Monday, December 26, 2016



                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION

                    CIVIL APPEAL No    11004     OF 2016
                 [Arising out of SLP (C) No. 33119 of 2013]




                               J U D G M E N T


           Leave granted.

2     The appellant has failed  in  a  challenge  to  the  legality  of  the
Vidhayak Nidhi Scheme in the State  of  Uttar  Pradesh  which  provides  for
annual  budgetary  grants  to  Members  of  the  Legislative  Assembly   and
Legislative   Council   for   facilitating   development   work   in   their

The Allahabad High  Court  by  a  judgment  and  order  dated  13  May  2013
dismissed the writ petition under Article 226 of the Constitution. This  has
given rise to the institution of these proceedings.

3           In 1993, the Prime Minister of India announced a scheme,
popularly known by the acronym MPLADS (an abbreviation for Members of
Parliament Local Area Development Scheme). The Scheme provides for annual
budgetary grants by the Union Government to enable Members of Parliament to
recommend work of a developmental nature with an emphasis on creating
durable community assets based on local necessities in their
constituencies. The constitutional validity of the Scheme was adjudicated
upon and upheld in a judgment of a Constitution Bench of this Court
rendered on 6 May 2010 in Bhim Singh v. Union of India[1].
4           In the State of Uttar Pradesh, a scheme known as the Vidhayak
Nidhi Scheme was introduced in the State Budget in 1998-1999 with an
allocation of Rupees fifty lakhs for every Member of the Legislative
Assembly and Legislative Council. In the Budget of 2000-2001, the
allocation under the Scheme was enhanced to Rupees seventy five lakhs. The
appellant moved the High Court in its writ jurisdiction in 2004 seeking to
challenge the constitutionality of the Vidhayak Nidhi Scheme and for
obtaining an order restraining the state from enhancing the budgetary
outlay from Rupees seventy five lakhs to one crore per MLA/MLC, as was
proposed. The appellant submitted that if the challenge to the validity of
the Scheme is not accepted, then in the alternative, the moneys allocated
under the Scheme should be permitted to be utilized only for meeting the
expenditure on schemes which have been sanctioned under the district plan
pursuant to the provisions of Article 243ZD and the U P District Planning
Committee Act, 1999.
5     The primary submission of the appellant before the High Court (and  in
these proceedings under Article 136 of the Constitution  as  well)  is  that
the field of development plans for districts is occupied by  virtue  of  the
provisions contained in  Article  243ZD  and  the  enactment  of  the  state
legislature noted  above.  According  to  the  appellant,  it  is  only  the
District Planning Committee which can identify or approve of  a  development
plan. Hence,  it  was  urged  that  elected  representatives  of  the  state
legislature cannot be permitted to  select  a  scheme  other  than  what  is
within the purview of an approved development plan prepared by the  District
Planning Committees under the state legislation of  1999.  The  judgment  of
the Constitution Bench  of  this  Court  in  Bhim  Singh  (Supra)  had  been
rendered during the pendency of the writ petition in  the  High  Court.  The
appellant sought to make a distinction between  crucial  aspects  of  MPLADS
which  distinguish  from  the  Vidhayak  Nidhi  Scheme  in  Uttar   Pradesh.
Moreover, it was urged that the judgment of  the  Constitution  Bench  would
not conclude the issue since Article 243ZD and the provisions of  the  state
legislation of 1999 would apply to the state scheme (and not MPLADS).

6      The  Division  Bench  of  the  High  Court  held  that  there  is  no
distinction between MPLADS and the Vidhayak Nidhi Scheme  since  under  both
the central and the state schemes, the recommended work  has  to  relate  to
one district or the other within the country. The  High  Court  adopted  the
view that the power of identifying and recommending work of a  developmental
nature conferred upon the elected  representatives  –  be  they  Members  of
Parliament under MPLADS or MLAs/MLCs under the state scheme is  supplemental
to the power vested in the District  Planning  Committee  constituted  under
the state legislation. Hence, while dismissing the writ petition,  the  High
Court held that the judgment of the Constitution Bench  in  Bhim  Singh  was
dispositive of the controversy.

7     In the concluding part of its  judgment  and  order,  the  High  Court
dwelt on the grievance which was urged by  the  appellant  on  the  lack  of
accountability in respect of moneys disbursed under the scheme  and  certain
allegations of the misuse  of  funds  which  the  appellant  had  addressed,
primarily based  on  certain  newspaper  reports.  The  High  Court  granted
liberty to the appellant to formulate its suggestions for  consideration  by
the Principal Secretaries in the Department of Planning and Development  and
the Legislative Department  of  the  State  Government.  Dealing  with  that
aspect, the High Court observed as follows :

“Since the main prayer in this writ  petition  has  already  been  discussed
above and not found acceptable, the writ petition is dismissed  but  liberty
is granted to the appellant to formulate its  suggestion  for  consideration
by the Principal Secretary, Planning and  Development,  U.P.  Government  as
well as Principal Secretary, Legislative Department,  U.P.  Government.   We
are also of the view that suggestion should  receive  serious  consideration
of all the concerned authorities for the simple  reason  that  public  money
should always be accountable and State has  a  duty  to  take  all  possible
steps to prevent misuse of public money  particularly  when  murmur  against
perceived misuse of Vidhayak Nidhi is becoming more audible. We  expect  the
authorities to act in the matter with due sincerity and promptitude so  that
there is no occasion for any  further  public  interest  litigation  in  the
matter.”  (emphasis supplied)

Aggrieved by the inaction of  the  State  Government  in  dealing  with  the
representation submitted by it, the  appellant  moved  a  contempt  petition
before the High Court. Eventually, an order  was  passed  by  the  Principal
Secretary in the Rural Development Department of the State Government on  21
May 2014 and by the Principal Secretary in the  Planning  Department  on  17
June 2014.

8     Article 243ZD is in Part IXA of  the  Constitution  which  deals  with
Municipalities.  Parts  IX  (which  deals  with  Panchayats)  and  IXA  were
introduced  by  the  seventy  third  and   seventy   fourth   constitutional
amendments.  Article  243ZD   provides  for  the  constitution  of  District
Planning Committees for every district in each state for the preparation  of
a draft developmental plan for the district as a whole. The  provision  also
enables the legislature of each state to enact legislation setting down  the
composition of the District Planning Committees, the manner in  which  seats
on the Committees shall be filled up and the functions  of  the  Committees,
relating to district  planning  among  other  things  Article  243ZD  is  as
follows :

“243ZD. Committee for district planning
(1) There shall be constituted in  every  State  at  the  district  level  a
District Planning  Committee  to  consolidate  the  plans  prepared  by  the
Panchayats and the Municipalities in the district and  to  prepare  a  draft
development plan for the district as a whole;
(2) The Legislature of a State may, by law, make provision, with respect to-

(a) the composition of the District Planning Committees;
(b) the manner in which the seats in such Committees shall be filled:
Provided that no less than four-fifths of the total  number  of  members  of
such Committee shall be elected by, and from amongst,  the  elected  members
of the Panchayat at the district level and  of  the  Municipalities  in  the
district in proportion to the ratio between  the  population  of  the  rural
areas and of the urban areas in the district;
(c)   the functions relating to district planning which may be  assigned  to
such Committees;
(d)   the manner in which the  Chairpersons  of  such  Committees  shall  be

(3)  Every  District  Planning  Committee  shall,  in  preparing  the  draft
development plan-

(a) have regard to-

(i)   matters  of  common  interest   between   the   Panchayats   and   the
Municipalities including  spatial  planning,  sharing  of  water  and  other
physical   and   natural   resources,   the   integrated   development    of
infrastructure and environmental conservation;

(ii)  the extent and type  of  available  resources  whether  financial  and

(b)   consult such institutions and organizations as the  Governor  may,  by
order, specify.

