 held that, in pith and substance, it was referable to Entry 82, List I, being, in substance, a tax on income. In particular, Shri Bhushan relied upon the statement of the law that since Parliament had exclusive power, under Article 246(1) and (3) of the Constitution, to make laws with respect to any of the matters enumerated in List I, if an Act of Parliament is squarely covered by an entry in the Union List, no restriction can be read into the power of Parliament to make laws in regard thereto. This was made in the context of a taxation entry, which as the aforesaid paragraph 74 itself states, refers to the Constitutional scheme which neatly divides the subject matters of tax between the Union and the States, so that there can be said to be no overlapping. There is no discussion in this paragraph of Parliamentary paramountcy in the context of incidental trenching and unoccupied field. This judgment, therefore, does not take the matter very much further.

28Copy pinpoint28. Insofar as Article 246 is concerned, we have already seen how the said Article refers to federal supremacy insofar as the whittling down of a State List entry is concerned, when compared with a Union List entry. Once the spheres of both the entries have been delineated, the doctrine of pith and substance comes in to test whether a particular legislation is referable, as a whole, to an entry in List I or to the competing entry in List II. Once it is found that the legislation as a whole is referable to an entry in List I, but it incidentally encroaches upon an entry in List II, there is no reason for the doctrine of unoccupied field not to apply to federal legislation. The expression “with respect to” appears in all the sub-articles of Article 246, which expression, so far as sub-articles (1) to (3) are concerned, imports the twin doctrines of incidental trenching and unoccupied field, which applies, therefore, to legislation made under sub-articles (1) to (3) of Article 246, thus making it clear that incidental encroachment by Parliament cannot be tolerated when the exclusive field allotted to the State legislature is not unoccupied.

29Copy pinpoint29. The paramountcy principle contained in Article 246, as we have seen, is only taken as a last resort after harmonious construction fails, and, that too, qua entries in competing lists. Once legislation is referable to one list or the other, the doctrine of incidental trenching and unoccupied field would apply equally to both Parliamentary and State legislations. In the very first judgment of the Federal Court, In Re CP & Berar Sales of Motor Spirit & Lubricants Taxation Act, 1938 H

JAYANT VERMA & ORS. v. UNION OF INDIA & ORS. 731 [R. F. NARIMAN, J.]

AIR 1939 FC 1 at 31, Jayakar, J. set out principles that were evolved on A a reading of the British North America Act by the Privy Council, which would prove to be a useful guide to the construction of Section 100 of the Government of India Act, 1935, which was the precursor of Article 246 of the Constitution. These principles were set out as follows: “(1) That the provisions of an Act like the Government of India B Act, 1935, should not be cut down by a narrow and technical construction, but, considering the magnitude of the subjects with which it purports to deal in very few words, should be given a large and liberal interpretation, so that the Central Government, to a great extent, but within certain fixed limits, may be mistress in her own house, as the Provinces, to a great-extent, but again within certain fixed limits, are mistresses in theirs. See Henrietta Muir Edwards v. Attorney-General for Canada (1930 AC 124 at 136 and 137). (2) In an enquiry like the one before us in this Reference, the Court must ascertain the true nature and character of the challenged enactment, its pith and substance; and not the form alone which it may have assumed under the hand of the draftsman. See Attorney-General for Ontario v. Reciprocal Insurers (1924 AC 328 at 337). (3) Where there is an absolute jurisdiction vested in a Legislature, E the laws promulgated by it must take effect according to the proper construction of the language in which they are expressed. But where the law-making authority is of a limited or qualified character, obviously it may be necessary to examine, with some strictness, the substance of the legislation, for the purpose of determining what it is that the Legislature is really doing. See Attorney-General for Ontario v. Reciprocal Insurers (1924 AC 328 at 337). (4) Even where there has been an endeavour to give pre-eminence to the Central Legislature in cases of a conflict of powers, it is obvious that, in some cases where this apparent conflict exists, the Legislature could not have intended that powers exclusively assigned to the Provincial Legislature should be absorbed in those given to the Central Legislature.” (Emphasis Supplied) Principle 4 is of particular relevance in these cases. H

