Paragraph numbers below are the court’s original numbering, recovered from the source text.
24. The first significant thing to note is that recovery of debts by banks has been held to fall within Entry 45 List I. Thus, in Union of India v. Delhi High Court Bar Association, (2002) 4 SCC 275, it has been held: "The Delhi High Court and the Guwahati High Cow1 have held that the source of the power of Parliament to enact_ a law relating to the establishment of the Debts Recovery Tribunal is Entry 11-A of List III which pertains to "administration of justice; constitution and organisation of all courts, except the Supreme Court and the High Courts". In our opinion, Entry 45 of List I would cover the types of legislation now enacted. Entry 45 of List I relates to "banking". Banking operations would, inter alia, include accepting of Joans and deposits, granting of Joans and recovery of the debts due to the bank. There can be little doubt that under Entry 45 of List l, it is Parliament alone which can enact a law with regard to the conduct of business by the banks. Recovery of dues is an essential function of any banking institution. In exercise of its legislative power relating to banking, Parliament can provide the mechanism by which monies due to the banks and financial institutions can be recovered. The Tribunals have been set up in regard . to the debts due to the banks. The special machinery of a Tribunal which has been constituted as per the preamble of the Act, "for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto" would squarely fall within the ambit of Entry 45 of List I.As none of the items in the lists are to be read in a narrow or restricted sense, the term "banking" in Entry 45 would mean legislation regarding all aspects ofbanking including ancillary or subsidiary matters relating to banking. Setting up of an adjudicatory body like the Banking Tribunal relating to transactions in which banks and financial institutions are STATE BANK OF INDIA v. SANTOSH GUPTA AND ANR. ETC. 1019 [R. F. NARIMAN. J.] concerned would clearly fall under Entry 45 of List I giving Parliament specific power to legislate in relation thereto." [para 14]
25. When it came to SARFAESI itself, this Court has held in Central Bank of India v. State of Kerala, (2009) 4 SCC 94: "Undisputedly, the ORT Act and the Securitisation Act have been enacted by Parliament under Entry 45 in List I in the 7th Schedule whereas the Bombay and Kerala Acts have been enacted by the State Legislatures concerned under Entry 54 in List II in the 7th Schedule. To put it differently, two sets of legislations have been enacted with reference to entries in different lists in the 7th Schedule. Therefore, Article 254 cannot be invoked per se for striking down State legislations on the ground that the same are in conflict with the Central legislations. That apart, as will be seen hereafter, there is no ostensible overlapping between two sets of legislations. Therefore, even ifthe observations contained in Kesoram Industries case [(2004) I 0 SCC 20 I] are treated as law declared under Article 141 of the Constitution, the State legislations cannot be struck down on the ground thatthe same are in conflict with Central legislations." [para 36]
26. In a recent judgment, namely, UCO Bank & Anr. V. Dipak Debbarma & Ors., [Civil Appeal No. 1124 7 of 20 I 6 and Civil Appeal No. 11250of2016] delivered by this Court on 25'h November, 2016, this Court has held: c "I 8. The Act of2002 is relatable to the Entry of banking which is included in List I of the 7th Schedule. Sale of mortgaged property by a bank is an inseparable and integral part of the business of banking. The object of the State Act , as already noted, is an attempt to consolidate the land revenue law in the State and also to provide measures of agrarian reforms. The field of encroachment made by the State legislature is in the area of banking. So long there did not exist any parallel Central Act dealing with sale of secured assets and referable to Entry 45 of List I, the State Act, including Section I 87, operated validly. However, the c moment Parliament stepped in by enacting such a law traceable to Entry 45 and dealing exclusively with activities relating to sale of secured assets, the State law, to the extent that it is inconsistent with the Act of2002, must give way. The dominant legislation being the Parliamentary legislation, the provisions of the TripuraAct of 1960, pro tanto, (Section 187) would be invalid. It is the provisions of the Act of 2002, which do not contain any embargo on the category of persons to whom mortgaged property can be sold by the bank for realisation of its dues that will prevail over the provisions contained in Section 187 of the Tripura Act of 1960."