(4) The Chairperson of every District Planning Committee shall  forward  the
development plan, as recommended by such Committee,  to  the  Government  of
the State.”

9     In preparing  the  draft  development  plans,  the  District  Planning
Committee is to have regard  to  the  matters  of  common  interest  between
panchayats and municipalities including spatial planning, sharing  of  water
and other physical or natural resources and the  integrated  development  of
infrastructure and  environmental  conservation.  Moreover,  each  committee
must have due regard to the available resources, financial and otherwise.

10    In exercise of the power conferred by clause  (2)  of  Article  243ZD,
the state legislature of Uttar Pradesh enacted the  U  P  District  Planning
Act, 1999 to effectuate the constitutional provisions for the setting up  of
District Committees and for the preparation of  development  plans  for  the
districts. The importance of  the  provisions  of  Article  243ZD  has  been
noticed in a judgment of a Bench of two learned  Judges  of  this  Court  in
Rajendra Shankar Shukla v. State of Chhattisgarh[2] :

“17. After the insertion of Part IXA in the Constitution,  development  plan
for  a  district  can  only  be  drawn   by   the   democratically   elected
representative body i.e. DPC, by taking into account the  factors  mentioned
in clauses (3)(a)(i) and  (ii)of  Article  243ZD.   As  per  clause  (4)  of
Article         243ZD,  the  Chairman  of  other  DPC  shall   forward   the
development plan as recommended by the Committee to the  Government  of  the

Emphasising the importance of the role of the District  Planning  Committee,
this Court  held  that  it  is  not  open  to  a  development  authority  to
unilaterally prepare a development scheme resulting in a re-constitution  of
land without taking into consideration the  opinion  and  suggestions  of  a
democratically elected body such as the District Planning Committee.

11    Basing its submissions on the provisions  of  Article  243ZD  and  the
state legislation of 1999, the appellant  contends  that  the  entire  field
stands occupied by the law made by the state  legislature  pursuant  to  the
Constitution. Hence, it has been urged that it is  not  open  to  the  State
Government by means of executive action, as manifested  in  the  formulation
of the Vidhayak  Nidhi  Scheme  to  permit  elected  members  of  the  state
legislature to select development work in  their  constituencies  which  may
not accord with the development plans formulated by  the  District  Planning
Committees. To the extent that the scheme allows a departure,  it  has  been
urged that it would be ultra-vires. Alternatively,  it  has  been  suggested
that the scheme may be confined to allowing elected  members  of  the  state
legislature to recommend only such work as  is  duly  sanctioned  under  the
development plans prepared by the  District  Planning  Committees.  In  this
context, it has been submitted that the above issue, which was sought to  be
canvassed before the High Court in the present case, was not  considered  in
the judgment of the Constitution Bench in Bhim Singh,  since  it  would  not
arise in relation to MPLADS which was in question in that case.

12    In the judgment of Bhim  Singh,  the  Constitution  Bench  upheld  the
validity of MPLADS. The conclusions in the judgment are summarised below :

MPLADS is intra-vires Article 282 as it falls  within  the  meaning  of  the
expression  “public  purpose”  by   aiming   towards   the   fulfilment   of
developmental needs;

a mere allegation of the misuse of funds would not justify invalidating  the
scheme  especially  since  the  scheme  provides  for  several   layers   of

there is no violation of the doctrine of separation of  powers  inasmuch  as
MPLADS  is  effectively  controlled  and   implemented   by   the   district
authorities with adequate safeguards under the applicable guidelines; and

the role of Members of Parliament under MPLADS is  limited  to  the  initial
choice of developmental work  in  the  area,  whereas  the  verification  of
eligibility and feasibility of the recommended work and its sanctioning  and
execution is carried out by local authorities or administrative  bodies.  It
is the district authorities  which  identify  the  agency  through  which  a
particular kind of work should be executed and Panchayati  Raj  Institutions
and Urban Local Bodies are preferred agencies  for  implementation  of  work
under MPLAD.

In Bhim Singh, the  Constitution  Bench  while  upholding  the  validity  of
MPLADS held that the scheme supplements the efforts of the states and  local
authorities. Moreover, the scheme was held not to be an interference in  the
functional or financial domain of the local planning  authorities.  In  that
context, the Constitution Bench observed thus :

“76. Further, the Scheme only supplements  the  efforts  of  the  State  and
other local authorities and does not seek to interfere in the functional  as
well as financial domain of the local planning authorities of the State.  On
the other hand, it only strengthens the welfare measures taken by them.  The
Scheme in its present form, does not  override  any  powers  vested  in  the
State Government or the local authority. The  implementing  authorities  can
sanction a scheme subject to compliance with the local laws.”

13    The impact of the provisions of the Seventy third and  Seventy  fourth
amendments to the Constitution by which Parts IX  and  IXA  were  introduced
also came up for deliberation in the course of the judgment.  The  grievance
of the appellants was that MPLADS introduced  a  decision  making  authority
which is extraneous to Parts IX and IXA. The submission  was  noted  in  the
following terms :

“91. It is also the grievance of the appellants that  with  the  passing  of
the  Seventy  third  and  Seventy  fourth  Amendments  to  the  Constitution
introducing Part IX in relation to the panchayat and Part  IXA  in  relation
to the municipalities, the entire area of  local  self-government  has  been
entrusted to the panchayats under Article 243-G read with  Schedule  11  and
the municipalities  under  Articles  243-W,  243-ZD  and  243-ZE  read  with
Schedule 12 of the Constitution. According  to  them  the  MPLAD  Scheme  is
inconsistent with Parts IX and IX-A insofar as  the  entire  decision-making
process in regard  to  community  infrastructure  of  works  of  development
nature for creation of durable community assets  including  drinking  water,
primary education, public health, sanitation and roads, etc is given to  the
Members of Parliament even though the decision-making process in  regard  to
these very same matters is conferred to the panchayats  and  municipalities.
The MPLAD Scheme, according to them, is in direct  conflict  with  Parts  IX
and IX-A of the Constitution. It was argued that  the  Scheme  introduces  a
foreign element which takes over part of the  functions  of  the  panchayats
and municipalities.”