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30Copy pinpoint30. Indeed, in a recent judgment of this Court, this has, in fact, been held. In UCO Bank v. Dipak Debbarma, (2017) 2 SCC 585 at 596, this Court held: “13. The federal structure under the constitutional scheme can also work to nullify an incidental encroachment made by the B parliamentary legislation on a subject of a State legislation where the dominant legislation is the State legislation. An attempt to keep the aforesaid constitutional balance intact and give a limited operation to the doctrine of federal supremacy can be discerned in the concurring judgment of Ruma Pal, J. in ITC Ltd. v. Agricultural Produce Market Committee [ITC Ltd. v. C Agricultural Produce Market Committee, (2002) 9 SCC 232], wherein after quoting the observations of this Court in S.R. Bommai v. Union of India [S.R. Bommai v. Union of India, (1994) 3 SCC 1], the learned Judge has gone to observe as follows: (ITC Ltd. case [ITC Ltd. v. Agricultural Produce Market Committee, D (2002) 9 SCC 232], SCC p. 282, paras 93-94) “93. … ‘276. The fact that under the scheme of our Constitution, greater power is conferred upon the Centre vis-à-vis the States does not mean that States are mere appendages of the Centre. Within the sphere allotted to them, States are supreme. The Centre E cannot tamper with their powers. More particularly, the courts should not adopt an approach, an interpretation, which has the effect of or tends to have the effect of whittling down the powers reserved to the States.’ (S.R. Bommai case [S.R. Bommai v. Union of India, (1994) 3 SCC 1], SCC pp. 216-17, para 276)

F 94. Although Parliament cannot legislate on any of the entries in the State List, it may do so incidentally while essentially legislating within the entries under the Union List. Conversely, the State Legislatures may encroach on the Union List, when such an encroachment is merely ancillary to an exercise of power intrinsically under the State List. The fact of encroachment does G not affect the vires of the law even as regards the area of encroachment. [A.S. Krishna v. State of Madras [A.S. Krishna v. State of Madras, AIR 1957 SC 297 : 1957 Cri LJ 409]; Chaturbhai M. Patel v. Union of India [Chaturbhai M. Patel v. Union of India, (1960) 2 SCR 362 : AIR 1960 SC 424]; State H

JAYANT VERMA & ORS. v. UNION OF INDIA & ORS. 733 [R. F. NARIMAN, J.]

of Rajasthan v. G. Chawla [State of Rajasthan v. G. Chawla, A AIR 1959 SC 544 : 1959 Cri LJ 660] and Ishwari Khetan Sugar Mills (P) Ltd. v. State of U.P. [Ishwari Khetan Sugar Mills (P) Ltd. v. State of U.P., (1980) 4 SCC 136] This principle commonly known as the doctrine of pith and substance, does not amount to an extension of the legislative fields. Therefore, such incidental B encroachment in either event does not deprive the State Legislature in the first case or Parliament in the second, of their exclusive powers under the entry so encroached upon. In the event the incidental encroachment conflicts with legislation actually enacted by the dominant power, the dominant legislation will prevail.” (Emphasis Supplied) C

14. The aforesaid view in the concurring judgment of Ruma Pal, J. in ITC Ltd. v. Agricultural Produce Market Committee [ITC Ltd. v. Agricultural Produce Market Committee, (2002) 9 SCC 232], seems to have been echoed in a recent pronouncement of this Court in Vishal N. Kalsaria v. Bank of India [Vishal N. D Kalsariav. Bank of India, (2016) 3 SCC 762 : (2016) 2 SCC (Civ) 452], wherein this Court had held that the provisions of the 2002 Act will not have an overriding effect on the provisions of the State Rent Control Acts.” This Court then went on to hold that between the Securitisation E and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI), which was enacted under Entry 45, List I, and the Tripura Land Revenue and Reforms Act, 1960, referable to Entry 18 of List II, SARFAESI would prevail since Section 187 of the Tripura Act (which prohibited banks from transferring property which has been mortgaged by a member of a Scheduled Tribe to any person other than a member of a Scheduled Tribe), is a provision which is outside Entry 18, List II and, therefore, incidentally trenches upon Entry 45, List I. On the facts of the case, therefore, it was found that since legislation had been made by Parliament under Entry 45, List I and the SARFAESI Act dealt exclusively with activities relating to sale of secured assets by banks, Section 187 of the Tripura Act, to the extent it is inconsistent with the SARFAESI Act, must give way.