27. In this case, a Tripura Land Reform law, which was made under Entries 18 and 45 of List II, was pitted against SARFAESI which is made under Entry 45 List I. Despite the fact that the Tripura Act received the protection of Article 31 Bread with Ninth Schedule, it was held that the TripuraAct, Section 187 of which put a legislative embargo on the sale of mortgaged properties by a bank to any person who is not a member of Scheduled Tribe, was held to give way to the Parliamentary enactment SARFAESI made under Entry 45 List I. Though this judgment does not apply on all fours to the present case, it clearly establishes that SARFAESI is relatable to Entry 45 List I and that any enactment made under the State List would have to give way to SARFAESI by virtue of the application of Article 246 of the Constitution oflndia.
28. R.C. Cooper v. Union of India, ( 1970) 1 SCC 248, has also in paragraph 36, stated that the subject matter 'banking' in Entry 45 List I must be construed so as to comprehend within its scope all matters that are incidental to such subject matter. It was held: "The legislative entry in List I of the 7th Schedule is "Banking" and not "Banker" or "Banks". To include within the connotation of the expression "Banking" in Entry 45, List I, power to legislate in respect of all commercial activities which a banker by the custom of bankers or authority of law engages in, would result in re-writing the Constitution. Investment of power to legislate on a designated topic covers all matters incidental to the topic. A legislative entry being expressed in a broad designation indicating the contour of plenary power must receive a – _,_ STATE BANK OF INDIA v. SANTOSH GUPTA AND ANR. ETC. 1021 [R. F. NARIMAN, J.] meaning conducive to the widest amplitude, subject however to limitations inherent in the federal scheme which distributes legislative power between the Union and the constituent units. The field of"banking" cannot be extended to include trading activities which not being incidental to banking encroach upon the substance of the entry "trade and commerce" in List II." [para 36]
29. A judgment of the Privy Council reported in Attorney-General for Canada v. Attorney-General for the Province of Quebec, 194 7 Appeal Cases 33, also throws some light on what is the correct meaning to be given to the expression "banking". A Quebec Statute deemed as vacant property, without an owner, (which will now belong to His Majesty) all deposits or credits in credit institutions and other establishments which received funds or securities on deposit where for 30 years or more such deposits or credits are not the subject of any operation or claim by the persons entitled thereto. In an appeal from the Court of King's Bench of the Province of Quebec, the Bank of Montreal argued that the State Act was beyond the powers of the Quebec legislature as "banking" was one of the subjects allotted exclusively to the Parliament of Canada. Lord Porter, in an illuminatingjudgment, posed the question and answered it th us:- "Is then, the repayment of deposits to depositors or their successors in title under the law as existing a part of the business of banking or necessarily incidental thereto, or is it concerned primarily with property and civi I rights or incidental to those subjects? Their Lordships cannot but think that the receipt of deposits and the repayment of the sums deposited to the depositors or their successors as defined above is an essential part of the business of banking." In this view of the matter, the Privy Council further held: "In their view, a Provincial legislature enters on the field of banking when it interferes with the right of depositors to receive payment of their deposits, as in their view it would if it confiscated loans made by a bank to its customers. Both are in a sense matters of property and civil rights, but in essence they are included within the category of banking." c (At pages 44 and 46)
30. What is of significance to note is that since List II is not operative in the State of Jammu & Kashmir, there is no competing Entry in the said List and this would lead therefore to the conclusion that Entries 45 and 95 of List I must be given a wide meaning. Indeed, in a converse situation, this Court, in Union oflndia v. H.S. Dhillon, 1972(2) SCR c 33, had this to say: "It was also said that if this was the intention of the Constitution makers they need not have formulated List I at all. This is the point which'was taken by Sardar Hukam Singh and others in the debates referred to above and was answered by Dr. Ambedkar. But apart from what has been stated by Dr. Ambedkar in his speech extracted above there is some merit and legal effect in having included specific items in List I for when there are three lists it is easier to construe List II in the light of Lists I and II. If there had been no List I, many items in List II would perhaps have been given much wider interpretation than can be given under the present scheme. Be that as it may, we have the three lists and a residuary power and therefore it seems to us that in this context ifa Central Act is challenged as being beyond the legislative competence of Parliament, it is enough to enquire if it is a law with respect to matters or taxes enumerated in List JI. If it is not, no further question arises." (At page 67)