14    However, in response to the submission, the  Constitution  Bench  held
that the function of a Member of Parliament under the applicable  guidelines
is merely to recommend a piece of work. The district authority is  entrusted
with the absolute authority to decide  upon  the  feasibility  of  the  work
recommended,  assess  to  the  funds  required  for  execution,  engage   an
implementing agency, supervise the work and  ensure  financial  transparency
by providing audit and  utilization  certificates.  The  Constitution  Bench
observed  that  a  major  role  is  assigned  under  MPLADS  to  panchayats,
municipalities and corporations. Rejecting the argument of invalidity,  this
Court observed as follows :

“93…The extracts of the Guidelines we have  produced  above  make  it  clear
that even though the district authority is given the power to  identify  the
agency through which a particular work  recommended  by  the  MP  should  be
executed, the Panchayati Raj  institutions  (PRIs)  will  be  the  preferred
implementing agency in the rural areas, through the Chief Executive  of  the
respective PRI, and the implementing agencies in the urban  areas  would  be
urban local bodies, through the Commissioners/Chief  Executive  Officers  of
Municipal Corporations, municipalities”.

The submission that the scheme  violated  the  constitutional  principle  of
separation of powers was accordingly repelled.

15    In the present case, relying upon the  judgment  in  Bhim  Singh,  the
High Court held that the Vidhayak Nidhi Scheme only supplements the  efforts
of the states and local authorities. In the view  of  the  High  Court,  the
power of identifying and recommending work of a developmental  nature  given
to elected  representatives,  be  they  Members  of  Parliament  or  of  the
Legislative Assembly or Legislative Council is  supplemental  to  the  power
conferred upon District Planning Committees and  cannot  be  invalidated  on
the ground that it cannot co-exist with the Act of 1999.  The   decision  of
the High Court on this aspect is in consonance  with  the  judgment  of  the
Constitution Bench. The Vidhayak Nidhi Scheme does not (in  its  true  scope
and purpose) supplant or  substitute  the  role  of  the  District  Planning
Committees constituted under the provisions  of  the  state  legislation  of
1999. The guidelines which were formulated by  the  State  Government  while
announcing the scheme in 1998 are material and have been adverted to in  the
order passed by the Secretary, Rural Development on 21 May 2014.   Para  1.1
of  the  guidelines  states  that  the  Chief  Minister  had  declared   the
constitution of a fund of Rupees two hundred and sixty crores to provide  an
outlay of Rupees fifty lakhs per year  to  elected  representatives  of  the
state legislature to facilitate development work within their areas to  meet
local requirements and in the interest of  balanced  development.  Para  2.2
provides that the construction work would be  developmental  in  nature  for
the creation of local assets and funds shall not  be  utilized  for  meeting
revenue expenditure. Para 4.2 envisages that  audit  of  the  amount  to  be
spent from the  MLA  fund  would  be  conducted  by  the  Rural  Development
Department. The technical audit of  construction  works  carried  out  every
year would be made  by  the  technical  audits  cell.  In  order  to  ensure
transparency, every citizen would be entitled to have information in  regard
to the particulars of work being carried out through  the  service  provider
agency/Rural   Development   Department.   Under   para   5.1,   the   Chief
Developmental  Officer  is  appointed   as   Nodal   Officer   to   maintain
coordination  between  the  State  Government  and  the  Rural   Development
Department. There are provisions for the inspection of the development  work
by the Chief Development Officer and by the  officers  at  the  sub-regional
and divisional levels. The Chief Development Officer who is appointed  as  a
Nodal Officer is also  associated  with  the  District  Planning  Monitoring
Committee. Consequently, the Chief Development  Officer  is  entrusted  with
the work of ensuring that there is no duplication of work.  The  examination
of the work recommended by the elected representatives is made by the  Chief
Development Officer. The fund  is  maintained  through  the  District  Rural
Development Agency which together with the technical committee  is  required
to inspect the work carried out  under  the  scheme.  A  further  government
order  has  been  issued  on  29  November  2012  for   clarifying   certain
ambiguities in the scheme.

16    The aspect which merits careful attention  is  the  grievance  of  the
appellant that the High Court failed to notice critical differences  between
MPLADS and the Vidhayak Nidhi Scheme though these were pleaded  specifically
in the affidavits filed. These differences have a bearing on the role  which
is assigned to the elected representatives in the decision making process.

17    In Bhim  Singh,  this  Court  had  upon  a  careful  analysis  of  the
guidelines framed under MPLADS noted  that  the  function  of  a  Member  of
Parliament under clause 3.1 is merely to “recommend a work”.  On  the  other
hand, the district authorities are assigned with  the  authority  to  decide
upon the feasibility of the work  recommended,  assess  the  requirement  of
funds, engage the implementation agency, supervise the work  and  to  ensure
financial transparency in the form of audit  and  utilization  certificates.
Moreover, though the district authority is given the power to  identify  the
implementing agency which would execute the work recommended by the  elected
representatives, panchayati raj institutions are the preferred  implementing
agencies in the rural areas while in urban areas it  would  be  urban  local
bodies who would have a preferred position for implementation under  MPLADS.
It was having due regard to these facets of the scheme that  this  Court  in
Bhim Singh rejected the submission  that  the  scheme  had  taken  over  the
functions of panchayats and municipalities under Parts IX  and  IXA  of  the

18    In the present case, the State Government filed  a  counter  affidavit
through its Special Secretary in the  Rural  Development  Department  before
the High Court. Dealing  with  the  grievance  in  the  writ  petition,  the
Special Secretary set  out  the  role  which  is  assigned  to  the  elected
representatives in the context of the Vidhayak Nidhi Scheme, thus :

“…..The role of Members of Legislative Assembly and Members  of  Legislative
Council is to identify the  priorities  of  developmental  works  for  their
constituencies and recommend the same to Chief Development  Officer  of  the
concerned  district,  who  implement  the  work  in  accordance   with   the
guidelines and Government Orders relating to the Vidhayak Nidhi.”

The appellant filed an affidavit on 10  October  2011  specifically  in  the
context of the judgment of this Court in Bhim Singh. The affidavit  makes  a
grievance of the fact that unlike  MPLADS,  where  urban  local  bodies  for
urban areas and panchayati raj institutions in rural areas  are  to  be  the
preferred implementing agencies, in the case of the  Vidhayak  Nidhi  Scheme
not only the implementing agency but the contractor is also usually  of  the
choice of the MLA/MLC. The grievance of the appellant is as follows :

   “Again, unlike the MPLAD Scheme,  (Para  97(7)  of  the  judgment)  under
Vidhayak Nidhi Scheme the Municipal and  Panchayati  Raj  institutions  have
been denuded of their role and jurisdiction.  Under Para 2.11 of  the  MPLAD
Scheme urban local bodies in the urban area and panchayati raj  institutions
in the rural areas have to  be  the  preferred  implementing  agency.   This
caveat is missing in the case of Vidhayak Nidhi.   Moreover,  Not  only  the
implementing agency but also the contractor is usually  the  choice  of  the
MLA/MLC leading to scope for wide spread corruption in the execution of  the
works                  under                  the                   scheme.”

