PANDURANG GANPATI CHAUGULE versus VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED

67. In Greater Bombay Coop. Bank Ltd. (supra), the Court relied upon the decisions in Sant Sadhu Singh v. State of Punjab37, and Nagpur District Central Cooperative Bank Ltd. v. Divisional Joint Registrar, Cooperative Societies38. In Sant Sadhu Singh (supra), the amendment made to the Punjab Co-operative Societies Act, 1961, which curtailed the rights and powers of the shareholders in managing the co-operative society, was under challenge. Thus, the question involved was related to the management aspect of the bank governed by the Co-operative Societies Act for which State had the exclusive legislative competence under Entry 32 of List II. Whereas in Nagpur District Central Cooperative Bank Ltd. (supra), the question arose whether Registrar had the power under Section 78 of the Maharashtra Co-operative Societies Act to issue show cause notice to any committee of the society or any member of such committee including the Directors in respect of any default or negligence in the performance of the duties imposed on it or him by the Act or the rule or the bye-laws and power of the Registrar to remove the Committee or the members thereof if any such action is called for. The argument was rejected that the co-operative societies indulged in the banking business, hence, the State did not have the legislative competence under Entry 32 of List II, and only the Parliament had the legislative competence under Entry 45 of List I. The question involved as to management was clearly covered under Entry 32 of List II. It was with respect to incorporation, management, and winding up of a society. Thus, both the abovementioned decisions could not be said to be applicable with regard to the aspect of banking and 37 AIR 1970 P&H 528 38 AIR 1971 Bom 365 were wrongly relied upon while forming an opinion in Greater Bombay Coop. Bank Ltd. (supra).

68. At the same time, we are unable to accept the argument raised on behalf of the respondents. The SARFAESI Act is relatable to Entry 6 of List III considering the provisions contained in Sections 69 and 69A of the Transfer of Property Act, 1882. We are of the opinion that it relates to Entry 45 of List I of the Seventh Schedule of the Constitution of India.

69. Learned Counsel for the appellants has also placed reliance on Virendra Pal Singh (supra), in which the provisions relating to the recruitment, emoluments, terms, and conditions of service, including disciplinary control of employees working in the co-operative societies involved in the banking were considered. Thus, the question of management/regulation of the co-operative societies was involved. The aspect of the banking business of the co-operative banks was not involved. A question was raised as to the legislative competence of the State to enact. In that context, the Court held that, in pith and substance, the U.P. Co-operative Societies Act dealt with incorporation, management and winding up and that if it incidentally trenches upon banking, would not take the legislation beyond the competence of the State Legislature. For the proper financing and effective functioning of co-operative societies, there must also be co-operative societies that do banking business to facilitate the working of other co-operative societies merely because they do banking business, they do not cease to be co-operative societies. It was opined: “10. We do not think it necessary to refer to the abundance of authority on the question as to how to determine whether a legislation falls under an entry in one list or another entry in another list. Long ago in Prafulla Kumar Mukherjee v. Bank of Commerce Ltd., 74 IA 23, the Privy Council was confronted with the question whether the Bengal Money-Lenders Act fell within Entry 27 in List II of the Seventh Schedule to the Government of India Act, 1935, which was “money-lending”, in respect of which the provincial legislature was competent to legislate, or whether it fell within Entries 28 and 38 in List I which were “promissory notes” and “banking” which were within the competence of the Central Legislature. The argument was that the Bengal Money- Lenders Act was beyond the competence of the provincial PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.] legislature insofar as it dealt with promissory notes and the business of banking. The Privy Council upheld the vires of the whole of the Act because it dealt, in pith and substance, with money-lending. They observed: Subjects must still overlap, and where they do the question must be asked what in pith and substance is the effect of the enactment of which complaint is made, and in what list is its true nature and character to be found. If these questions could not be asked, much beneficent legislation would be stifled at birth, and many of the subjects entrusted to provincial legislation could never effectively be dealt with. Examining the provisions of the U.P. Cooperative Societies Act in the light of the observations of the Privy Council we do not have the slightest doubt that in pith and substance the Act deals with “cooperative societies”. That it trenches upon banking incidentally does not take it beyond the competence of the State Legislature. It is obvious that for the proper financing and effective functioning of cooperative societies there must also be cooperative societies which do banking business to facilitate the working of other cooperative societies. Merely because they do banking business such cooperative societies do not cease to be cooperative societies, when otherwise they are registered under the Cooperative Societies Act and are subject to the duties, liabilities and control of the provisions of the Cooperative Societies Act. We do not think that the question deserves any more consideration and, we, therefore, hold that the U.P. Cooperative Societies Act was within the competence of the State Legislature. This was also the view taken in Nagpur District Central Cooperative Bank Ltd. v. Divisional Joint Registrar, Cooperative Societies, AIR 1971 Bom 365 and Sant Sadhu Singh v. State of Punjab, AIR 1970 P & H 528.” In the aforesaid decision, it was held that under the U.P. Co-operative Societies Act, the State was competent under Entry 32 of List II to deal with incorporation, regulation and winding up of co-operative banks. However, the main aspect of the activity of the co-operative bank relating to banking was covered by the BR Act, 1949, and the Reserve Bank of India Act, which legislations are related to Entries 45 and 38 of List I of the Seventh Schedule. The aspects of ‘incorporation, regulation and winding up’ are covered under Entry 32 of List II of the Seventh Schedule. In our opinion, the activity of banking by such bankers is covered by Entry 45 of List I considering the Doctrine of Pith and Substance, and also considering the incidental encroachment on the field reserved for State is permissible.

70. The concept of regulating non-banking affairs of society and regulating the banking business of society are two different aspects and are covered under different Entries, i.e., Entry 32 of List II and Entry 45 of List I, respectively. The law dealing with regulation of banking is traceable to Entry 45 of List I and only the Parliament is competent to legislate. The Parliament has enacted the SARFAESI Act. It does not intend to regulate the incorporation, regulation, or winding up of a corporation, company, or co-operative bank/co-operative society. It provides for recovery of dues to banks, including co-operative banks, which is an essential part of banking activity. The Act in no way trenches on the field reserved under Entry 32 of List II and is a piece of legislation traceable to Entry 45 of List I. The decision in Virendra Pal Singh (supra) has been rendered regarding service regulations. It does not apply to the instant case concerning the regulation of ‘banking’ covered under Entry 45 of List I. The Court did not deal with the aspect of the regulation of banking in the said decision as it was not required to be decided. Thus, the ratio of the decision operates in a different field. Moreover, the U.P. Co-operative Services Act was saved on the ground of incidental trenching on the subject of another list, i.e., Entry 45 List I, which is permissible. IN REFERENCE QUESTION NO.2:

71. The next question is of the effect of Section 56(a) on the definition of ‘banking company’ as defined in Section 5(1)(b) of the BR Act, 1949. It is necessary to consider the definition of ‘banking’ as contained in the SARFAESI Act. The term ‘bank’ has been defined in Section 2(1)(c) to mean ‘banking company’, a corresponding new bank, a subsidiary bank or a multi-State co-operative bank or such other bank which the Central Government may by notification specify for the Act. The term ‘banking company’ under Section 2(d) shall have the meaning assigned to it in Section 5(c) of the BR Act, 1949. Thus, the definition of ‘banking company’ stands incorporated in Section 2(1)(d) of the SARFAESI Act, which came into force on 21.6.2002. Section 56(a) was incorporated in the BR Act, 1949 by Act No.23 of 1965, w.e.f. PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.] 1.3.1966. On that date, Section 56(a) became part of the statute. Section 5(c) of the BR Act, 1949 defines ‘banking company’ means any company which transacts the business of banking. By virtue of Section 56(a), a reference to a ‘banking company’ or ‘the company’ or ‘such company’ shall be construed as references to a co-operative bank for the application of the Act to the co-operative banks. Section 5(c) was not amended, and other provisions were also not amended where they were placed. However, amendments were incorporated by a different Chapter V by way of various provisions incorporated in Section 56 as it was necessary to retain certain provisions in the existing form as they applied to other banks and companies considering that the amendments and certain modifications which were necessary and were extensively required. The provisions in amended form in their application to the co-operative banks were separately provided. When the BR Act, 1949 was applied to the co-operative bank, all the provisions under the Act concerning ‘incorporation, regulation and winding up’ were omitted insofar as the Act of 1949 is applied to co-operative banks, though they continue to exist in the Act for other entities but not concerning co-operative banks. It was mentioned in the advice given to the President under Article 117 that these matters were specifically not covered under Entry 45 of List I of the Seventh Schedule and formed the subject-matter of Entry 32 of List II. Thus, when we apply the provisions of the Act of 1949 to a co-operative bank, the definition of ‘banking company’ has to be read to include a co-operative bank. Section 56(a) becomes part of Section 5(c), although it is located in a separate place. As only Part V of the Act applies to the co-operative banks, Section 56(a) amends the definition of the ‘banking company,’ and it becomes an integral part of Section 5(c), as the full effect is required to be given.