31. At this juncture, it is important to advert to State of Jam mu & Kashmir v. M.S. Farooqui, (1972) I SCC 872. This judgment dealt with the interplay between the Jammu & Kashmir Government Servants Prevention of Corruption (Commission)Act, 1962 as against the All India Services (Discipline and Appeal) Rules, 1955. In para 7 of the judgment it was noticed that Parliament could legislate by virtue of Entry 70 List I on All India Services, and Rules made under Article 309 of the Constitution are referable to this Entry. This being the ca,se, the question that this Court had to answer was as to whether the appellant, who was a member of the Indian Police Service, which is an All India Service, in the Jammu & Kashmir cadre, was liable to be governed by the All India Services Rules or by the Jammu & Kashmir Act. After dealing in some detail with judgments of this Court on legislative competence, STATE BANK OF INDIA v. SANTOSH GUPTA AND ANR. ETC. 1023 [R. F. NARIMAN, J.] this Court concluded:- "From the perusal of the provisions of the two statutory laws, namely, the All India Services (Discipline and Appeal) Rules, I 955, and the Jammu and Kashmir government servants' Prevention of Corruption (Commission) Act, 1962, it is impossible to escape from the conclusion that the two cannot go together. The impugned Act provides for additional .punishments not provided in the Discipline and Appeal Rules. It also provides for suspension and infliction of some punishments. It seems to us that insofar as the Commission Act deals with the infliction of disciplinary punishments it is repugnant to the Discipline and Appeal Rules. Parliament has occupied the field and given clear indication that this was the onl~nanner in which any disciplinary action should be taken against the members of the All India Services. Insofar as the Commission Act deals with a preliminary enquiry for the purposes of enabling any prosecution to be launched it may be within the legislative competence of the Jammu and Kashmir State and not repugnant to the provisions of the Discipline and Appeal Rules. But as the provisions dealing with investigation for possible criminal prosecution are inextricably intertwined with the provisions dealing with infliction of disciplinary punishment the whole Act must be read down so as to leave the members of the All India Service outside its purview. We accordingly hold that the provisions of the Commission Act do not apply to the members. of the All India Services. Accordingly we dismiss the appeal. As the respondent was not represented there would be no order as to costs. We thank Mr. G.L. Sanghi for assisting us as amicus curiae." [paras47 – 48]
32. Applying the doctrine of pith and substance to SARFAESI, it is clear that in pith and substance the entire Act is referable to Entry 45 List I read with Entry 95 List I in that it deals with recovery of debts due to banks and financial institutions, inter alia through facilitating securitization and reconstruction of financial assets of banks and financial institutions, and sets up a machinery in order to enforce the provisions of the Act. In pith and substance, SARFAESI does not deal with "transfer c c of property". In fact, in so far as banks and financial institutions are concerned, it deals with recovery of debts owing to such banks and financial institutions and certain measures whi9h can be taken outside of the court process to enforce such recovery. Under Section 13(4) of SARFAESI, apart from recourse to taking possession of secured assets of the borrower and assigning or selling them in order to realise their debts, the banks can also take over the management of the business of the borrower; and/or appoint any person as manager to manage secured assets, the possession of which has been taken over by the secured creditor. Banks as secured creditors may also require at any time by notice in writing; any person who has acquired any of the secured assets from the borrower and from whom money is due or payable to the borrower, to pay the secured creditor so much of the money as is sufficient to pay the secured debt. It is thus clear that the transfer of property, by way of sale or assignment, is only one of several measures of recovery of a secured debt owing to a bank and this being the case, it is clear that SARFAESI, as a whole, cannot possibly be said to be in pith and substance, an Act relatable to the subjecl matter "transfer of property". At this juncture it is necessary to point out that insofar as the State of Jammu & Kashmir is concerned, Sections 17 A and Section 188 of SARFAESI, which apply to the State of Jam mu & Kashmir, substituted 'District Judge' and the 'High Court' for the 'Debts Recovery Tribunal' and the' Appellate Tribunal' respectively. These provisions read as under:- " Section 17-A. Making of application to Court of District Judge in certain cases. In the case of a borrower residing in the State of Jammu and Kashmir, the application under Section 17 shall be made to the Court of District Judge in that State having jurisdiction over the borrower which shall pass an order on such application. Explanation.-For the removal of doubts, it is hereby declared that the communication cf the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication ofreasons shall not entitle the person (including borrower) to make an application to the Court of District Judge under this section. Section 18-B. Appeal to High Court in certain cases. STATE BANK OF INDIA v. SANTOSH GUPTA AND ANR. ETC. 1025 [R. F. NARIMAN, J.] Any borrower residing in the State of Jammu and Kashmir and aggrieved by any order made by the Court of District Judge under Section 17-A may prefer an appeal, to the High Court havingjurisdiction over such Court, within thirty days from the date of receipt of the order of the Court of District Judge: Provided that no appeal shall be preferred unless the borrower has deposited, with the Jammu and Kashmir High Court, fifty per cent of the amount of the debt due from him as claimed by the secured creditor or deterrhined by the C~mrt of District Judge, whichever is less: Provided further that the High Court may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five per cent of the debt referred to in the first proviso." c
33. It would be clear that these provisions are referable to Entry 45 as being ancillary to banking, and expressly to Entry 95 List I inasmuch -as the Jurisdiction and power of courts is laid down for the special subject of recovery of debts due to banks by these provisions.