                                             (emphasis supplied)

 Again, this was reiterated in the following extracts in the same  affidavit

   “The checks and  balances  stipulated  in  the  case  of  MPLAD  are  not
available in the case of Vidhayak Nidhi.  While under MPLAD Scheme the  role
of MP is theoretically limited to recommending a work,  under  para  3.1  of
the Vidhayak Nidhi scheme, consent of the MLA/MLC is required not  only  for
selection of the work but also for its sanction which includes the  location
and cost thereof, and the selection  of  implementing  agency.   This  makes
them the de facto sanctioning authority for the work.   Thus,  the  function
of sanctioning these works is performed by them as it is  subject  to  their
veto.”              (emphasis supplied)

19    The grievance of  the  appellant  is  also  that  unlike  MPLADS,  the
Vidhayak Nidhi Scheme has  been  used  to  finance  buildings  belonging  to
private organizations, which explains why there was a clamour to give  money
to schools controlled by the MLA/MLC  or  by  the  members  of  his  or  her
family. This, it was  submitted  was  resulting  in  a  misappropriation  of
public funds since the construction of school buildings can  be  implemented
through  the  principal/manager.   Hence,   it   was   asserted   that   the
accountability mechanism which this Court found to be existing in MPLADS  is
absent under the Vidhayak Nidhi Scheme.

20    The State  Government  has  not  dealt  with  this  grievance  of  the
appellant either in the pleadings filed in the  course  of  the  proceedings
before the High Court or in the  counter  affidavit  which  has  been  filed
before this Court. The  grievance  that  unlike  MPLADS,  the  role  of  the
elected  representatives  of  the  state  legislature  goes  beyond   merely
recommending the work has remained  uncontroverted.  The  judgment  of  this
Court in Bhim Singh emphasised that MPLADS merely  supplements  the  welfare
schemes of the states and other local authorities and does not interfere  in
the functional or financial domain of the  local  planning  authorities.  In
that context, it was noted on the basis of the guidelines that the  role  of
the elected representatives is confined  merely  to  recommending  the  work
which is  to  be  carried  out.  Thereafter,  the  decision  making  process
commencing from the assessment of the feasibility of  the  work,  estimation
of the funds required and selection of the implementing agency  as  well  as
the work of supervision is entrusted to the  competent  authorities  in  the
district levels. The provisions of Parts IX and IXA of the Constitution  are
duly observed since panchayati raj  institutions  in  the  rural  areas  and
urban local bodies in the urban areas are to be the  preferred  implementing
agencies under MPLADS. The State Government ought to have applied  its  mind
to these crucial aspects which distinguish MPLADS from  the  Vidhayak  Nidhi
Scheme. When the Division Bench of the High Court delivered its judgment  on
30 May 2013, it emphasised the need for ensuring  accountability  in  regard
to public moneys and to the duty of the state to take all possible steps  to
prevent their misuse. The Division Bench  noted  that  the  “murmur  against
perceived misuse of Vidhayak Nidhi is becoming  more  audible”.  It  was  in
this view, that a direction was issued to the Principal Secretaries  in  the
Planning and Development Department and in  the  Legislative  Department  to
take  heed  of  the  suggestions  of  the  appellants  with  “sincerity  and
promptitude”. The State Government in the two orders which have been  passed
by its Principal Secretaries on 21 May 2014 and 17 June 2014 paid  only  lip
service to the grievance of the appellant. The principles  which  have  been
formulated in the judgment of the Constitution Bench in Bhim Singh have  not
even been noticed nor has any attempt been made on the  part  of  the  State
Government to ensure that the guidelines which  govern  the  Vidhayak  Nidhi
Scheme are brought in consonance with the provisions of Parts IX and IXA  of
the Constitution and the observations contained  in  the  judgment  of  this
Court in Bhim Singh. Hence, while we are of the view that there  can  be  no
objection to the state implementing a scheme of the nature that  was  upheld
by the Constitution Bench in Bhim Singh, the safeguards which  form  a  part
of the MPLAD Scheme should be duly considered so as to ensure that the  role
which is ascribed to the district planning authorities and  institutions  of
local  self-governance  is  not  denuded.  The  safeguards  which  must   be
introduced shall include the following  :

the role of the elected representatives would be to recommend the work of  a
developmental nature in their  constituencies  within  the  budget  allotted
under the Scheme;

the  feasibility  of  the  work,  estimate  of  funds,  selection   of   the
implementing  agency  and  supervision  of  work   must   be   independently
determined by a nominated authority or body of the State government;

panchayati raj institutions in rural areas and  municipal  bodies  in  urban
areas may be considered as preferred implementing agencies having regard  to
the  entrustment  of  responsibilities  under  Parts  IX  and  IXA  of   the

the plans prepared by the District Planning Committees under  Article  243ZD
read with the U  P  District  Planning  Committee  Act,  1999  may  be  made
available by every district Collector to elected representatives  to  enable
them to decide  whether  any  developmental  work  which  has  already  been
identified in the above plan should be executed in pursuance  of  the  funds
made available under the Vidhayak Nidhi Scheme; and

sufficient safeguards should be provided  to  ensure  against  conflicts  of
interest such as the allocation of funds to institutions  controlled  by  an
elected representative or a member of his or her family; and

The  scheme  must  include  sufficient  safeguards   to   ensure   financial
transparency, such as proper supervision of  work,  monitoring  quality  and
timely completion besides procedures to ensure proper audit and  utilization
of funds.

 21   We are in agreement with the view of the High Court that the  Vidhayak
Nidhi Scheme does not per se violate Article 243ZD or the U P  Planning  and
Developmental Act, 1999.  Elected  representatives  have  a  vital  role  in
democracy.  They have an intrinsic connection with their constituencies  and
have a legitimate role to discharge in  meeting  the  development  needs  of
their constituencies.  Article 243ZD does not exclude their  role.   On  the
contrary, they perform a supplemental role by enhancing and  supporting  the
work of the institutions of local self-governance.   However, it is  in  our
view necessary that the guidelines which have been formulated by  the  State
Government are revisited and the directions set out above are complied  with
so as to ensure that the guidelines are in conformity with  the  spirit  and
underlying purpose of Parts IX and IXA of the Constitution in terms as  held
by the Constitution  Bench  of  this  Court  in  Bhim  Singh.   The  revised
guidelines shall apply to all projects to be undertaken hereafter under  the
Vidhayak Nidhi Scheme.  This  exercise  shall  be  completed  by  the  State
Government not later than a period of two months from  the  receipt  of  the
present judgment. The appeal shall accordingly  stand  disposed  of  in  the
above terms. There shall be no order as to costs.

                                   ..................................... CJI


                                                        [Dr D Y CHANDRACHUD]

New Delhi
November 21, 2016.
[1]         [2] (2010) 5 SCC 538


      [4]  (2015) 10 SCC 400

NOIDA Toll Bridge Company Ltd. V.s Federation of NOIDA Residents Welfare Association -November 11, 2016


                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                 Special Leave Petition (C) No……………….of 2016
                          (Diary No. 36526 of 2016)

NOIDA Toll Bridge Company Ltd.            .... Petitioner(s)

Federation of NOIDA Residents Welfare
Association & Ors                             ….Respondent(s)