72. The aspect of incorporation by reference of earlier Act into later has been dealt with in the ‘Principles of Statutory Interpretation’, 12th Edition 2010 by Justice G.P. Singh at pages 318-320 thus: “Incorporation of an earlier Act into a later Act is a legislative device adopted for the sake of convenience in order to avoid verbatim reproduction of the provisions of the earlier Act into the later.39 When an earlier Act or certain of its provisions are incorporated by reference into a later Act, the provisions so 39 Mary Roy v. State of Kerala, (1986) 2 SCC 209, p. 216 : AIR 1986 SC 1011; Nagpur Improvement Trust v. Amrik Singh, AIR 2002 SC 3499, p. 3512 : (2002) 7 SCC 657. incorporated become part and parcel of the later Act as if they had been “bodily transposed into it”.40 The effect of incorporation is admirably stated by LORD ESHER, M.R.: “If a subsequent Act brings into itself by reference some of the clauses of a former Act, the legal effect of that, as has often been held, is to write those sections into the new Act as if they had been actually written in it with the pen, or printed in it.”41 The result is to constitute the later Act along with the incorporated provisions of the earlier Act, an independent legislation which is not modified or repealed by a modification or repeal of the earlier Act.42 As observed by BRETT, J.: “Where a statute is incorporated, by reference, into a second statute, the repeal of the first statute by a third does not affect the second.”43 To the same effect is the statement by SIR GEORGE LOWNDES: “It seems to be no less logical to hold that where certain provisions from an existing Act have been incorporated into subsequent Act, no addition to the former Act, which is not expressly made applicable to the subsequent Act, can be deemed to be incorporated in it, at all events if it is possible for the subsequent Act to function, effectually without the addition.44 40 Ramsarup v. Munshi, AIR 1963 SC 553, p. 558 : 1963 (3) SCR 858 ; Nagpur Improvement Trust v. Amrik Singh, AIR 2002 SC 3499, p. 3512 : (2002) 7 SCC 657. 41 Re, Wood’s Estate, Ex parte, Works and Buildings Commrs., (1886) 31 Ch D 607, p. 615; Ram Kripal Bhagat v. State of Bihar, AIR 1970 SC 951, p. 957 : (1969) 3 SCC 471; Bolani Ores Ltd. v. State of Orissa, AIR 1975 SC 17, p. 29 : 1975 (2) SCR 138 : (1974) 2 SCC 777 ; Mahindra and Mahindra Ltd. v. Union of India, AIR 1979 SC 798, pp. 810, 811 : (1979) 2 SCC 529 ; Onkarlal Nandlal v. State of Rajasthan, (1985) 4 SCC 404, p. 415 : AIR 1986 SC 2146; Surana Steels Pvt. Ltd. v. Dy. Commissioner of Income-tax, AIR 1999 SC 1455, p. 1459 : (1999) 4 SCC 306 (p. 233 of 7th edition of this book is approvingly quoted). 42 Narottamdas v. State of M.P., AIR 1964 SC 1667, p. 1670 : (1964) 7 SCR 820; Bolani Ores Ltd. v. State of Orissa, supra; Mahindra and Mahindra Ltd. v. Union of India, supra; Nagpur Improvement Trust v. Amrik Singh, supra ; Sneh Enterprises v. Commr. of Customs, (2006) 7 SCC 714 (para 13) : (2006) 8 JT 587 : (2006) 7 SLT 615 (passage from 10th edition of this book is approvingly quoted). 43 Clarke v. Bradlaugh, (1881) 8 QBD 63, p. 69; referred to in Ramsarup v. Munshi, AIR 1963 SC 553, p. 558 : (1963) 3 SCR 858; Collector of Customs, Madras v. Nathelal Sampathu Chetty, AIR 1962 SC 316, p. 334 : (1962) 3 SCR 786. See further Jethanand Betab v. State of Delhi, AIR 1960 SC 89, pp. 91, 92 : (1960) 1 SCR 755; Bolani Ores Ltd. v. State of Orissa, supra; Mahindra and Mahindra Ltd. v. Union of India, supra; Nagpur Improvement Trust v. Amrik Singh, supra. 44 Secretary of State v. Hindustan Co-operative Insurance Society Ltd., AIR 1931 PC 149, p. 152. Referred to in Chairman of the Municipal Commrs. of Howrah v. Shalimar Wood Products (Private) Ltd., AIR 1962 SC 1691, p. 1694 : 1963 (1) SCR 47; Bolani PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.] Ordinarily if an Act is incorporated in a later Act, the intention is to incorporate the earlier Act, with all the amendments made in it up to the date of incorporation.45 The rule that the repeal or amendment of the Act which is incorporated by reference in a later Act is not applicable for purposes of the later Act is subject to qualifications and exceptions.46 A distinction is in this context drawn between incorporation and mere reference of an earlier Act into a later Act.47 Further, a distinction is also drawn when what is referred to is not an earlier Act or any provision from it but law on a subject in general.48 There is, however, no controversy on the point that when any Act or rules are adopted in any later Act or rules, such adoption normally whether by incorporation or mere reference takes in all the amendments in the earlier Act or rules till the date of adoption.49 The present one is a case of incorporation by reference in the same Act by a subsequent amendment in the application to co-operative banks. When we apply the provisions of Section 5(c) to the co-operative banks, we have to read the co-operative banks as part and parcel of said definition as mandated statutorily. In case a company is not taken as a reference to the co-operative societies/banks in Section 5(c), several problems as to the interpretation of Section 56 would arise. It would have become necessary to amend all the provisions wherever words ‘banking company’ occur in the BR Act, 1949 in the application to co- operative banks.

73. With respect to legislative device of incorporation by reference in Mary Roy, etc. v. State of Kerala and Ors.50, the Court held: “7. … The legislative device of incorporation by reference is a well-known device where the legislature instead of repeating the Ores Ltd. v. State of Orissa, AIR 1975 SC 17, p. 29 : 1974 (2) SCC 777 ; Mahindra and Mahindra Ltd. v. Union of India, AIR 1979 SC 798, pp. 810, 811 : (1979) 2 SCC 529. 45 State of Maharashtra v. Madhavrao Damodar Patil, AIR 1968 SC 1395, p. 1400 : 1968 (3) SCR 712. 46 See text and notes 9-41, pp. 324-332. 47 See text and notes 14-21, pp. 326-328. 48 See text and notes 10-13, pp. 325, 326. 49 Rajasthan State Road Transport Corporation Jaipur v. Poonam Pahwa, AIR 1997 SC 2951, p. 2957 : 1997 (6) SCC 100. Also see text and note 80, supra. [For convenience, citations have been renumbered.] 50 AIR 1986 SC 1011: (1986) 2 SCC 209 provisions of a particular statute in another statute incorporates such provisions in the latter statute by reference to the earlier statute. It is a legislative device adopted for the sake of convenience in order to avoid verbatim reproduction of the provisions of an earlier statute in a later statute. But when the legislature intends to adopt this legislative device the language used by it is entirely distinct and different from the one employed in S.29 sub-sec.(2) of the Indian Succession Act, 1925. The opening part of S.29 sub- sec. (2) is intended to be a qualificatory or excepting provision and not a provision for incorporation by reference. We have no hesitation in rejecting this contention urged on behalf of the respondents.”

74. In U.P. Avas Evam Vikas Parishad v. Jainul Islam and Anr.51, it was observed: “The determination if a legislation was by way of incorporation or reference is more a matter of construction by the Courts keeping in view the language employed by the Act, the purpose of referring or incorporating provision of an existing Act and the effect of it on the day-to-day working. Reason for it is the Courts prime duty to assume that any law made by the Legislature is enacted to serve public interest.”