34. In State of Maharashtra v. Narottamdas Jethabai, (1950) 1 SCR 51, this Court upheld the Bombay City Civil Courts Act, and in so doing, referred specifically to the following Entries in the legislative lists of the Government oflndia Act, 1935. Entry 53, List I: "Jurisdiction and powers of all courts except the Federal Court, with respect to any of the matters in this List …. " Entries 1 and 2, List II: "1 …. the administration of justice; constitution and organisation of all courts except the Federal Court …. " "2. Jurisdiction and powers ofall courts except the Federal Court, with respect to any of the matters in this List …. " Entry 15, List III: "Jurisdi-ction and powers of all courts except the Federal Court, with respect to any of the matters in this List."
35. Justices Fazal Ali, Mahajan, and Mukherjea held that c 'Administration of Justice' contained in Entry 1 of List 2 of the Government of India Act, 7'h Schedule, would include jurisdiction and power of courts generally, but that Entry 53 of List l would refer to special powers referable to a particular entry in the Union List as opposed to the general power contained in Entry 1 List 2. It was held, therefore, that but for an express provision like Entry 53 List l, Parliament may not have been able to confer special jurisdiction on courts in regard to matters set out in legislative List I. Two learned Judges, namely, Patanjali Sastri and Das, JJ. also upheld the Bombay Act, but on the basis that the expression "Administration of Justice" would be cut down by the expression 'jurisdiction and powerofall courts", and would nottherefore include within its ken jurisdiction and power of courts.
36. Similarly in Jamshed N. Guzdar v. State of Maharashtra, (2005) 2 SCC 591, this Court upheld the constitutional validity of the Bombay City Civil Court and the Bombay Courts of Small Causes (Enhancement of Pecuniary Jurisdiction and Amendment) Act, 1986 by holding in paragraph 53 as follows: "Thus, on and after 3-1-1977 the situation appears to be as under: (a) Parliament alone has the competence to legislate with respect to Entry 78 of List I to "constitute and organise" the High Court. (b) Both Parliament and the State Legislature can invest such a High Court with general jurisdiction by enacting an appropriate legislation referable to "administration of justice" under Entry 11-A of List m. -(c) Parliament may u1,1der Entry 95 of List I invest the High Court with jurisdiction and powers with respect to any of the matters enumerated in List I. (d) The State Legislature may invest the High Court with the jurisdiction and powers with respect to any of the matters enumerated in List II. (e) Both Parliament and the State Legislature may by appropriate legislation refe:·uoleto Entry 46 of List III invest the High Court with jurisdiction and pQwers with respect to any of the matters enumerated in List III." [para 53] STATE BANK OF INDIA v. SANTOSH GUPTA AND ANR. ETC. 1027 [R. E NARIMAN, J.]
37. It is thus clear on a reading of these judgments that SARFAESI as a whole would be referable to Entries 45 and 95 of List I. We must remember the admonition given by this Court in A.S. Krishna and others v. State of Madras, 1957 SCR 399, that it is not correct to first dissect an Act into various parts and then refer those parts to different Entries in the legislative Lists. It is dear therefor() that the entire Act, including Sections 17 A and I SB, would in pith and substance be referable to Entries 45 and 95 of List I, and that therefore the Act as a whole would necessarily operate in the State of Jammu & Kashmir.