                                  O R D E R


      I.A. No…………………of 2016 which  is  an  application  for  exemption  from
filing certified copy of judgment dated 26.10.2016 passed by the High  Court
of Judicature at Allahabad in Public Interest Litigation (PIL) No. 60214  of
2012 is allowed.
Issue notice.  Respondent Nos. 1, 2, and 9 are  represented  by  Mr.  Sanjay
Hegde, learned Senior Advocate, Mr. Ranjit Saxena, Advocate and  Mr.  K.  K.
Venugopal, learned Senior Advocate respectively. Notice shall now go to  the
remaining Respondents only.
Federation of NOIDA Residents Welfare Association &  Ors.,  Respondent  No.1
herein, filed PIL No.60214 of 2012  in  the  High  Court  of  Judicature  at
Allahabad for a declaration that collection of toll fee  should  be  stopped
on the DND Flyover between New Delhi and NOIDA.
A Concession Agreement (hereinafter referred  to  as  “the  Agreement”)  was
entered into between the Petitioner, NOIDA (Respondent No.2)  and  IL  &  FS
Ltd. (Respondent No.9)  on  12.11.1997  for  development  of  infrastructure
facility of a bridge and an access  road.   The  Project  was  conceived  on
Build-Operate-Transfer (BOT) basis.   The 9th Respondent  IL  &  FS  had  to
arrange the investment for the Project which could be recovered by  levy  of
toll from the users of the road and the Project.
As the main dispute in the PIL filed in the High Court revolves  around  the
recovery of the Project Cost by the proponent, it is essential to  refer  to
some important provisions of  the  Agreement.  Section  2.3  refers  to  the
concession period which is as follows:
“Section 2.3 Concession Period

(a) The Concession Period shall commence on the  Effective  Date  and  shall
extend until the earlier of:

A period of 30 years from the Effective Date; or

(ii)  The date on which the concessionaire shall recover the Total  Cost  of
Project and the Returns  as  determined  by  the  Independent  Engineer  and
Independent Auditor in accordance with Section 14 thereon  through  (a)  the
demand, collection, retention and Appropriation of  Fee,  (b)  the  receipt,
retention and appropriation of Development Income, or (c) any  other  method
as determined by the Parties.

(b)   Upon the termination of  the  Concession  Period,  the  Concessionaire
shall transfer the Project Assets to NOIDA in accordance with the  terms  of
Article 19.”

It is relevant to refer to the definition of ‘Effective  Date’  which  means
the earlier of (a) the date of issuance of Certificate of Compliance or  (b)
the date of issuance of Certificate of  Commencement.  Article  19  provides
that NOIDA will continue the operations of the DND project  either  directly
or by its nominated agency  from  the  ‘Transfer  Date’  which  is  the  day
immediately following the last day of the concession period,  including  any
extension thereto or earlier termination  thereon  in  accordance  with  the
terms of the Agreement.
Fixation and calculation of the fee is dealt with in  Section  13.   As  per
Section 14.1, the Total Cost of the Project shall be the  aggregate  of  (i)
Project Cost, (ii) Major Maintenance Expenses  &  (iii)  Shortfalls  in  the
recovery of returns in a specific financial  year  as  per  the  formula  in
Section 14.2 (a).
Section 14.2 contemplates that recovery of the Total  Cost  of  the  Project
and  Returns  therefrom  shall  be  as  illustrated  in  Annexure  F.    The
calculation of the Returns shall  be  made  at  annual  intervals  from  the
effective date in the following manner:
“Start  with:   Gross  revenue  from  fee  collections,   income        from
advertising and Development income.

      Less:        O & M expenses

Less:   Taxes (excluding any customs and   import duties).”

“Returns” is defined in the Agreement as the returns on the  Total  Cost  of
Project recoverable by the Concessionaire from the  effective  date  at  the
rate of 20 per cent per annum as per Section 14.2 of the Agreement.
Respondent No.  1 contended in the writ petition that the Total Cost of  the
DND Flyover Project was approximately Rs. 408.17 Crores and  the  cumulative
toll income from the years 2001 to  2014  was  Rs.  803.524  Crores.  As  on
31.03.2014 the cumulative net profit was Rs. 165.08 Crores.  Respondent  No.
1 further contended that the Total Cost of the Project as per the report  of
the Company’s Auditor  was  Rs.  2,339.69  crores  as  on  31.03.2012  which
increased to Rs. 2,955.1 crores as on 31.03.2013 and Rs. 3,448.95 crores  as
on 31.03.2014. It was further urged that the projected figure of  the  Total
Cost of the Project as on 31.03.2016 was Rs. 5,000 crores. It was  contended
by Respondent No. 1 that as per  the  calculation  of  the  Auditor  of  the
Petitioner herein, the Total Cost of the Project can never be recovered  and
the Project will never be free from levy of toll.
The Petitioner contested the Writ Petition on several grounds including  the
maintainability. The Petitioner herein relied upon  the  Agreement  and  the
reports  of  the  Independent  Auditor  appointed  in  accordance  with  the
Agreement to contend that the  Total  Cost  of  the  Project  has  not  been
The High Court framed six  questions  for  consideration  and  concluded  as
“This Public Interest Litigation is legally maintainable.

In the facts of the case, interference with the Concessionaire agreement  is
warranted in exercise of powers of judicial review under Article 226 of  the
Constitution of India.

Selection of Concessionaire in  the  facts  of  the  case  is  violative  of
Article 14 of the Constitution of India  and  is  found  to  be  unfair  and
unjust.  We, however, do not deem it fit to nullify  the  entire  concession

Right to levy and collect User fee from the commuters as conferred upon  the
Concessionaire  under  the  Concession  Agreement  suffers  from   excessive
delegation and is contrary to the provisions of  the  U.P.  Industrial  Area
Development Act, 1976.  Article 13 (Clause) of the Concession  Agreement  is
held to be bad and inoperative in the eyes of law.

The method of calculation of the Total Project  Cost  and  appropriation  of
the User  fee  collection  under  Article  14  (Clause)  of  the  Concession
Agreement is held to be arbitrary and opposed to Public Policy.  Article  14
(Clause) of the Concession Agreement is severed, therefrom.

The proposed Amendments do not affect the reliefs  which  have  been  prayed
for in the petition.”

On the  basis  of  the  above  conclusions,  the  High  Court  directed  the
Petitioner not to impose any user fee/toll from the commuters for using  the
DND flyover.
Dr. Abhishek Manu  Singhvi,  learned  Senior  Advocate  for  the  Petitioner
submitted  that  the  reports  of  the  Independent  Auditor  appointed   in
accordance with the Agreement were  not  properly  considered  by  the  High
Court. He handed over two charts which, according to him, were  prepared  in
accordance with the terms of  the  Agreement.  Relying  on  the  charts,  he
submitted that the Total Cost of the Project  has  not  been  recovered.  He
urged that the Petitioner has created a world-class  facility  of  a  bridge
over the river Yamuna and a 8 lane highway of 9.5  kilometres.  Dr.  Singhvi
submitted that the veracity of the Petitioner’s claims that the  Total  Cost
of the Project has  not  been  recovered  can  be  verified  by  taking  the
assistance of the Comptroller and  Auditor  General  of  India.  Finally  he
submitted that the Petitioner would suffer irreparable loss if the  judgment
of the High Court is not stayed.
Prima facie, we are of the opinion that the various  issues  that  arise  in
this SLP warrant a detailed scrutiny.  Conflicting  claims  have  been  made
regarding  the  recovery  of  the  Total  Cost  of  the   Project   by   the
Concessionaire.  To  resolve  the  dispute,  it  is  appropriate   that   an
independent agency is requested to examine the relevant records of  the  DND
flyway. The said agency  should  examine  the  reports  of  the  independent
auditors appointed by the Petitioner  and  submit  a  report  regarding  the
correctness of the Petitioner’s claim that the Total  Cost  of  the  Project
has not been recovered. We accept  the  suggestion  of  the  Petitioner  and
request the Comptroller and Auditor General of India (CAG) to assist  us  in
this  matter.  The  Petitioner  is  directed  to  place  the  entire  record
pertaining to the recovery of the Total Project  Cost  of  the  DND  flyover
project as per the Agreement before  the  CAG.   The  CAG  is  requested  to
verify the claim of the Petitioner that the Total Cost of  the  Project  has
not been recovered and submit a report within four weeks. The CAG  shall  be
at liberty to call for and examine all such records having a bearing on  the
financial aspects, as it requires to facilitate  its  decision.   This  will
include matters and information pertaining to all the  benefits  which  have
flowed to the Petitioner under the entirety of the agreement, including  the
utilisation, if any.  The Petitioner shall co-operate in all  respects  with
the CAG and provide all documents, information and details as sought.
We do not agree  with  the  submission  that  the  Petitioner  would  suffer
irreparable loss if the judgment of the High Court is not stayed.   It  will
be impossible to provide restitution to the lakhs  of  commuters  from  whom
the fee would be collected to repay them in the event of  dismissal  of  the
SLP. On the other hand, if the Petitioner succeeds, it  can  be  compensated
suitably by extension of time.  The balance of convenience is  also  against
the Petitioner. Therefore, we are not inclined to grant the  interim  relief
as prayed for.