75. In Portsmouth Corporation v. Smith52, it was opined: “Where a single section of an Act of Parliament is introduced into another Act, I think, it must be read in the sense which it bore in the original Act from which it is taken, and that consequently it is perfectly legitimate to refer to all the rest of that Act in order to ascertain what the section meant, though those other sections are not incorporated in the new Act.” Lord Blackburn further observed thus: “I do not mean that if there was in the original Act a section not incorporated, which came by way of a proviso or exception on that which is incorporated, that should be referred to, but all others, including the interpretation clause, if there be one, may be referred to. It is dangerous mode of draftsmanship to incorporate a section from a former Act, for unless the 51AIR 1998 SC 1028 52 (1885) 10 AC 364 PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.] draftsman has a much clearer recollection of the whole of the former Act than can always be excepted, there is great risk that something may be expressed which was not intended.””

76. In Surana Steels Pvt. Ltd. v. Dy. Commissioner of Income Tax and Ors.53, it was held that provision is bodily listed and stands incorporated and plain rule of interpretation to be applied: “12. Once we have ascertained the object behind the legislation and held that the provisions of Section 205 quoted hereinabove stand bodily lifted and incorporated into the body of Section 115J of the Income Tax Act, all that we have to do is to read the provisions plainly and apply rules of interpretation if any ambiguity survives. Section 205(1) first proviso Clause (b), of the Companies Act brings out the unabsorbed portion of the amount of depreciation already provided for computing the loss for the year. The words “the amount provided for depreciation” and “arrived at in both cases after providing for depreciation” make it abundantly clear that in this clause “loss” refers to the amount of loss arrived at after taking into account the amount of depreciation provided in the profit and loss account.” (emphasis supplied)

77. In Secretary of State v. Hindustan Cooperative Insurance Society Ltd.54, the Privy Council held: “……….In this country it is accepted that where a statute is incorporated by reference into a second statute, the repeal of the first statute does not affect the second: see the cases collected in “Craies on Statute Law”. This doctrine finds expression in a common form section which regularly appears in the Amending and Repealing Acts which are passed from time to time in India. The section runs. “The repeal by this Act of any enactment shall not affect any Act in which such enactment has been applied, incorporated or referred to;” The independent existence of the two Acts is therefore recognized, despite the death of the parent Act, its offspring 53 (1999) 4 SCC 306 54 AIR 1931 PC 149 survives in the incorporating Act. Though no such saving clause appears in the General Clauses Act, their lordships think that the principle involved is as applicable in India as it is in this country. It seems to be no less logical to hold that where certain provisions from an existing Act have been incorporated into a subsequent Act which is not expressly made applicable to the subsequent Act, can be deemed to be incorporated in it, at all events if it is possible for the subsequent Act to function effectually without the addition.”

78. In Ram Sarup and Ors. v. Munshi and Ors.55, it was opined: “(11) The problem here raised is dependent upon the construction which the several provisions which we have set out earlier would bear after the repeal of the Punjab Alienation of Land Act, 1900. One thing is clear and that is that the authority which enacted the repeal of the Punjab Alienation of Land Act did not consider that Punjab Act 1 of 1913 had itself to be repealed. We shall now consider the effect of the repeal of the Punjab Alienation of Land Act with reference to each of the provisions:— (1) Definition of ‘agricultural land’ under S. 3(1): Where the provisions of an Act are incorporated by reference in a later Act the repeal of the earlier Act has, in general, no effect upon the construction or effect of the Act in which its provisions have been incorporated. The effect of incorporation is stated by Brett, L.J. in Clarke v Bradlugh, (1881) 8 QBD 63: “Where a statute is incorporated, by reference, into a second statute the repeal of the first statute by a third does not affect the second.” In the circumstances, therefore, the repeal of the Punjab Alienation of Land Act of 1900 has no effect on the continued operation of the Pre-emption Act and the expression ‘agricultural land’ in the later Act has to be read as if the definition in the Alienation of Land Act had been bodily transposed into it. Section 2 of the Punjab Alienation of Land Act, 1900, as amended by Act 1 of 1907 defined ‘land’ as follows: PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.] 55AIR 1963 SC 553 “The expression ‘land’ means land which is not occupied as the site of any building in a town or village and is occupied or let for agricultural purposes or for purposes subservient to agriculture or for pasture, and includes …………………………………………..………………………..” It is not in dispute that the land concerned in the claim for pre- emption made in the appeal satisfies this definition.”

79. It is apparent that in order to avoid verbatim reproduction of the earlier provisions, which did not apply to a co-operative bank, a device was carved out in Section 56(a) to read ‘company’ as ‘banking company’ or ‘the company’ or ‘such company’ as references to a co-operative bank. If the definition in Section 5(c) and interpretation clause are not read as incorporated and having been amended, the interpretation clause and the entire amendment of Part V will become unworkable. It was not practical to amend the entire Act of 1949 as it dealt with ‘incorporation, regulation and winding up’ of other entities relatable to List I, as such the provisions were required to be retained, and such matters concerning co-operative societies/banks, relatable subject-matter under Entry 32 of List I of the Seventh Schedule of the Constitution of India, were to be excluded. As various provisions were to be omitted in their application to the co-operative societies and other provisions were to apply in a modified form, the amendments were made in the provisions in their application to the co-operative banks by providing a separate Chapter. Thus, it was not considered necessary nor would have been appropriate to amend the definition of Section 5(c) where it existed, in fact it was so amended in Section 56(a). Entire Chapter V was enacted concerning the application of the Act to the co-operative banks and has to be given full effect. Merely because the procedure for recovery of dues is provided in the Co-operative Societies Act, could not have come in the way of interpretation of that expression ‘co-operative bank’ which was included in the definition and interpretation clause of Section 5 of the BR Act, 1949. It was open to the Parliament to deal with the subject of ‘banking’ in Entry 45 of List I and this Court in Greater Bombay Coop. Bank Ltd. (supra) itself opined that the BR Act, 1949 applies to co-operative banks which is the enactment related to Entry 45 of List I and third proviso to Article 243-ZL(1) of the Constitution of India also provides that the BR Act shall also apply. Thus, the Parliament considered it appropriate to provide additional remedy for speedy recovery which is an alternative even if there is an incidental encroachment on the field reserved for the State under Entry 32 of List II, as in pith and substance, the ‘banking’ is part of Entry 45 of List I and recovery procedure is covered within the ken of Entry 45 of List I. Thus, considering the Doctrine of Pith and Substance and incorporation by amendment made, we are of the considered opinion that co-operative banks are included in the definition of ‘bank’ and ‘banking company’ under Section 2(1)(c) and 2(1)(d) of the SARFAESI Act.