38. The judgment of the High Court is wholly incorrect in referring to Entry I IA of the Concurrent List. First and foremost, as has been noted by us above, the Entry is not extended to the State of Jammu & Kashmir. From this, the counsel for the respondents sought to contend that Parliament would, therefore, have no power under the Concurrent List to legislate on the subject matter "Administration of Justice". Under Section 5 of the Jammu & Kashmir Constitution, we have seen that "Administration of Justice" would come into play only when Entries 45 and 95 of List 1 are not attracted. Even if this were not so, we have seen in the two judgments cited hereinabove, the expression "administration of justice" is general and must give way to the special !aws that are enacted under Entry 95 List I when coupled with another Entry in the same List- in this case Entry 45 List I. The relevant part of Section 140 of the Jammu & Kashmir Transfer of Property Act, on which great reliance has been placed by learned counsel for the respondents, provides:-· "140. Exemptions of certain instruments from restriction irhposed on transfer of immovable property. Nothing contained in Irshad dated 291h Maghar, 1943, or any law, rule order, notificat_ion, regu)ation, hidyat, ailan, circular, robkar, yadasht, irshad, State Council resolution or any other instrument having the force oflaw prohibiting or restricting the transfer of immovable property in favour of a person who is not a permanent residenf6fthe State shall apply to- (h) a simple mortgage of immovable property executed or created in favour of a public financial institution, 1 as specified in section 4-A of the Companies Act, 1956, a c c [2016) 9 S.C.R . Scheduled bank for the time being included in the Second Schedule to the Reserve Bank of India Act, 1934 and the Trustees for the holders of debentures to secure the Joans, guarantees, issue of debentures or other form of financial assistance provided for d<:velopmental projects in the State ~ of Jammu and Kashmir Like Baghliar Project of Jammu and Kashmir State Power Development Corporation Limited. Provided that in any suit based on such mortgage, the mortgaged property shall be sold or transferred only to a permanent resident of the State or any financial institution or corporation managed and owned by the Government of India;
39. At this juncture, it is necessary to refer to Rule 8(5) proviso of the Security Interest (Enfor,cement) Rules, 2002, which states as follows:- " Provided that in case of sale of immovable property in the State of Jam mu and Kashmir, the provisions of Jammu and Kashmir Transfer of Property Act, 1977 shall apply to the person who acquires such property in the State."
40. This Rule makes it amply clear that Section 140 of the Transfer of Property Act of Jammu & Kashmir will be respected in auction sales that take place within the State. This being the case, it is clear that there is no collision or repugnancy with any of the provisions of SARFAESI, and therefore it is clear thatthe High Court is absolutely wrong in finding that as Section 140 of the Transfer of Property Act will be infracted, SARFAESI cannot be held to apply to the State of Jammu & Kashmir. Rule 8 has been noticed but brushed aside by the aforesaid judgment. The High court judgment begins from the wrong end and therefore reaches the wrong conclusion. It states that in terms of Section 5 of the Constitution of Jammu & Kashmfr, the State has absolute 5 sovereign power to legislate in respect oflaws touching the rights of its permanent residents qua their immovable properties. The State legislature having enacted Section 140 of the Jammu & Kashmir Transfer of Property Act, therefore, having clearly stated that the State's subjects/citizens are by virtue of the said provision protected, SARFAESI cannot intrude and disturb such protection. The whole approach is erroneous. As has been stated hereinabove, Entries 45 and 95 of List I clothe Parliament with exclusive power to make Jaws with respect to banking, and the entirety ofSARFAESI can be said to be referable to Entry 45 and 95 of STATE BANK OF INDIA v. SANTOSH GUPTA AND ANR. ETC. 1029 [R. F. NARIMAN, J.] List I, 7'h Schedule to the Constitution of India. This being the case, Section 5 of the Jammu &Kashmir Constitution will only operate in areas in which Parliament has no power to make laws for the State Thus, it is clear that anything that comes in the way of SARFAESI by way of a Jammu & Kashmir law must necessarily give way to the said law by virtue of Article 246 of the Constitutiorr-0f India as extended to the State of Jammu & Kashmir, read with Section 5 of the Constitution ofJammu & Kashmir. This beingthe case, it is clear that Sections 13(1) and (4) cannot be held to be beyond the legislative competence of Parliament as has wrongly been held by the High Court.