A copy of this order shall be provided to the CAG expeditiously.
Three weeks time granted to the respondents for filing  their  Counters  and
one week thereafter to the petitioners  for  filing  a  Rejoinder,  if  any.
List the matter after four weeks.

                 [T. S. THAKUR]

                           [Dr. D. Y. CHANDRACHUD]

                                                 [L. NAGESWARA RAO]

New Delhi,
November 11, 2016

Sunday, December 25, 2016



                         IN THE SUPREME COURT OF INDIA

                          CIVIL APPELLATE JURISDICTION

                      S.L.P. (CIVIL) NO. 10706 OF 2014




SLP(C) No. 24080/2014
SLP(C) No. 22322/2015
SLP(C) No. 23092/2014
SLP(C) No. 28382/2014
SLP(C) No. 18491/2014
SLP(C) No. 594/2015
SLP(C) No. 28380/2014
SLP(C) No. 22327/2015
SLP(C) No. 22329/2015
SLP(C) No. 28367/2014
SLP(C) No. 28324/2014
SLP(C) No. 18495/2014
SLP(C) No. 18033/2015
SLP(C) No. 36132/2014
SLP(C) No. 22328/2015
S.L.P.(C)...CC No. 11227/2014
SLP(C) No. 28393/2014
SLP(C) No. 28363/2014
SLP(C) No. 21992/2015
SLP(C) No. 28417/2014
SLP(C) No. 632/2015
SLP(C)  D. No. 10476/2015
SLP(C) No. 23099/2014
SLP(C) No. 28391/2014
SLP(C) No. 28396/2014
SLP(C) No. 22315/2015
SLP(C) No. 28316/2014
SLP(C) No. 18490/2014
SLP(C) No. 28381/2014
SLP(C) No. 22332/2015
SLP(C)  D. No. 22563/2015
SLP(C) No. 22326/2015
SLP(C) No. 18492/2014
SLP(C)  D. No. 22559/2015
SLP(C)  D No. 1206/2014

                               J U D G M E N T


1.    Delay condoned.

2.    The procrastinated dissension in these Special Leave  Petitions  under
Article 136 of the Constitution of India has its inception in  the  dogmatic
claim  of  the petitioners of'  being  tenants  in  respect  of   individual
plots claimed to be in their possession and  utilized  for  cultivation,  as
envisaged under the Bombay Tenancy and  Agricultural  Land  Act,  1948  (for
short hereinafter refer to as ‘the Act’).   The  exercise  launched  by  the
petitioners herein to achieve  this  elusive  distinction  is  traceable  to
applications filed by them and others claiming to be equally  placed,  under
Section 70(B) of the  Act  in  the  office  of  Tehsildar,  Thane  for  such
declaration.  After several ups and downs with reversals  in  fortunes,  the
Maharashtra  Revenue  Tribunal  (hereinafter  also  referred  to   as   “the
Tribunal”) interfered with  the  decision  of  the  Sub-Divisional  Officer,
Thane Division, Thane and remanded  the  matter  to  the  concerned  tenancy
authority for a fresh round of scrutiny on facts.  By  the  ruling  assailed
in the present Special Leave Petition,  the  High  Court  of  Judicature  at
Bombay has set  at  naught  this  determination  of  the  Tribunal  and  has
rejected the claim of the petitioners.

3.    Though at the first instance, 124 Special  Leave  Petitions  had  been
filed, this Court by order dated 04.05.2016  has  dismissed  all  except  36
therefrom,  as  only  in  the  surviving  special   leave   petitions,   the
petitioners therein had ventured to offer  documents  in  support  of  their
claim.  This was  more  so,  as  by  earlier  orders  dated  11.07.2014  and
14.03.2016,  the  petitioners  were  required  to   produce   documents   to
substantiate their claim of tenancy under the Act as  on  the  Tiller's  Day
i.e. 01.04.1957.  Be that as it may, the instant scrutiny, as  a  corollary,
is limited to the aforementioned 36  special leave petitions.

4.    As referred  to  hereinabove,  the  petitioners  and  others  claiming
themselves to  be  tenants  in  respect  of  the  plots  involved  did  file
individual  applications  under  Section  70(B)  of  the  Act   before   the
Tehsildar,  Thane  seeking  declaration  of  their  status  as  such.    The
Tehsildar acceded to the prayer made and  allowed  the  applications.  Being
aggrieved, the  respondents-landlords  questioned  the  tenability  of  this
decision before the Assistant Collector,  Thane  by  invoking  the  latter's
revisional   jurisdiction.    The   Revision   Petitions   filed   by    the
respondent/landlords were allowed and  the  matters  were  remanded  to  the
Tehsildar,  Thane  for  a  fresh  adjudication.   Significantly  after  such
remand, the petitioners  and  other  tenants  filed  amendment  applications
modifying their averment of being in cultivating possession of  their  plots
for 20-22 years.  In their amended pleading, they asserted  to  be  in  such
possession for last 40-45 years.

5.    The Tehsildar vide his determination  made  in  the  year  2001  again
allowed the applications of the petitioners and others holding  them  to  be
protected tenants in respect of the  plots  involved.   In  course  of  such
adjudication, the Tehsilidar made site inspections  of  the  land  and  also
noted the standing paddy cultivation thereon.  This revenue  authority  also
recorded that the petitioners  had  been  cultivating  the  plots  prior  to
01.04.1957.  Their status of  protected  tenants  under  the  Act  was  thus

6.    The respondents/landlords next took  the  challenge  before  the  Sub-
Divisional Officer, Thane by filing equal  number  of  appeals,  which  were
allowed  between  December,  2002  to  2005  observing  that  no  sufficient
evidence had been  adduced  by  the  petitioners  and  other  applicants  in
support of their status of tenants.