80. In Greater Bombay Coop. Bank Ltd. (supra) concerning the BR Act, 1949, it was held: “39. Chapter V of the BR Act was inserted by Act 23 of 1965 w.e.f. 1-3-1966. Section 56 of the Act provides that the provisions of this Act, as in force for the time being, shall apply to, or in relation to, banking companies subject to the following modifications, namely: “56. (a) throughout this Act, unless the context otherwise, requires,— (i) references to a ‘banking company’ or ‘the company’ or ‘such company’ shall be construed as references to a cooperative bank; (ii) The purpose and object of modifications were to regulate the functioning of the cooperative banks in the matter of their business in banking. The provisions of Section 56 itself start with the usual phrase “unless the context otherwise requires” is to make the regulatory machinery provided by the BR Act to apply to cooperative banks also. The object was not to define a cooperative bank to mean a banking company, in terms of Section 5(c) of the BR Act. This is apparent from the fact that instead of amending the original clause (c) of Section 5 separate clause (cci) was added to cover the “cooperative bank” to mean “a State cooperative bank, a Central cooperative bank and a primary cooperative bank”. In clause (ccv) “primary cooperative bank” means “a cooperative society, other than a primary agricultural credit society”. The primary object or principal business of the “cooperative bank” should be the transaction of banking business. PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.] 40. The modifications given in clause (a) of Section 56 are apparently suitable to make the regulatory machinery provided by the BR Act to apply to cooperative banks also in the process of bringing the cooperative banks under the discipline of Reserve Bank of India and other authorities. A cooperative bank shall be construed as a banking company in terms of Section 56 of the Act. This is because the various provisions for regulating the banking companies were to be made applicable to cooperative banks also. Accordingly, Section 56 brought cooperative banks within the machinery of the BR Act but did not amend or expand the meaning of “banking company” under Section 5(c). On a plain reading of every clause of Section 56 of the BR Act, it becomes clear that what is contained therein is only for the purpose of application of provisions that regulate banking companies to cooperative societies. According to the expression “cooperative societies” used in Section 56 means a “cooperative society”, the primary object or principal business of which is the transaction of banking business. In other words, first it is a cooperative society, but carrying on banking business having the specified paid-up share capital. Other definitions also make it clear that the entities are basically cooperative societies.” (a) Concerning the SARFAESI Act, following observations were made: “41. Parliament had enacted the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“the Securitisation Act”) which shall be deemed to have come into force on 21-6-2002. In Section 2(d) of the Securitisation Act same meaning is given to the words “banking company” as is assigned to it in clause (e) of Section 5 of the BR Act. Again the definition of “banking company” was lifted from the BR Act but while defining “bank”, Parliament gave five meanings to it under Section 2(c) and one of which is “banking company”. The Central Government is authorised by Section 2(c)(v) of the Act to specify any other bank for the purpose of the Act. In exercise of this power, the Central Government by notification dated 28-1-2003, has specified “cooperative bank” as defined in Section 5(cci) of the BR Act as a “bank” by lifting the definition of “cooperative bank” and “primary cooperative bank” respectively from Section 56, clauses 5(cci) and (ccv) of Part V. Parliament has thus consistently made the meaning of “banking company” clear beyond doubt to mean “a company engaged in banking, and not a cooperative society engaged in banking” and in Act 23 of 1965, while amending the BR Act, it did not change the definition in Section 5(c) or even in Section 5(d) to include cooperative banks; on the other hand, it added a separate definition of “cooperative bank” in Section 5(cci) and “primary cooperative bank” in Section 5(ccv) of Section 56 of Part V of the BR Act. Parliament while enacting the Securitisation Act created a residuary power in Section 2(c)(v) to specify any other bank as a bank for the purpose of that Act and in fact did specify “cooperative banks” by notification dated 28-1-2003. 42. The context of the interpretation clause plainly excludes the effect of a reference to banking company being construed as reference to a cooperative bank for three reasons: firstly, Section 5 is an interpretation clause; secondly, substitution of “cooperative bank” for “banking company” in the definition in Section 5(c) would result in an absurdity because then Section 5(c) would read thus: “cooperative bank” means any company, which transacts the business of banking in India; thirdly, Section 56(c) does define “cooperative bank” separately by expressly deleting/inserting clause (cci) in Section 5. Parliament in its wisdom had not altered or modified the definition of “banking company” in Section 5(c) of the BR Act by Act 23 of 1965. 43. As noticed above, “cooperative bank” was separately defined by the newly inserted clause (cci) and “primary cooperative bank” was similarly separately defined by clause (ccv). The meaning of “banking company” must, therefore, necessarily be strictly confined to the words used in Section 5(c) of the BR Act. If the intention of Parliament was to define the “cooperative bank” as “banking company”, it would have been the easiest way for Parliament to say that “banking company” shall mean “banking company” as defined in Section 5(c) and shall include “cooperative bank” and “primary cooperative bank” as inserted in clauses (cci) and (ccv) in Section 5 of Act 23 of 1965.” (b) Concerning incorporation by reference to Section 56 (a) of the BR Act, 1949, it was opined: PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.] “70. The dues of cooperatives and recovery proceedings in connection therewith are covered by specific Acts, such as the MCS Act, 1960 and the APCS Act, 1964, which are comprehensive and self-contained legislations. Similarly, for multi-State cooperatives there is a specific enactment in the form of the MSCS Act, 2002 comprehensively providing the legal framework in respect to issues pertaining to such cooperatives. Therefore, when there is an admittedly existing legal framework specifically dealing with issues pertaining to cooperatives and especially when the cooperative banks are, in any case, not covered by the provisions of the RDB Act specifically, there is no justification of covering the cooperative banks under the provisions of the RDB Act by invoking the doctrine of incorporation.” (c) Regarding the definition of ‘banking company’ in the BR Act, 1949, it was observed: “73. The RDB Act was passed in 1993 when Parliament had before it the provisions of the BR Act as amended by Act 23 of 1965 by addition of some more clauses in Section 56 of the Act. Parliament was fully aware that the provisions of the BR Act apply to cooperative societies as they apply to banking companies. Parliament was also aware that the definition of “banking company” in Section 5(c) had not been altered by Act 23 of 1965 and it was kept intact, and in fact additional definitions were added by Section 56(c). “Cooperative bank” was separately defined by the newly inserted clause (cci) and “primary cooperative bank” was similarly separately defined by clause (ccv). Parliament was simply assigning a meaning to words; it was not incorporating or even referring to the substantive provisions of the BR Act. The meaning of “banking company” must, therefore, necessarily be strictly confined to the words used in Section 5(c) of the BR Act. It would have been the easiest thing for Parliament to say that “banking company” shall mean “banking company” as defined in Section 5(c) and shall include “cooperative bank” as defined in Section 5(cci) and “primary cooperative bank” as defined in Section 5(ccv). However, Parliament did not do so. There was thus a conscious exclusion and deliberate omission of cooperative banks from the purview of the RDB Act. The reason for excluding cooperative banks seems to be that cooperative banks have comprehensive, self-contained and less expensive remedies available to them under the State Cooperative Societies Acts of the States concerned, while other banks and financial institutions did not have such speedy remedies and they had to file suits in civil courts. 80. As already pointed out, the RDB Act is consistent with the general banks and their creditors/loanees while the MCS Act, 1960, the APCS Act, 1964 and the MSCS Act, 2002 are concerned with the regulation of societies only. The language of the sections in these enactments defining “banking company” is plain, clear and explicit. It does not admit any doubtful interpretation as the intention of the legislature is clear as aforesaid. It is well settled that the language of the statutes is to be properly understood. The usual presumption is that the legislature does not waste its words and it does not commit a mistake. It is presumed to know the law, judicial decisions and general principles of law. The elementary rule of interpretation of the statute is that the words used in the section must be given their plain grammatical meaning. Therefore, we cannot afford to add any words to read something into the section, which the legislature had not intended. 81. Finally, it could not be said that amendments in Chapter V, Section 56 of the BR Act by Act 23 of 1965 inserting “cooperative bank” in clause (cci) and “primary cooperative bank” in clause (ccv) either expressly or by necessary intendment (sic make the RDB Act) apply to the cooperative banks transacting business of banking.” (d) The questions were answered thus: “97. For the reasons stated above and adopting pervasive and meaningful interpretation of the provisions of the relevant statutes and Entries 43, 44 and 45 of List I and Entry 32 of List II of the Seventh Schedule of the Constitution, we answer the reference as under: “Cooperative banks” established under the Maharashtra Cooperative Societies Act, 1960 (the MCS Act, 1960), the Andhra Pradesh Cooperative Societies Act, 1964 (the APCS Act, 1964), and the Multi-State Cooperative Societies Act, 2002 (the MSCS Act, 2002) transacting the business of banking, do not fall within PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.] the meaning of “banking company” as defined in Section 5(c) of the Banking Regulation Act, 1949 (the BR Act). Therefore, the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (the RDB Act) by invoking the doctrine of incorporation are not applicable to the recovery of dues by the cooperatives from their members.” No doubt about it that certain observations made in the aforesaid decision support the case set up by the appellants. 