41. It is rather disturbing to note that various parts of the judgment speak of the absolute sovereign power of the State of Jammu & Kashmir. It is necessary to reiterate that Section 3 of the Constitution of Jammu & Kashmir, which was framed by a Constituent Assembly elected on the basis of universal adult franchise, makes a ringing declaration that the State of Jammu & Kashmir is and shall be an integral part of the Union of India. And this provision is beyond the pale of amendment. Section 14 7 of the Jammu & Kashmir Constitution states:- "147. Amendment of the Constitution. -An amendment of this Constitution may be initiated only by the introduction of a Bill for the purpose .in the' Legislative Assembly and when the Bill is passed in each House by a majority ofnot less than two-thirds of the total membership of the House, it shall be pre~ented to the Sadar-i-Riyasat for his assent and, upon such assent being given to the Bill, the Constitution shall stand amended in accordance with the terms of the Bill: Provided that a Bill providing for the abolition of the Legislative Council may be introduced in the Legislative· Assembly and passed by it majority of the total membership of the Assembly and by a majority of not less than two- thirds of the members of the Assembly present and voting: Provided further that no Bill or amendment seeking to make any change in: (a) this section; (b) the provisions of the sections 3 and 5; or c ( c) the provisions of the Constitution oflndia as applicable in relation to the State; shall be introduced or moved in either House of the Legislature."
42. It is also significant in this context to refer to the Preamble to the Constitution of Jammu & Kashmir, 1957 and compare it to that of the Constitution oflndia, 1950. c The Preamble of the Constitution of Jammu and Kashmir reads as follows: "WE, THE PEOPLE OF THE STATE OF JAMMU AND KASHMIR, having solemnly resolved, in pu.rsuance of the . accession of this State to India which took place on the twenty-sixth day of Octob'er, 194 7, to further define the existing relationship of the State with the Union oflndia as an integral part thereof, and to secure to ourselves- JUSTICE, social, economic•and political; LIBERTY qfthought, expression, belief, faith and worship; EQUALITY of status and of opportunity; and to promote among us all; FRATERNITY assuring dignity of the individual and the unity of the nation; IN OUR CONSTITUENT ASSEMBLY this seventeenth day of November, 1956, do HEREBY ADOPT, ENACT AND GIVE TO OURSELVES THIS CONSTITUTION." Ii is to be noted that the opening paragraph·ofthe Constitution of India, namely "WE THE PEOPLE OF INDIA, having solemnly resolved to constitute India into a SOVEREIGN SOCIALIST SECULAR DEMOCRATIC REPUBLIC and to secure to all its citizens … " has been wholly omitted in the Constitution of Jammu & Kashmir. There is no reference to sovereignty. Neither is there any use of the expression "citizen" while referring to its people. The people of Jammu & Kashmir for whom special rights are provided in the Constitution are referred to as "permanent residents" under Part III of the Constitution of Jammu & Kashmir. Above all, the Constitution of Jammu & Kashmir has been STATE BANK OF INDIA v. SANTOSH GUPTA AND ANR. ETC. I 031 [R. F. NARIMAN, J.] made to further define the existing relationship of the State with the Union ofindia as an integral part thereof.
43. It is thus clear that the State of Jammu & Kashmir has no vestige of sovereignty outside the Constitution of India and its own Constitution, which is subordinate to the Constitution of India. It is therefore wholly incorrect to describe it as being sovereign in the sense of its residents constituting a separate and distinct class in themselves. The residents of Jammu & Kashmir, we need to remind the High Court, are first and foremost citizens oflndia. Indeed, this is recognized by Section 6 of the Jammu & Kashmir Constitution which st_ates: "6. Permanent residents:-(!) Every person who is, or is deemed to be, a citizen oflndia under the provis'ions of the Constitution ofindia shall be a permanent resident of the State, if on the fourteenth day of May, 1954- (a) he was a State Subject of Class I or of Class II ; or (b) having lawfully acquired immovable property in the State, he has been ordinarily resident in the State for not less than ten years prior to that date. (2) Any person who, before the fourteenth day of May, 1954, was a State Subject of Class I or of Class II and who having migrated after the first day of.March, 194 7, to the territory now included in Pakistan, returns to the State under a permit for resettlement in the State or for pe~anent return' issued by or under the. authority of any law made by the State Legislature shall on such return be a permanent resident of the State. (3) In this section, the expression "State _Subject of Class I or of Class II" shall have the same meaning as in State Notification No. l-L/84 dated the twentieth April, 1927, read with State Notification No. 13/L dated the twenty 7th June, 1932." They a~e governed first by the Constitution of India and also by the Constitution of Jammu & Kashmir. This is made clear by Section 10 of the Jammu & Kashmir Constitution which states: "10. Rights of the permanent residents:- The permanent, residents of the State shall have all the rights guaranteed to them under the Constitution of India." c We have been constrained to observe this because in at least three places the High Court has gone out of its way to refer to a sovereignty which does not exist.