7.    The petitioners and others, in  their  relentless  pursuit  moved  the
Tribunal for invocation of its revisional jurisdiction.  The Tribunal, by  a
common order, set aside the orders  passed  by  the  two  lower  forums  and
remanded the contest to  the  Tehsildar  to  decide  the  issues  afresh  by
permitting the parties to lead evidence.

8.    The   respondents-landlords next invoked the writ jurisdiction of  the
High Court to laciniate this adjudication of the Tribunal and  to  reiterate
by the verdict impeached herein, the impugnment was upheld and the  revision
applications filed by the petitioners before the Tribunal were dismissed  in

9.    As the text of the decision oppugned herein  would  reveal,  the  High
Court noticed amongst others, that the applications  filed  were  all  in  a
cyclostyled form which did not adequately contain  the  particulars  of  the
lands.  That  the  amendment  applications  did  not  contain  the  required
endorsements to indicate the dates on which those  had  been  submitted  and
taken on record, was noted as well.  It  took  noticed  too,  that  by  such
amendment applications, an attempt had been made to enhance the duration  of
cultivating possession of the petitioner from 20-22 years  to  40-50  years.
It  recorded  the  finding  of   the   Tribunal   that   except   the   7/12
extracts/mutation entries for the year  1982-83  showing  the  names  of  25
persons as cultivators and some mutation entries in the names of  the  legal
representatives of the corresponding original applicants, no other  document
had been produced.  That all the applicants had not examined themselves  was
marked as well.  The High Court recorded that on the basis of the  materials
available, the Tribunal had disbelieved the  contents  of  the  applications
submitted in the cyclostyled forms.   It  noticed  the  observation  of  the
Tribunal  that  the  documents/records  sought  to  be  produced  before  it
(Tribunal) had not been offered in the earlier rounds of  enquiry  and  that
too without any explanation.  The conclusion of  the  Tribunal  that  though
there were documents referring to  agricultural  lands  with  survey  number
thereof along with the particulars of the applicants as cultivators but  the
same  were  not  relatable  to  the  disputed  lands  was  also   taken   in

10.    The  High  Court  thus,  on  a  scrutiny  of  the  available   datas,
disapproved the direction of the Tribunal, in spite of its  above  findings,
to remand the matter to the concerned revenue authorities for a fresh  round
of audit of the rival assertions by allowing the  parties  to  adduce  fresh
evidence.  According to it, if notwithstanding the several arduous bauts  of
the parties, spanning over three decades, the factum of  possession  of  the
petitioners  of  the  plots  involved   as   on   the   Tiller's   Day,   as
agriculturists, could not be demonstrated by valid evidence,  there  was  no
justification for the remand, as ordered  by  the  Tribunal.   The  revision
petitions filed by the petitioners were  therefore  dismissed  as  a  whole,
decisively affirming for all intents  and  purposes,  the  findings  of  the
first appellate authority i.e. Sub-Divisional Officer, Thane,  negating  the
claim of the petitioners.

11.     Before  this  Court,  in  terms  of  the  order  dated   11.07.2014,
additional irreconcilable pleadings have been exchanged by  the  parties  in
the special  leave  petitions,  presently  under  consideration,  so  as  to
identify per se the plots involved  by  their  particulars  in  the  revenue
records with those claimed by the petitioners.

12.     Whereas, it has been assiduously urged on behalf of the  petitioners
that the High Court,  without  adverting  to  the  essential  and  important
aspects  addressed  by  the  Tribunal  and  the  reasons  cited  by  it  had
interfered with its order of remand and that having regard to the  cause  of
social justice, which the petitioners seek in terms of Section  70B  of  the
Act,  the  enquiry,  as  directed,  ought  to  be  permitted,  it  has  been
emphatically urged on behalf of the  respondents  that  the  claims  of  the
petitioners  are  expressly  false,  frivolous  and  fictitious   warranting
summary dismissal of the special leave petitions.  It has been  insisted  on
behalf of the  respondents  that  the  petitioners,  in  spite  of   several
opportunities granted, had utterly failed to  produce  any  proof,  oral  or
documentary to establish their status of protected  tenants  under  the  Act
and therefore, this protracted controversy  ought  to  be  awarded  a  final
quietus for all times to come.  It has been  maintained  that  the  original
tenancy applications of the petitioners were on the basis  of  gut  numbers,
whereas the 7/12 extracts/ mutation  entries  presently  produced  by  them,
contain survey numbers and that one does not correspond  to  the  other.  In
course of the arguments, our attention has been drawn to  several  instances
of the mis-match between the gut numbers and the  survey  numbers,  provided
by the petitioners in respect of the plots claimed by them.

13.     Noticeably, in the chart appended by the petitioners to the  written
arguments laid for our perusal, the above demurral  of  the  respondents  is
writ large on the face thereof.  There are several instances  in  the  chart
submitted by the petitioners exhibiting the inconsistencies pointed  out  by
the respondents.  The admission of the petitioners amongst  others  is  also
that wrong gut numbers had  been  mentioned  in  the  initial  applications.
This  chart  of  the  petitioners  patently  demonstrates  that  though  the
original applications were made on  the  basis  of  gut  numbers,  the  7/12
extracts and mutation entries, as mentioned in their  additional  affidavit,
do refer only to survey numbers.  To reiterate, though the petitioners  have
sought to relate the survey numbers with the  gut  numbers,  it  is  hyaline
clear that those do not match in most of  the  cases  with  the  particulars
referred  to  in  their  applications.   The  explanations  offered  by  the
petitioners on the basis of their  possession  of  the  plots  involved,  in
spite of the  above  anomalies  involved  highly  disputed  and  contentious
questions of  facts.   Having  regard  to  the  prolonged  backdrop  of  the
litigation and the several rounds of enquiries already undertaken,  we  feel
disinclined in the overall  fact  situation,  to  interfere  with  the  well
considered decision of the High Court.  The petitioners,  according  to  us,
have failed over the years, in spite  of  several  opportunities,  to  prove
their claim of protected tenants under  the  Act,  by  producing  consistent
convincing and cogent evidence in support thereof.

14.   Judged in the totality of the attendant facts  and  circumstances,  we
are of the unhesitant view that the impugned  judgment  of  the  High  Court
does not merit any interference.   The  Special  Leave  Petitions  are  thus
dismissed. Cost easy.

                               (DIPAK MISRA)

                                (AMITAVA ROY)
DECEMBER 16, 2016



                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                   CIVIL APPEAL NOS.  12237-12238_OF 2016
            [ARISING OUT OF SLP (CIVIL) NOS.30884-30885 OF 2015]

STATE BANK OF INDIA                     … APPELLANT



                   CIVIL APPEAL NOS.   12240-12246_OF 2016
        [ARISING OUT OF SLP (CIVIL) NOS.30810-30815 & 30817 OF 2015]
                    [SLP (CIVIL) NOS.30810-30817 OF 2015]




                        J U D G M E N T

R.F. Nariman, J.

      Leave granted.

1.    The Constitution of India is a mosaic drawn  from  the  experience  of
nations worldwide.  The federal structure of this  Constitution  is  largely
reflected in Part XI which is largely drawn from  the  Government  of  India
Act, 1935.  The State  of  Jammu  &  Kashmir  is  a  part  of  this  federal
structure.  Due to historical reasons, it  is  a  State  which  is  accorded
special treatment within the framework of the Constitution of  India.   This
case is all about the State of Jammu &  Kashmir  vis`-a-vis`  the  Union  of
India, in so far as legislative relations between the two are concerned.