81. Before we deal with the decision, in Greater Bombay Coop. Bank Ltd. (supra), it was noted that ‘co-operative bank’ was defined in Section 56(cci) of the BR Act, 1949; thus, the object was not to define co-operative bank to mean banking company; that is why the original Section 5(c) was not amended. Another ground employed concerning the definition of the ‘co-operative bank’ was that the modifications made by way of Section 56 were apparently suitable to make the regulatory machinery provided by the BR Act, 1949, to apply to co-operative banks also. It was opined that a co-operative bank to be construed as a banking company in terms of Section 56 of the BR Act, 1949, because various provisions were made applicable to co-operative banks also. At the same time, it was held that Section 56 brought co-operative banks within the machinery of the BR Act, 1949, but it did not amend or expand the meaning of ‘banking company’ under Section 5(c). It was further observed that the entities doing banking are basically co-operative societies. Regarding the SARFAESI Act, it was observed in paragraph 41 of the decision quoted above that meaning of ‘banking company’ is a company engaged in banking and not a ‘co-operative society’ engaged in banking. The Parliament did not alter or modify the meaning of ‘banking company’ under Section 5(c) of the BR Act, 1949 by Act No.23 of 1965. The meaning of ‘banking company’ has to be confined to the words used in Section 5(c) of the BR Act, 1949. It was emphasised that there was already a procedure prescribed for recovery of dues by banks under the Co-operative Societies Act. The RDB Act, 1993, refers to the transfer of ‘every suit or other proceeding pending before any court.’ The word ‘court’ in the context of the RDB Act, 1993, signifies ‘civil court.’ It is clear that the Registrar or an officer designated by him or an arbitrator under Sections 61, 62, 70, and 71 of the Andhra Pradesh Co-operative Societies Act, 1964 and under Section 91 and other provisions of Maharashtra Co-operative Societies Act, 1960 are not ‘civil courts.’ Thus, it was opined that the RDB Act, 1993 is consistent with the general banks and their creditors/loaners where the Maharashtra Co-operative Societies Act, 1960; the Andhra Pradesh Co-operative Societies Act, 1964 and the MSCS Act are concerned with the regulation of co-operative societies only. Due to the amendments in Chapter V of the BR Act, 1949 inserting ‘co-operative bank’ in clause (cci) to Section 56 and ‘primary co-operative bank’ in clause (ccv) to Section 56 it could not be said that RDB Act, 1993 applies to the co-operative banks transacting the business of banking. 82. In Greater Bombay Coop. Bank Ltd. (supra), the provisions of the BR Act, 1949 were simply noted; there was no in-depth consideration of the various provisions and, more particularly of those contained in Section 56 of the Act. The main issue was whether the court had jurisdiction or Debts Recovery Tribunal to recover the amount from the debtor. In that connection, the question of application of RDB Act, 1993 to the co-operative societies constituted under MSCS Act as well as State Co-operative Acts arose and also whether the State legislature was competent to enact legislation concerning co-operative societies incidentally transacting the business of banking in the light of Entry 32 of List II. The findings were recorded on various aspects with which we are unable to agree. The discussion on various issues was not in-depth, could not be said to be binding. We have dealt with the various questions with the help of various decisions of this Court, and we find ourselves unable to agree with the conclusions recorded therein. The co-operative banks are doing the banking business, it could not be said to be an incidental activity but main and only activity. We are unable to subscribe to the view taken in Greater Bombay Coop. Bank Ltd. (supra) as the provisions were not correctly appreciated. 83. The reason is given in Greater Bombay Coop. Bank Ltd. (supra) that comprehensive machinery is provided in the State Act, could not have come in the way of Parliament enacting a law as to recovery within the purview of ‘banking’ in Entry 45 of List I as the same is its essential part. Even incidental trenching upon other fields cannot invalidate legislation. Equally futile is the argument that the Parliament did not amend Section 5(c) of the BR Act, 1949; in fact, the Parliament did so under Section 56(a) concerning its application to co-operative banks. A large number of provisions added in Chapter V by way of amending Section 56 cannot be ignored and set at naught. The extensive PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.] amendments made in Part V of the BR Act, 1949, have to be given full effect. In case co-operative banks are kept outside the purview of the BR Act, 1949, and other legislation under Entry 45 and RBI Act, no licence can be granted, and they cannot do banking as that is not permissible without compliance of various provisions as provided in the BR Act, 1949. They would have to close down and stop the business forthwith. 84. The co-operative banks, which are governed by the BR Act, 1949, are involved in banking activities within the meaning of Section 5(b) thereof. They accept money from the public, repayable on demand or otherwise and withdrawal by cheque, draft, order or otherwise. Merely by the fact that lending of money is limited to members, they cannot be said to be out of the purview of banking. They perform commercial functions. A society shall receive deposits and loans from members and other persons. They give loans also, and it is their primary function. Thus, they are covered under ‘banking’ in Entry 45 of List I. IN REFERENCE QUESTION NOS. 3(a) AND 3(b) 85. Learned Counsel appearing on behalf of appellants argued that securitisation is not a banking business. The SARFAESI Act is to regulate securitisation and reconstruction of financial assets. Emphasis was laid on the financial assets and financial assistance. The definition of ‘debt’ in Section 2(1)(ha) of the SARFAESI Act is the same as defined in Section 2(g) of the RDB Act, 1993, the ‘debt’ is defined as any liability which is claimed as due during any business activity undertaken by the bank or the financial institution. In our opinion, the submission ignores and overlooks the purpose of the SARFAESI Act, i.e., enforcement of security interest, and that is precisely sought to be achieved by Section 13 without the intervention of the court. Since the activity of a co-operative bank is banking regulated by the law enacted within the relatable Entry 45 of List I, we find no reason as to why the Parliament lacked the competence to enact the SARFAESI Act and to provide a procedure for the speedy recovery of dues. The SARFAESI Act also covers the activities undertaken by the co-operative banks. The co- operative banks are doing banking business under Section 5(b) of the BR Act, 1949, and the exclusion of the co-operative societies from Entry 43 of List I, does not have any bearing regarding the interpretation of Entry 45 of List I. 86. Even assuming for the time being that definition of ‘bank’ in Section 5(c) of the BR Act, 1949 did not cover the co-operative banks; the expression ‘bank’ has been defined in the SARFAESI Act under Section 2(1)(c), and the provisions contained in Section 2(1)(c)(v) authorises the Central Government to specify ‘such other bank’ for that Act. Thus, the notification issued on 28.1.2003 notifying ‘co-operative bank’ as the ‘bank’ is covered by Entry 45 of List I as they are regulated by the BR Act, 1949, and the RBI Act. For the ‘banking’ activity under Entry 45 of List I, the Parliament had the power to enact such a provision defining ‘bank’ to authorise and prescribe the recovery procedure for such a bank as provided in Section 13 of the SARFAESI Act; However, we are of the view that co-operative societies/banks stand included by incorporation in Section 5(1)(c) of the BR Act and the notification was issued ex abundanti cautela. By virtue of Section 56(a), co-operative banks, as defined in Section 56(cci) of the BR Act, 1949, are included in Section 5(1)(c). Similarly, multi-State co-operative banks were also covered. 87. The earlier procedure for recovery of dues was differently provided for general banks and the co-operative banks through the Civil Court or Tribunal. In the SARFAESI Act, a procedure has been prescribed under Section 13 without the intervention of the court/tribunal to keep pace with the time. Thus, the malady of inordinate delay with which the order of civil court suffered as well as of the co-operative tribunals or summary procedure under the Co-operative Societies Act, was sought to be redressed. Apart from that, it is permissible for the Parliament to enact the law to provide recovery procedures for bank dues that have been done by providing speedy recovery of secured interest without intervention of the court/tribunal. 88. In Soma Suresh Kumar v. Government of Andhra Pradesh and Ors.56, it was observed that there were several occasions when the laws enacted by the State as well as by the banking regulation carved out by Central Government acted in their field. This Court considered the Andhra Pradesh Protection of Depositors of Financial Establishments Act, 1999, and the effects of the BR Act, 1949. It was held that ambit of respective Acts and field covered is required to be considered and it was permissible for the State legislature also to enact the provisions notwithstanding the BR Act, 1949 with respect to the matters which PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.] 