44. Again it is wholly incorrect to refer to Entry l l A of List 3 and to state that since it is not extended to the State of Jammu & Kashmir, Parliament would have no legislative competence to enact Sections 17 A and 188 ofSARI'AESI. There are at least three errors in this conclusion. First and foremost, it is not possible to dissect the previsions ofSARFAESI and attach them to different Entries under different Lists. As has been held by us, the whole of SARFAESI is referable to Entry 45 and 95 of List I. Secondly, what has been missed by the impugned judgment is that Entry 95 List I is a source of legislative power for Parliament for conferring power and jurisdiction on the District Court and the High Court respectively in respect of matters contained in SARFAESI. And third, the subject "Administration of Justice" is only general and can be referred to only if Entry 95 List I read with Entry 45 List I are not attracted. We are afraid that despite the judgment in Narottamdas Jcthabai and Jamshed Guzdar's case (supra), the High Court. even though it refers to Narottamdas Jethabai, has completely missed this crucial aspect. :v!ost importantly, even if it is found that Section 140 of the Jammu & Kashmir Transfer of Property Act entitles only certain persons 10 purchase prope1ties in the State of Jammu & Kashmir, yet, as has been held hereinabove, Rule 8(5) proviso which recognizes this provision, has been brushed aside. In any case an attempt has first to be made to harmonise Section 140 of the Jammu & Kashmir Transfer of Property Act with SARFAESJ, and if such harmonization is impossible, it is clear that by virtue of Article 246 read with Section 5 of the Jammu & Kashmir Constitution, Section 140 of the Jammu & Kashmir Transfer of Property Act has to give way to SARFAESI, and not the other way around.
45. Reliance has also been placed on Article 35A of the Constitution as it applies to the State of Jammu & Kashmir. The said Article reads as follows: "'35A. Saving of laws with respect to permanent residenrs "and /heir rights- Notwithstanding anything contained in STATE BANK OF INDIA v. SANTOSH GUPTA AND ANR. ETC. 1033 [R. F. NARIMAN, J.] this· Constitution, no existing law in force in the State of Jammu and Kashmir, and no law hereafter enacted by the Legislature of the State,- ( a) Defining the classes of persons who are, or shall be, permanent residents of the State of Jammu and Kashmir; or (b) Conferring on such permanent residents any special rights and privileges or imposing upon other persons any restrictions as respects- (i) employment under the State Government; (ii) acquisition of immovable property in the State; (iii) settlement in the State; or (iv) right to scholarships and such other forms of aid as the State Government may provide, Shall be void on the ground that it is inconsistent with or takes away or abridges any rights conferred on the other citizens oflndia by any provision of this Part."
46. We fail to understand how Article 35Acarries the matter any further. This Article only states that the conferring on permanent residents of Jammu & Kashmir special rights and privileges regarding the acquisition of immovable property in the State cannot be challenged on the ground that it is inconsistent with the fundamental rights chapter of the Iridian Constitution. The conferring of such rights and privileges as mentioned in Section 140 of the Jaminu & Kashmir Transfer of Property Act is not the subject matter of challenge on the ground that it violates any fundamental right of the Constitution ofindia. Furthermore, in view of Rule 8(5) proviso, such rights are expressly preserved. 4 7. We find that the High Court judgment ultimately states: "It is held thatthe Union Parliament does not have legislative · competence to make laws contained in section 13, section r7(A), section 18(8) section 34, 35 and section 36, so far· as they relate to the State of J&K; It is further held that in view of the aforesaid declaration, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 cannot be c (2016] 9 S.C.R. enforced in the State of J&K; It is further held that the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 can be availed of by the banks, which originate from the State of J&K for securing the monies which are due to them and which have been advanced to the borrowers, who are not State subjects and residents of the State of J&K and who are non State subjects/ non citizens of the State of J&K and residents of any other State oflndia excepting the State of J&K." Having held that the provisions ofSARFAESI cannot be applied to the State of Jammu & Kashmir, it is a contradiction in terms to state that SARFAESI can be availed of by banks which originate from the State of Jammu & Kashmir for securing monies which are due to them and which have been advanced to borrowers who are not the residents of the State of Jammu & Kashmir. 48. We therefore set aside the judgment of the High Court. As a result, notices issued by banks in terrns of Section 13 and other coercive methods taken under the said Section are valid and can be proceeded with further. The appeals are accordingly allowed with no order as to costs. Kalpana K. Tripathy Appeals allO\\·ed.