31Copy pinpoint31. It is also important to notice that paragraph 12 of the aforesaid judgment sets out paragraphs 13 to 15 of the Constitution Bench judgment H

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A in Special Reference No.1 of 2001, (2004) 4 SCC 489.7 Shri Bhushan strongly relied upon paragraph 15 of this judgment. It is clear that the entire discussion begins from paragraph 13, which makes it clear that an entry in one list cannot be so interpreted as to cancel or obliterate another entry made in another list and in the case of an apparent conflict, it is the primary duty of the Court to harmonise the two entries. It is only when there is an irreconcilable conflict between two legislations that the Central legislation shall prevail. It is after noticing this statement of the law contained in paragraph 15 of the Constitution Bench judgment in Special Reference No.1 (supra), that the discussion on incidental encroachment in paragraphs 13 and 14, referred to hereinabove, is then laid down by the Court in UCO Bank (supra). Shri Bhushan’s reliance on the latter part of paragraph 15 in Special Reference No.1 (supra), to negate what has been stated in paragraphs 13 and 14 of UCO Bank (supra), therefore, holds no water.

32Copy pinpoint32. It is clear from a reading of this judgment that, from the point of view of a State Debt Relief Act, as the legislation is referable to the special entry “relief of agricultural indebtedness” under Entry 30, List II, as opposed to the Banking Regulation Act, under the general entry of “banking” in Entry 45, List I, any incidental encroachment by the Parliamentary statute on Entry 30, List II, read with the State Debt Relief Acts made thereunder, would make Section 21A yield to the State E Debt Relief Acts, to the extent that they cover relief of agriculturists from debts due to banks. It is clear that where Section 21A of the Banking Regulation Act incidentally trenches upon the State Debt Relief Acts, enacted under Entry 30, List II, so far as relief of agricultural indebtedness is concerned, where there is State legislation on the same subject matter F 7 In this case, a Constitution Bench of this Court had to decide on whether a Gujarat statute, which defined “gas” as being predominantly methane gas, was ultra vires the State legislature. The competing entries were Entry 53, List I and Entry 25, List II. Entry 53, List I dealt, inter alia, with petroleum, whereas Entry 25, List II dealt with gas and gas works. The Constitution Bench went into great detail in considering various Acts, judgments and other authorities, including dictionaries, and held that natural gas fell within the definition of “petroleum”, and further that Entry 25, List II referred only to manufactured gas, as is evident from the expression “gas works”, which is defined as “a plant for manufacture of artificial gas”. The Constitution Bench was careful to indicate, in paragraph 43 of the judgment, that Entry 25, List II would not be reduced to “useless lumber” as feared by the States, because natural gas was never intended to be covered by that entry, which is given full effect by including gas manufactured and used in gas works.

JAYANT VERMA & ORS. v. UNION OF INDIA & ORS. 735 [R. F. NARIMAN, J.]

which directly clashes with Section 21A, Section 21A will have to give way to the State Debt Relief Acts insofar as relief from agricultural indebtedness due to banks is concerned. The non-obstante clause in Section 21A cannot override a State Debt Relief Act in this situation, as Parliament cannot give itself supremacy over State legislation where none exists under the Constitution. If this were not the case, the exclusive power of the States to make laws within List II would become illusory, and “Parliamentary paramountcy” would trap many a beneficent State legislation made within its exclusive domain, contrary to the statement of law laid down by the Privy Council in Prafulla Kumar (supra), and contrary to principle (4) laid down by Jayakar, J. in In Re CP & Berar Sales (supra), both of which have been consistently followed by several judgments of this Court.

33Copy pinpoint33. In fact, a reading of the entries in List II would demonstrate that certain entries in List II are subject to entries in Lists I and III. These are set out hereinbelow:- “2. Police (including railway and village police) subject to the provisions of Entry 2-A of List I.