56 (2013) 10 SCC 677 were not covered by the said Act to protect the interest of the investors. It was held that Andhra Pradesh Protection of Depositors of Financial Establishments Act, 1999, did not create any repugnancy to any Central law. It was observed: “6. Further, it is also pointed out that the Banking Regulations Act, enacted by the Central Government, to regulate the operation of banking companies or organisations, enables RBI to give licence to banking companies to carry out the functions of the Bank. It was pointed out that it covered different areas which are not common to the area covered by the Andhra Act. Further, it was pointed out that both the Acts have applicability to different aspects of refund to the depositors. The Banking Regulations Act, it is pointed out, was enacted to regulate the functioning of the banking companies, including Vasavi Cooperative Urban Bank Ltd. and that the petitioners have approached this Court challenging the validity of the Act so as to wriggle out of the clutches of law.” 89. In K.K. Baskaran v. State Represented by its Secretary, Tamil Nadu, and Ors.57, the question arose concerning T.N. Protection of Interests of Depositors (in Financial establishments) Act, 1997. The said Act provided for a remedy to evils caused by fraudulent activities of financial establishments for which no redressal mechanism was provided in Central enactments. It was held that T.N. Protection of Interests of Depositors (in Financial establishments) Act, 1997, did not entrench the field occupied by Section 58-A of Companies Act, 1956 as the object of the 1997 Act was completely different. The Doctrine of Pith and Substance and its effect on the overlapping of fields occupied by Central and State Lists was considered. The relevant discussion is extracted hereunder: “18. It often happens that a legislation overlaps both List I as well as List II of the Seventh Schedule. In such circumstances, the doctrine of pith and substance is applied. We are of the opinion that in pith and substance the impugned State Act is referable to Entries 1, 30 and 31 of List II of the Seventh Schedule and not Entries 43, 44 and 45 of List I of the Seventh Schedule. 19. It is well settled that incidental trenching in exercise of ancillary powers into a forbidden legislative territory is permissible vide the 57 (2011) 3 SCC 793 Constitution Bench decision of this Court in State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201 [vide SCC paras 31(4), (5) & (6) and 129(5)]. Sharp and distinct lines of demarcation are not always possible and it is often impossible to prevent a certain amount of overlapping vide ITC Ltd. v. State of Karnataka, 1985 Supp SCC 476 (SCC para 17). We have to look at the legislation as a whole and there is a presumption that the legislature does not exceed its constitutional limits. 21. The doctrine of pith and substance means that an enactment which substantially falls within the powers expressly conferred by the Constitution upon a legislature which enacted it cannot be held to be invalid merely because it incidentally encroaches on matters assigned to another legislature. The Court must consider what constitutes in pith and substance the true subject-matter of the legislation. If on such examination it is found that the legislation is in substance one on a matter assigned to the legislature then it must be held to be valid even though it incidentally trenches on matters beyond its legislative competence, vide Union of India v. Shah Goverdhan L. Kabra Teachers’ College, (2002) 8 SCC 228 (SCC para 7). 22. For applying the doctrine of pith and substance regard is to be had to the enactment as a whole, its main objects and the scope and effect of its provisions vide Special Reference No. 1 of 2001, In re, (2004) 4 SCC 489 (SCC para 15). For this purpose the language of the entries in the Seventh Schedule should be given the widest scope of which the meaning is fairly capable, vide State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201, [SCC para 31(4)], Union of India v. Shah Goverdhan L. Kabra Teachers’ College, (2002) 8 SCC 228 (SCC para 6) and ITC Ltd. v. State of Karnataka, 1985 Supp SCC 476 (SCC para 17).” 90. In M/s. Ujagar Prints and Ors. (II) v. Union of India and Ors.58, it was laid down that entries in the State legislature should be liberally construed and the Doctrine of Pith and Substance was considered thus: 48. Entries to the legislative lists, it must be recalled, are not sources of the legislative power but are merely topics or fields of legislation PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.] 58 (1989) 3 SCC 488 and must receive a liberal construction inspired by a broad and generous spirit and not in a narrow pedantic sense. The expression “with respect to” in Article 246 brings in the doctrine of “Pith and Substance” in the understanding of the exertion of the legislative power and wherever the question of legislative competence is raised the test is whether the legislation, looked at as a whole, is substantially “with respect to” the particular topic of legislation. If the legislation has a substantial and not merely a remote connection with the entry, the matter may well be taken to be legislation on the topic.” 91. In Keshavlal Khemchand and Sons Private Limited and Ors. v. Union of India and Ors.59, the object of the SARFAESI Act was explained thus: “30. The person advancing the money is generally called a creditor and the person receiving the money is generally called a borrower. The most simple form of a loan transaction is a contract by which the borrower agrees to repay the amount borrowed on demand by the creditor with such interest as stipulated under the agreement. Such a loan transaction may be attended by any arrangement of a security like a mortgage or pledge, etc. depending upon the agreement of the parties. 31. The Act provides for a mode of speedy recovery of the monies due from the borrowers to one class of creditors who are banks and financial institutions (creditors). Advances/Loans made by creditors to businessmen and industrialists are generally not repayable on demand but repayable in accordance with a fixed time schedule agreed upon by the parties known as “term loans”: “Term loans.—A loan may be made for a specified period (a term loan). In such a case repayment is due at the end of the specified period and, in the absence of any express provision or implication to the contrary, no further demand for repayment is necessary.” — Chitty on Contracts, Vol. II, 30th Edn., p. 913. In other words, such loans are repayable in instalments over a period of time the terms of which are evidenced by a written 59 (2015) 4 SCC 770 agreement between the parties. A default in the repayment (in terms of the agreed schedule) generally provides a cause of action for the creditor to initiate legal proceedings for the recovery of the entire amount due and outstanding from the borrower. Normally such term loans are also accompanied by some “security interest” in a “secured asset” of the borrower. Such a recovery is to be made normally by instituting a suit for recovery of the amounts by enforcing the “security interest”. The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 created an exclusive forum for a speedy ascertainment of the amounts actually due from the defaulting borrower and also provided for a mechanism for speedy recovery of the amounts so ascertained from such borrowers. 32. Since such a system was also found to be inadequate for the speedy recovery of the monies due from the borrowers to the creditors, Parliament made the Act under which the process of ascertainment of the amounts due from a borrower by an independent adjudicatory body is dispensed with. The secured creditor is made the sole judge of the amount due and outstanding from a borrower subject to an appeal under Section 17 of the Act. Be that as it may, such an ascertainment of amount due and outstanding is not the only criterion on the basis of which the secured creditor is entitled to initiate proceedings under Section 13(4) of the Act, but the secured creditor is also required to classify the account of the borrower (asset of the creditor) as an NPA. Dehors the Act, when the borrower of a term loan defaults in the repayment, the creditor can initiate legal proceeding straightaway for recovery of the amounts due and outstanding from the borrower. The Act places an additional legal obligation on the creditor to examine and decide whether the account of the borrower has become an NPA before initiating action under the Act.” 92. The Bombay High Court in The Majoor Sahakari Bank Ltd. (supra) considered the question whether co-operative society carrying on the banking business, considering its activity, could be termed as industry to which Bombay Industrial Disputes Act would apply. Though co-operative society was doing the business of banking, it was submitted that nonetheless, it was a co-operative society to which the provisions of PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.] the Bombay Industrial Disputes Act could not apply. Considering the activity and definition of the ‘company’ as defined in Halsbury’s Laws of England as an association of a number of individuals formed with a common purpose. The High Court opined that in the wide and proper legal sense, the petitioners were a company although they may choose to call themselves a society or even if Co-Operative Societies Act requires that they should call themselves a society. However, in the eye of the law, they are a company when they were doing the business of banking. Though registered as a co-operative society, the provisions of industrial law were held to be applicable. The High Court also observed that there was no special charm or magic in a company registered under the Companies Act or the Co-operative Societies Act as far as the result of registration is concerned. The High Court observed: “(4) Now turning to the language of the notification what is urged by Mr. Parpia is that the notification only contemplates the Indian Companies Act and Acts similar to that Act. In our opinion, there is no reason why such a limited interpretation should be put upon the general words used in the notification. If the intention of the State Government was, that the notification should only apply to the companies registered under the Indian Companies Act or Acts corresponding to Indian Companies Act nothing was easier than for the Government to have stated so. If the intention was to exclude the banking companies registered under the Co-operative Societies Act that also could have been set out in the notification itself. Neither counsel has been able to draw our attention to any Indian Legislation under which an association doing banking business can be registered other than the Indian Companies Act and the Co-operative Societies Act. Therefore, nothing was simpler or easier than for the State Government to have stated “doing business of Banking Companies registered under enactments other than the Co-operative Societies Act”. When a Court is called upon to interpret a notification which is capable of more than one meaning it is not amiss to consider the reason and principle underlying the notification. There is no reason or principle why a co-operative society doing banking business should be put on a different footing with regard to industrial law from other companies doing identical business. There is no reason why a co-operative banking society should treat its employees otherwise than as laid down under the industrial law. If we were satisfied that there was some reason or principle which would lead us to put upon this notification the interpretation which Mr. Parpia suggests we might have put such an interpretation on the notification, but all the considerations are in favour of the interpretation suggested by Mr. Rane. There is nothing in the notification which prevents us from giving the interpretation which we have ultimately decided to give to this notification. Therefore, we are of the opinion that the petitioners are doing business of Banking and are registered under an enactment relating to companies, which is the Co-operative Societies Act. The learned Judge was right in taking the view that he had jurisdiction to deal with the matter. The petition fails and is dismissed with costs.” 