13. Communications, that is to say, roads, bridges, ferries, and other means of communication not specified in List I; municipal tramways; ropeways; inland waterways and traffic thereon subject to the provisions of List I and List III with regard to such waterways; vehicles other than mechanically propelled vehicles.

17. Water, that is to say, water supplies, irrigation and canals, drainage and embankments, water storage and water power subject to the provisions of Entry 56 of List I. F

22. Courts of wards subject to the provisions of Entry 34 of List I; encumbered and attached estates.

23. Regulation of mines and mineral development subject to the provisions of List I with respect to regulation and development under the control of the Union. G

24. Industries subject to the provisions of Entries 7 and 52 of List I.

26. Trade and commerce within the State subject to the provisions of Entry 33 of List III. H

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A 27. Production, supply and distribution of goods subject to the provisions of Entry 33 of List III.

33. Theatres and dramatic performances; cinemas subject to the provisions of Entry 60 of List I; sports, entertainments and amusements.

B 37. Elections to the Legislature of the State subject to the provisions of any law made by Parliament.

50. Taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development.

C 57. Taxes on vehicles, whether mechanically propelled or not, suitable for use on roads, including tramcars subject to the provisions of Entry 35 of List III.”

34Copy pinpoint34. Numerically, this would amount to a little over one-fifth of the total number of entries in List II – 12 out of 66.

35Copy pinpoint35. Certain entries such as Entry 12 exclude from the State List ancient, historical monuments and records declared by law made by Parliament to be of national importance. Entry 12 of List II reads as under:- “12. Libraries, museums and other similar institutions controlled or financed by the State; ancient and historical monuments and records other than those declared by or under law made by Parliament to be of national importance.” Yet another delineation of the legislative power of the States is made by Entries 32 and 63 of List II, which speak of a particular subject and then give a residuary power qua the same subject over matters not specified in List I. “32. Incorporation, regulation and winding up of corporations, other than those specified in List I, and universities; unincorporated trading, literary, scientific, religious and other societies and associations; co-operative societies.

63. Rates of stamp duty in respect of documents other than those specified in the provisions of List I with regard to rates of stamp duty.”8 8 Entry 32, List II is to be read with Entries 43 and 44 of List I; and Entry 63, List II is to be read with Entry 91, List H

JAYANT VERMA & ORS. v. UNION OF INDIA & ORS. 737 [R. F. NARIMAN, J.]

36Copy pinpoint36. All the other entries of the State List give exclusive power to the States to legislate on the subject matters mentioned therein. If Shri Jayant Bhushan’s submission is to be accepted, this threefold scheme contained within List II itself would be violated. If Parliamentary legislation were to invade an exclusive sphere of the State, and were to prevail over State legislation made within the States’ exclusive powers, all the entries of List II would be subjected to entries of List I, which is not the constitutional scheme. Further, only one entry, namely, Entry 12 of List II, specifically excepts ancient and historical monuments and records, if Parliament declares them, by law, to be of national importance. The argument, therefore, that Section 21A is made by Parliament at the national level and is of national importance and must, therefore, prevail over State legislation made within the exclusive subject matters of List II, would again fall foul of the constitutional scheme, in that all the entries of List II would then be subject to Parliamentary law, which is of national importance. Also, Entry 30, List II cannot be read to refer to relief of agricultural indebtedness other than what is specified in List I, as that would be reading into Entry 30 words that are conspicuous by their absence, but which are found in Entries 32 and 63, List II. All this would go to show that where the States have exclusive legislative competence under certain entries of List II, legislation made thereunder cannot be effaced by legislation made under List I, which incidentally trenches upon State legislation made under an exclusive power. E

37Copy pinpoint37. We have already seen how agriculture as a subject matter is entirely and exclusively left to the States in all its aspects, save and except evacuee property under Entry 41, List III, which is also left to the States, but concurrently with Parliament, specifically including agricultural land therein. Also, we must not forget that the amendment F suggested by Shri Shri Shibban Lal Saxena to make draft Entry 34 (Entry 30 of List II), a concurrent subject, was turned down. Any argument that has the effect of making relief of agricultural indebtedness a concurrent subject by which Parliamentary legislation ousts State legislation must, therefore, also be rejected. G

38Copy pinpoint38. This is not to say that Parliament is helpless insofar as relief from agricultural indebtedness to banks is concerned. Article 249 of the Constitution enables Parliament to legislate on the aforesaid subject in the national interest if the Rajya Sabha declares, by a resolution supported by not less than 2/3rd of the members present and voting, that it is H

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A necessary or expedient in national interest that Parliament should do so. Equally, under Article 252 of the Constitution, if the legislatures of two or more States deem it desirable that Parliament should pass an Act for regulating a matter exclusively in the State List, this can be done by resolutions to that effect passed by the legislatures of such States. Also, to implement a treaty, agreement or convention with other countries, B Parliament, under Article 253 of the Constitution, has the power to legislate on an exclusive State subject. In an emergency, Parliament can, under Article 250, legislate on matters exclusively reserved for the States under List II. This being the case, we need not be unduly weighed down by Shri Bhushan’s argument that, unless we accept his submission, C Parliament would be denuded of legislative competence altogether to deal with the subject matter of relief against debts due to banks from the agricultural sector.

39Copy pinpoint39. The next important question is as to whether the judgment of this Court in Yasangi Venkateswara Rao (supra) is binding on this D Bench having been delivered by another earlier 2-Judge Bench of this Court.

40Copy pinpoint40. In order to appreciate the answer to this question, it is necessary to indicate what was held by the judgment of the learned Single Judge of the Andhra Pradesh High Court in State Bank of India, In re, (supra). E After setting out the Banking Regulation Act and the scope of Section 21A, Section 21A was contrasted with the A.P. Agriculturists Relief Act, 1938, and it was held that the purpose, operation and effect of Section 21A of the Banking Regulation Act is not even remotely connected with the purpose, operation and effect of the A.P. Agriculturists Relief Act, which was held to be a special law enacted to relieve agriculturist debtors. It was further held that charging excessive interest was no longer part of the A.P. Agriculturists Relief Act, and, therefore, the spheres of the two provisions were completely different. Coming to legislative competence, the learned Judge went into great detail in considering several judgments of the Federal Court, High Courts and this Court, and ultimately held that Section 21A is not a law referable to Entry 45, List I. The learned Judge also went on to hold that Section 21A was arbitrary and violative of Article 14 of the Constitution.

41Copy pinpoint41. By a short judgment in Yasangi Venkateswara Rao (supra), this Court upset the elaborate judgment of the High Court thus: H

JAYANT VERMA & ORS. v. UNION OF INDIA & ORS. 739 [R. F. NARIMAN, J.]

“7. We are unable to understand as to how the High Court could A come to the conclusion that Parliament had no jurisdiction to enact Section 21-A. There can be no doubt that Section 21-A deals with the question of the rate of interest which can be charged by a banking company. Entry 45 of List I of the Seventh Schedule clearly empowers Parliament to legislate with regard to banking. B The enactment of Section 21-A was clearly within the domain of Parliament. The said section applies to all types of loans which are granted by a banking company, whether to an agriculturist or a non-agriculturist, and, therefore, reference by the High Court to Entry 30 of List II was of no consequence. In our opinion, the said Section 21-A had been validly enacted.” C (at page 377) At first blush, it appears that, though cryptic, the said paragraph does contain reasons for upsetting the High Court judgment. But, on a closer look, it becomes clear that there is no reasoning worth the name for so doing. Paragraph 7 is a series of conclusions put together without D any clear reasoning in support. This is probably because only the learned Additional Solicitor General for the appellant appeared before the Court and argued the case on behalf of the appellant. The respondent, though probably served, did not appear and consequently was not heard. It will also be noticed that, despite the fact that the judgment of the single E Judge referred to a very large number of High Court, Federal Court, Privy Council and Supreme Court judgments, not a single judgment is adverted to in the cryptic paragraph 7 set out hereinabove. Can it be said that this judgment is a declaration of the law under Article 141 of the Constitution, which as a matter of practice we cannot differ from being a bench of coordinate strength? F