93. In Jayant Verma and Ors. v. Union of India and Ors.60, the question arose concerning the applicability of Section 21A of the B.R. Act, 1949. In that context, the provisions of the B.R. Act, 1949, were considered and it was held that enactment to be relatable to Entry 45 of List I and has to be given a wide meaning. It was observed: “16. There can be no doubt that the Banking Regulation Act deals with the subject “banking” insofar as it licenses banking companies, as defined, and cooperative banks, and seeks to regulate them. Section 21-A, though by way of amendment, is undoubtedly an integral part of the aforesaid Act relating to the interdict on the reopening of loan transactions between a banking company and its debtor, on the ground that the rate of interest charged is excessive. There can be no doubt that a law relating to indebtedness of a debtor to a banking company and the interdict against a court reopening any such transaction, on the ground that interest charged by the banking company is excessive, would relate to the business of banking. We must not forget that the entries in the Lists to the Seventh Schedule have to be read in the widest possible manner, and we have seen from the judgments quoted by us above that the expression “banking” contained in List I Entry 45 is to be given a wide meaning. There can be no doubt that the statute as a whole and the aforesaid section does fall within List I Entry 45.” (emphasis supplied) PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.] 60 (2018) 4 SCC 743 94. In Federation of Hotel & Restaurant Association of India, etc. v. Union of India and Ors.61, the question of overlapping of the law was considered with respect to a subject which might incidentally affect another subject in some way or the other and held that that is not the same thing as the law being on the latter subject. The same transaction may involve two or more taxable events in its different aspects. 95. In Apex Cooperative Bank of Urban Bank of Maharashtra & Goa Ltd. (supra) the question arose concerning licensing of co-operative societies by the Reserve Bank of India to carry on banking business under the provisions of the BR Act, 1949. It was held that co-operative banks, which are not State co-operative banks or Central co-operative banks or primary co-operative banks as defined in Section 56(cci) of B.R. Act, 1949, were not eligible for licensing. The grant of licence by Reserve Bank of India to co-operative banks, which were not registered under the Multi-State Co-operative Societies Act, 1984, was not justified. The powers of Reserve Bank of India under the Multi-State Co-operative Societies Act were exercisable only for co- operative banks, not to any other co-operative societies not doing business of banking. It was opined: “25. Another aspect which must be noticed is that in the Constitution of India, the subject pertaining to co-operative societies is in the State List i.e. Entry 32 of List II of Schedule VII. The Union List has Entry 44 of List I of Schedule VII which deals with corporations. In this case we are not concerned with the validity of a Central legislation and thus do not deal with that aspect. For purpose of the judgment we will take it that a co-operative society with objects not confined to one State would fall within the term corporation, and thus a Central legislation may be saved. However, from the constitutional provisions it is clear that matters pertaining to co-operative societies are in the State List. Thus many States have enacted laws relating to co-operative societies. We have not seen other Acts. However, as this case concerns a society in Maharashtra, the Maharashtra Cooperative Societies Act was shown to us. Significantly, this law does not define a co-operative society. It did not need to, as a society registered under it would be automatically covered. The need to define a co-operative society arises only in a Central legislation which does 61 (1989) 3 SCC 634 not cover all co-operative societies and thus needs to indicate to which society it applies.” 96. In Bharat Coop. Bank (Mumbai) Ltd. v. Coop. Bank Employees Union62, the question arose concerning the Industrial Disputes Act, 1947 and the B.R. Act, 1949. There was a reference in Section 2(bb) of Industrial Disputes Act, 1947, to the definition of ‘banking company’ as defined in Section 5 of the B.R. Act, 1949. It was held that same was instance of legislation by incorporation and not legislation by reference. It was further opined that amendment to BR Act, 1949 after Section 5 was incorporated in Section 2(bb), would not have any effect on the expression ‘banking company’. This Court further held that the I.D. Act was a complete and self-contained code in itself, and its working was not dependent on the BR Act, 1949. 97. In Reserve Bank of India v. M. Hanumaiah and Ors.63, the question arose of supersession of the Committee of the management of Co-operative Bank. There was a written requisition from the Reserve Bank of India to the Registrar, Co-operative Societies, to supersede the management under Section 30(5) of the Karnataka Co-operative Societies Act, 1959. It was held that principles of natural justice were not applicable, and the Committee of the management had no right of hearing. Thus, there are various instances where the Central legislation has controlled co-operative societies’ aspects relating to banking. 98. In State of Gujarat and Anr. v. Shri Ambica Mills Ltd., Ahmedabad, and Anr.64, the definition clause in a provision when it is under inclusion and over-inclusive was considered, thus: “54. A reasonable classification is one which includes all who are similarly situated and none who are not. The question then is: what does the phrase “similarly situated” mean? The answer to the question is that we must look beyond the classification to the purpose of the law. A reasonable classification is one which includes all persons who are similarly situated with respect to the purpose of the law. The purpose of a law may be either the elimination of a public mischief or the achievement of some positive public good. 62 (2007) 4 SCC 685 63 (2008) 1 SCC 770 64 (1974) 4 SCC 656 PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.] 55. A classification is under-inclusive when all who are included in the class are tainted with the mischief but there are others also tainted whom the classification does not include. In other words, a classification is bad as under-inclusive when a State benefits or burdens persons in a manner that furthers a legitimate purpose but does not confer the same benefit or place the same burden on others who are similarly situated. A classification is over-inclusive when it includes not only those who are similarly situated with respect to the purpose but others who are not so situated as well. In other words, this type of classification imposes a burden upon a wider range of individuals than are included in the class of those attended with mischief at which the law aims. Herod ordering the death of all male children born on a particular day because one of them would some day bring about his downfall employed such a classification.” 99. In Girnar Traders (3) v. State of Maharashtra and Ors.65, the question of incorporation by reference and Doctrine of Pith and Substance were considered thus: “87. However, since this aspect was argued by the learned counsel appearing for the parties at great length, we will proceed to discuss the merit or otherwise of this contention without prejudice to the above findings and as an alternative plea. These principles have been applied by the courts for a considerable period now. When there is general reference in the Act in question to some earlier Act but there is no specific mention of the provisions of the former Act, then it is clearly considered as legislation by reference. In the case of legislation by reference, the amending laws of the former Act would normally become applicable to the later Act; but, when the provisions of an Act are specifically referred and incorporated in the later statute, then those provisions alone are applicable and the amending provisions of the former Act would not become part of the later Act. This principle is generally called legislation by incorporation. General reference, ordinarily, will imply exclusion of specific reference and this is precisely the fine line of distinction between these two doctrines. Both are referential legislations, one merely by way of reference and the other by incorporation. It, normally, will depend on the language used in 65 (2011) 3 SCC 1 the later law and other relevant considerations. While the principle of legislation by incorporation has well-defined exceptions, the law enunciated as of now provides for no exceptions to the principle of legislation by reference. Furthermore, despite strict application of doctrine of incorporation, it may still not operate in certain legislations and such legislation may fall within one of the stated exceptions. 88. In this regard, the judgment of this Court in M.V. Narasimhan, (1975) 2 SCC 377, can be usefully noticed where the Court after analysing various judgments, summed up the exceptions to this rule as follows: (SCC p. 385, para 15) “(a) where the subsequent Act and the previous Act are supplemental to each other; (b) where the two Acts are in pari materia; (c) where the amendment in the previous Act, if not imported into the subsequent Act also, would render the subsequent Act wholly unworkable and ineffectual; and (d) where the amendment of the previous Act, either expressly or by necessary intendment, applies the said provisions to the subsequent Act.” 148. Having perused and analysed the various judgments cited at the Bar we are of the considered view that this rule is bound to have exceptions and it cannot be stated as an absolute proposition of law that wherever legislation by reference exists, subsequent amendments to the earlier law shall stand implanted into the later law without analysing the impact of such incorporation on the object and effectuality of the later law. The later law being the principal law, its object, legislative intent and effective implementation shall always be of paramount consideration while determining the compatibility of the amended prior law with the later law as on relevant date. 173. The doctrine of pith and substance can be applied to examine the validity or otherwise of a legislation for want of legislative competence as well as where two legislations are embodied together for achieving the purpose of the principal Act. Keeping in view that we are construing a federal Constitution, distribution PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.] of legislative powers between the Centre and the State is of great significance. Serious attempt was made to convince the Court that the doctrine of pith and substance has a very restricted application and it applies only to the cases where the court is called upon to examine the enactment to be ultra vires on account of legislative incompetence. 