42Copy pinpoint42. This question is answered by referring to authoritative works and judgments of this Court. In Precedent in English Law by Cross and Harris (4th edn.), ‘ratio decidendi’ is described as follows: “The ratio decidendi of a case is any rule of law expressly or G impliedly treated by the judge as a necessary step in reaching his conclusion, having regard to the line of reasoning adopted by him, or a necessary part of his direction to the jury.” (at page 72) H

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43Copy pinpoint43. In Dalbir Singh v. State of Punjab (1979) 3 SCR 1059 at 1073-1074, a dissenting judgment of A.P. Sen, J. sets out what is the ratio decidendi of a judgment: “According to the well-settled theory of precedents every decision contains three basic ingredients: B (i) findings of material facts, direct and inferential. An inferential finding of facts is the inference which the Judge draws from the direct or perceptible facts;

(ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and

(iii) judgment based on the combined effect of (i) and (ii) above.

For the purposes of the parties themselves and their privies, ingredient (iii) is the material element in the decision for it determines finally their rights and liabilities in relation to the subject-matter of the action. It is the judgment that estops the parties from reopening the dispute. However, for the purpose of the doctrine of precedents, ingredient (ii) is the vital element in the decision. This indeed is the ratio decidendi. [R.J. Walker & E M.G. Walker: The English Legal System. Butterworths, 1972, 3rd Edn., pp. 123-24] It is not everything said by a judge when giving judgment that constitutes a precedent. The only thing in a judge’s decision binding a party is the principle upon which the case is decided and for this reason it is important to analyse a decision and isolate from it the ratio decidendi. In the leading case of Qualcast (Wolverhampton) Ltd. v. Haynes [LR 1959 AC 7 43 : (1959) 2 All ER 38] it was laid down that the ratio decidendi may be defined as a statement of law applied to the legal problems raised by the facts as found, upon which the decision is based. The other two elements in the decision are not precedents. The judgment is not binding (except directly on the parties themselves), nor are the findings of facts. This means that even where the direct facts of an earlier case appear to be iden- tical to those of the case before the court, the judge is not bound to draw the same inference as drawn in the earlier case.” H

JAYANT VERMA & ORS. v. UNION OF INDIA & ORS. 741 [R. F. NARIMAN, J.]

Similarly, this Court in Som Prakash Rekhi v. Union of India A (1981) 2 SCR 111 at 139 referred to the “laconic discussion and limited ratio” in Subhajit Tewary v. Union of India (1975) 3 SCR 616, a judgment of a Constitution Bench of this Court, and was not bound by it. Krishna Iyer, J. put it thus: “We may first deal with Subhajit Tewary v. Union of India B (1975) 3 SCR 616, where the question mooted was as to whether the C.S.I.R. (Council of Scientific and Industrial Research) was ‘State’ under Art. 12. The C.S.I.R. is a registered society with official and non-official members appointed by Government and subject to some measure of control by Government in the Ministry of Science and Technology. The court held it was not ‘State’ as defined in Art. 12. It is significant that the court implicitly assented to the proposition that if the society were really an agency of the Government it would be ‘State’. But on the facts and features present there the character of agency of Government was negatived. The rulings relied on are, unfortunately, in the province of Art. 311 and it is clear that a body may be ‘State’ under Part III but not under Part XIV. Ray, C.J., rejected the argument that merely because the Prime Minister was the President or that the other members were appointed and removed by Government did not make the Society a ‘State’. With great respect, we agree that in the absence of the other features elaborated in Airport E Authority case (1979) 3 SCC 489, the composition of the Governing Body alone may not be decisive. The laconic discussion and the limited ratio in Tewary (supra) hardly help either side here.” Also, in Municipal Corpn. of Delhi v. Gurnam Kaur, (1989) 1 F SCC 101 at 110, this Court stated: “11. Pronouncements of law, which are not part of the ratio decidendi are classed as obiter dicta and are not authoritative. With all respect to the learned Judge who passed the order in Jamna Das case [Writ Petitions Nos. 981-82 of 1984] and to the G learned Judge who agreed with him, we cannot concede that this Court is bound to follow it. It was delivered without argument, without reference to the relevant provisions of the Act conferring express power on the Municipal Corporation to direct removal of H

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A encroachments from any public place like pavements or public streets, and without any citation of authority. Accordingly, we do not propose to uphold the decision of the High Court because, it seems to us that it is wrong in principle and cannot be justified by the terms of the relevant provisions. A decision should be treated as given per incuriam when it is given in ignorance of the terms B of a statute or of a rule having the force of a statute. So far as the order shows, no argument was addressed to the court on the question whether or not any direction could properly be made compelling the Municipal Corporation to construct a stall at the pitching site of a pavement squatter.” C (Emphasis Supplied) Further, in State of M.P. v. Narmada Bachao Andolan, (2011) 7 SCC 639 at 679-680, it was stated: “65. “Incuria” literally means “carelessness”. In practice per D incuriam is taken to mean per ignoratium. The courts have developed this principle in relaxation of the rule of stare decisis. Thus, the “quotable in law” is avoided and ignored if it is rendered in ignorance of a statute or other binding authority. xxx xxx xxx

E 67. Thus, “per incuriam” are those decisions given in ignorance or forgetfulness of some statutory provision or authority binding on the court concerned, or a statement of law caused by inadvertence or conclusion that has been arrived at without application of mind or proceeded without any reason so that in such a case some part of the decision or some step in the reasoning on which it is based, is found, on that account to be demonstrably wrong.” It is clear, therefore, that where a matter is not argued at all by the respondent, and the judgment is one of reversal, it would be hazardous to state that the law can be declared on an ex parte appraisal of the facts and the law, as demonstrated before the Court by the appellant’s counsel alone. That apart, where there is a detailed judgment of the High Court dealing with several authorities, and it is reversed in a cryptic fashion without dealing with any of them, the per incuriam doctrine kicks in, and the judgment loses binding force, because of the manner in H

JAYANT VERMA & ORS. v. UNION OF INDIA & ORS. 743 [R. F. NARIMAN, J.]

which it deals with the proposition of law in question. Also, the ratio decidendi of a judgment is the principle of law adopted having regard to the line of reasoning of the Judge which alone binds in future cases. Such principle can only be laid down after a discussion of the relevant provisions and the case law on the subject. If only one side is heard and a judgment is reversed, without any line of reasoning, and certain conclusions alone are arrived at, without any reference to any case law, it would be difficult to hold that such a judgment would be binding upon us and that we would have to follow it. In the circumstances, we are of the opinion that the judgment in Yasangi Venkateswara Rao (supra) cannot deter us in our task of laying down the law on the subject.

44Copy pinpoint44. In view of what has been held by us, it is not necessary for us to go into the arguments relating to Article 14, more so in view of the fact that counsel appearing for the Union of India and the Reserve Bank of India are correct in stating that there is no pleading worth the name which would rebut, on facts, the presumption of constitutionality that attaches to Section 21A of the Banking Regulation Act. References to D RBI circulars and the counter affidavits filed in the present writ petition again do not take us much further, as what has to be decided is a pure question of legislative competence. Conclusion

45Copy pinpoint45. We declare Section 21A of the Banking Regulation Act to be valid as it is part of an enactment which, in pith and substance, is relatable to Entry 45, List I of the Seventh Schedule to the Constitution. However, insofar as Section 21A incidentally encroaches upon the field of relief of agricultural indebtedness, set out in Entry 30, List II, it will not operate only in States where there is a State Debt Relief Act which deals with the subject matter of relief of agricultural indebtedness, where the State Debt Relief Act covers debts due to “banks”, as defined in those Acts. In States where the State Debt Relief Act does not apply to banks at all, or applies only to certain specified banks, Section 21A will, in the former situation, apply in such States, and, in the latter situation, apply only in respect of loans made to agriculturists where such loans are given by banks other than the banks specified or covered by the concerned State Debt Relief Act, as the case may be.

Devika Gujral Issue answered. H