174. We are unable to persuade ourselves to accept this proposition. The doctrine of pith and substance finds its origin from the principle that it is necessary to examine the true nature and character of the legislation to know whether it falls in a forbidden sphere. This doctrine was first applied in India in Prafulla Kumar Mukherjee v. Bank of Commerce Ltd., (1946-47) 74 IA 23 : AIR 1947 PC 60. The principle has been applied to the cases of alleged repugnancy and we see no reason why its application cannot be extended even to the cases of present kind which ultimately relates to statutory interpretation founded on source of legislation.” 100. We find that ‘banking’ relating to co-operatives can be included within the purview of Entry 45 of List I, and it cannot be said to be over inclusion to cover provisions of recovery by co-operative banks in the SARFAESI Act. It cannot be said to be over-inclusion on the anvil of the principles laid down by this Court. 101. Learned Counsel on behalf of appellants argued that notification dated 28.1.2003 is ultra vires and beyond the purview of the parent statute, i.e., the SARFAESI Act.The amendment is colourable legislation, and it encroaches upon a field outside its scope and is also an indirect method of achieving the result of bringing ‘co-operative banks’ within the purview of the SARFAESI Act and RDB Act, 1993 and is an attempt to regulate entities expressly excluded by Entry 43 of List I. Reliance has been placed on K.C. Gajapati Narayan Deo (supra), in which it was held: “(9) It may be made clear at the outset that the doctrine of colourable legislation does not involve any question of ‘bona fides’ or ‘mala fides’ on the part of the legislature. The whole doctrine resolves itself into the question of competency of a particular legislature to enact a particular law. If the legislature is competent to pass a particular law, the motives which impelled it to act are PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.] really irrelevant. On the other hand, if the legislature lacks competency, the question of motive does not arise at all. Whether a statute is constitutional or not is thus always a question of power Vide Cooley’s Constitutional Limitations, Vol. 1, p.379. A distinction, however, exists between a legislature which is legally omnipotent like the British Parliament and the laws promulgated by which could not be challenged on the ground of incompetence, and a legislature which enjoys only a limited or a qualified jurisdiction. If the Constitution of a State distributes the legislative powers amongst different bodies, which have to act within their respective spheres marked out by specific legislative entries, or if there are limitations on the legislative authority in the shape of fundamental rights, questions do arise as to whether the legislature in a particular case has or has not, in respect to the subject-matter of the statute or in the method of enacting it, transgressed the limits of its constitutional powers. Such transgression may be patent, manifest or direct, but it may also be disguised, covert and indirect and it is to this latter class of cases that the expression “colourable legislation” has been applied in certain judicial pronouncements. The idea conveyed by the expression is that although apparently a legislature in passing a statute purported to act within the limits of its powers, yet in substance and in reality it transgressed these powers, the transgression being veiled by what appears, on proper examination, to be a mere pretence or disguise. As was said by Duff, J. in — ‘Attorney-General for Ontario v. Reciprocal Insurers’, 1924 A C 328 at p. 337 (B): “Where the law making authority is of a limited or qualified character it may be necessary to examine with some strictness the substance of the legislation for the purpose of determining what is that the legislature is really doing.” In other words, it is the substance of the Act that is material and not merely the form or outward appearance, and if the subject-matter in substance is something which is beyond the powers of that legislature to legislate upon, the form in which the law is clothed would not save it from condemnation. The legislature cannot violate the constitutional prohibitions by employing an indirect method. In cases like these, the enquiry must always be as to the true nature and character of the 66 (2011) 8 SCC 737 challenged legislation and it is the result of such investigation and not the form alone that will determine as to whether or not it relates to a subject which is within the power of the legislative authority — ‘Vide 1924 A C 328 p. 337 (B)’. For the purpose of this investigation the court could certainly examine the effect of the legislation and take into consideration its object, purpose or design — ‘Vide Attorney-General for Alberta v. Attorney- General for Canada’, 1939 A C 117 at p. 130 (C). But these are only relevant for the purpose of ascertaining the true character and substance of the enactment and the class of subjects of legislation to which it really belongs and not for finding out the motives which induced the legislature to exercise its powers. It is said by Lefroy in his well-known work on Canadian Constitution that even if the legislature avow on the face of an Act that it intends thereby to legislate in reference to a subject over which it has no jurisdiction, yet if the enacting clauses of the Act bring the legislation within its powers, the Act cannot be considered ‘ultra vires’ See Lefroy on Canadian Constitution page 75.” (emphasis supplied) By applying the aforesaid principle, the provision in question/ notification cannot be said to be colourable legislation. 102. In State of Tamil Nadu and Ors. v. K. Shyam Sunder and Ors.66, the concept of colourable legislation was considered and it was observed that the doctrine of malafides does not involve any question of bonafide or malafide on the part of the legislature, and the Court is concerned with a limited issue of competence of the particular legislature to enact a particular law. The motive of the legislature while enacting a law is inconsequential. It was observed: “37. It has consistently been held by this Court that the doctrine of mala fides does not involve any question of bona fide or mala fide on the part of legislature as in such a case, the Court is concerned to a limited issue of competence of the particular legislature to enact a particular law. If the legislature is competent to pass a particular enactment, the motives which impelled it to an PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.] act are really irrelevant. On the other hand, if the legislature lacks competence, the question of motive does not arrive at all. Therefore, whether a statute is constitutional or not is, thus, always a question of power of the legislature to enact that statute. Motive of the legislature while enacting a statute is inconsequential: “Malice or motive is beside the point, and it is not permissible to suggest parliamentary incompetence on the score of mala fides.” The legislature, as a body, cannot be accused of having passed a law for an extraneous purpose. This kind of “transferred malice” is unknown in the field of legislation. (See K.C. Gajapati Narayan Deo v. State of Orissa, AIR 1953 SC 375, STO v. Ajit Mills Ltd., (1977) 4 SCC 98, SCC p. 108, para 16, K. Nagaraj v. State of A.P., (1985) 1 SCC 523, Welfare Assn., A.R.P. v. Ranjit P. Gohil, (2003) 9 SCC 358 and State of Kerala v. Peoples Union for Civil Liberties, (2009) 8 SCC 46).” We find that the SARFAESI Act qualifies the test of legislative competence, as well as the definition, cannot be said to be colourable piece or over-inclusive or beyond the competence of the Parliament. 103. Resultantly, we answer the reference as under: (1)(a) The co-operative banks registered under the State legislation and multi-State level co-operative societies registered under the MSCS Act, 2002 with respect to ‘banking’ are governed by the legislation relatable to Entry 45 of List I of the Seventh Schedule of the Constitution of India. (b) The co-operative banks run by the co-operative societies registered under the State legislation with respect to the aspects of ‘incorporation, regulation and winding up’, in particular, with respect to the matters which are outside the purview of Entry 45 of List I of the Seventh Schedule of the Constitution of India, are governed by the said legislation relatable to Entry 32 of List II of the Seventh Schedule of the Constitution of India. (2) The co-operative banks involved in the activities related to banking are covered within the meaning of ‘Banking Company’ defined under Section 5(c) read with Section 56(a) of the Banking Regulation Act, 1949,which is a legislation relatable to Entry 45 of List I. It governs the aspect of ‘banking’ of co-operative banks run by the co-operative societies. The co-operative banks cannot carry on any activity without compliance of the provisions of the Banking Regulation Act, 1949 and any other legislation applicable to such banks relatable to ‘Banking’ in Entry 45 of List I and the RBI Act relatable to Entry 38 of List I of the Seventh Schedule of the Constitution of India. (3)(a) The co-operative banks under the State legislation and multi- State co-operative banks are ‘banks’ under section 2(1)(c) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The recovery is an essential part of banking; as such, the recovery procedure prescribed under section 13 of the SARFAESI Act, a legislation relatable to Entry 45 List I of the Seventh Schedule to the Constitution of India, is applicable. (3)(b) The Parliament has legislative competence under Entry 45 of List I of the Seventh Schedule of the Constitution of India to provide additional procedures for recovery under section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 with respect to co-operative banks. The provisions of Section 2(1)(c)(iva), of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, adding “ex abundanti cautela”,‘a multi-State co-operative bank’ is not ultra vires as well as the notification dated 28.1.2003 issued with respect to the co-operative banks registered under the State legislation. The civil appeals, writ petitions and the pending applications, if any, are disposed of accordingly. No costs. Divya Pandey Reference answered.