2.    The present appeals arise out of a judgment dated 16.7.2015 passed  by
the High Court of Jammu & Kashmir at Jammu, in which it has been  held  that
various  key  provisions  of  the  Securitisation  and   Reconstruction   of
Financial  Assets  and  Enforcement   of   Security   Interest   Act,   2002
(hereinafter  referred  to  as  “SARFAESI”)  were  outside  the  legislative
competence of Parliament, as they would collide  with  Section  140  of  the
Transfer of Property Act of Jammu & Kashmir, 1920. The  said  Act  has  been
held to be inapplicable to banks such as the State Bank of India  which  are
all India banks.

3.    Before going into the merits of the case,  it  is  important  to  note
that SARFAESI is an enactment which inter alia  entitles  banks  to  enforce
their security interest outside the court’s process by moving under  Section
13 thereof to take possession of secured assets of  the  borrower  and  sell
them outside the court process. Sections 13 (1)  and  (4)  and  17  are  key
provisions of SARFAESI relevant for the present case and are set out  herein
as follows:

“Section 13. Enforcement of security interest.

(1) Notwithstanding anything contained in section 69 or section 69A  of  the
Transfer of Property Act, 1882 (4 of 1882), any security  interest   created
in   favour  of  any  secured    creditor   may    be    enforced,   without
the intervention of court or tribunal, by such creditor in  accordance  with
the provisions of this Act.

(4) In case the borrower fails to discharge his  liability  in  full  within
the period specified in sub-section  (2),  the  secured  creditor  may  take
recourse to one or more of the following measures  to  recover  his  secured
debt, namely:-- (a) take possession of the secured assets  of  the  borrower
including the right to transfer by way of  lease,  assignment  or  sale  for
realising the secured asset; (b) take over the management  of  the  business
of the borrower including the right to transfer by way of lease,  assignment
or sale for realising the secured asset:

PROVIDED that the right to transfer by way  of  lease,  assignment  or  sale
shall be exercised only where the substantial part of the  business  of  the
borrower is held as security for the debt:

PROVIDED FURTHER that where the management of whole of the business or  part
of the business is severable, the  secured  creditor  shall  take  over  the
management of such business of  the  borrower  which  is  relatable  to  the
security for the debt. (c) appoint any person (hereafter referred to as  the
manager), to manage the secured assets the  possession  of  which  has  been
taken over by the secured creditor; (d) require at any  time  by  notice  in
writing, any person who has acquired any of  the  secured  assets  from  the
borrower and from whom any money is due or may become due to  the  borrower,
to pay the secured creditor, so much of the money as is  sufficient  to  pay
the secured debt.


Section 17. Right to appeal.

(1) Any person (including  borrower),  aggrieved  by  any  of  the  measures
referred to in sub-section (4) of section 13 taken by the  secured  creditor
or his authorised officer under this Chapter, may make an application  along
with such fee, as may be prescribed to the Debts  Recovery  Tribunal  having
jurisdiction in the matter within forty-five days from  the  date  on  which
such measure had been taken:

PROVIDED that different fees may be prescribed for  making  the  application
by the borrower and the person other than the borrower.

Explanation: For the removal of doubts,  it  is  hereby  declared  that  the
communication of 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  of  reasons  to  the
borrower shall not entitle  the  person  (including  borrower)  to  make  an
application to the Debts Recovery Tribunal under this sub-section.

(2) The Debts Recovery Tribunal shall consider whether any of  the  measures
referred to in sub-section (4) of section 13 taken by the  secured  creditor
for enforcement of security are in accordance with the  provisions  of  this
Act and the rules made thereunder.

(3)  If,  the  Debts  Recovery  Tribunal,  after  examining  the  facts  and
circumstances of the case and evidence produced by  the  parties,  comes  to
the conclusion that any of the measures referred to in  sub-section  (4)  of
section 13, taken by the secured creditor are not  in  accordance  with  the
provisions  of  this  Act  and  the  rules  made  thereunder,  and   require
restoration  of  the  management  of  the  business  to  the   borrower   or
restoration of possession          of the secured assets  to  the  borrower,
it may by order, declare the recourse to anyone or  more  measures  referred
to in sub-section (4) of section  13  taken  by  the  secured  creditors  as
invalid and restore the possession of the secured assets to the borrower  or
restore the management of the business to the borrower, as the case may  be,
and pass such  order  as  it  may  consider  appropriate  and  necessary  in
relation to any of the recourse taken by the  secured  creditor  under  sub-
section (4) of section 13.

(4) If, the Debts  Recovery  Tribunal  declares  the  recourse  taken  by  a
secured creditor under sub-section (4) of section 13, is in accordance  with
the  provisions  of  this  Act  and  the  rules   made   thereunder,   then,
notwithstanding anything contained in any other law for the  time  being  in
force, the secured creditor shall be entitled to take  recourse  to  one  or
more of the measures specified  under  sub-section  (4)  of  section  13  to
recover his secured debt.

(5) Any application made under sub-section (1) shall be dealt  with  by  the
Debts Recovery Tribunal as expeditiously as possible and disposed of  within
sixty days from the date of such application:

PROVIDED that the Debts Recovery Tribunal may, from  time  to  time,  extend
the said period for reasons to be recorded in  writing,  so,  however,  that
the total period of pendency of the  application  with  the  Debts  Recovery
Tribunal, shall not exceed four months from  the  date  of  making  of  such
application made under sub-section (1).

(6) If the application is not disposed of by  the  Debts  Recovery  Tribunal
within the period of four months as specified in sub-section (5), any  party
to the application  may  make  an  application,  in  such  form  as  may  be
prescribed, to the Appellate  Tribunal  for  directing  the  Debts  Recovery
Tribunal for expeditious disposal of  the  application  pending  before  the
Debts  Recovery  Tribunal  and  the  Appellate   Tribunal   may,   on   such
application,  make  an  order  for  expeditious  disposal  of  the   pending
application by the Debts Recovery Tribunal.

(7) Save as otherwise provided in this  Act,  the  Debts  Recovery  Tribunal
shall, as far as may be, dispose of the application in accordance  with  the
provisions of the Recovery of Debts Due to Banks and Financial  Institutions
Act, 1993 and the rules made thereunder.”

4.    Section 34 declares that a Civil Court shall not have jurisdiction  to
entertain any suit or proceeding in respect of  any  matter  which  a  Debts
Recovery Tribunal or the Appellate Tribunal under the Act  is  empowered  to
determine, and Section 35 is a general non-obstante  clause  declaring  that
this Act shall have effect, notwithstanding anything inconsistent  therewith
contained in any other law for the time being in force.

5.    The bone of contention in the present appeals is whether  SARFAESI  in
its application to the State of Jammu & Kashmir would be held to  be  within
the legislative competence of Parliament. To decide this question,  we  have
heard wide ranging arguments from the learned Attorney  General  Shri  Mukul
Rohtagi and Shri Rakesh Dwivedi, learned Senior Advocate, on behalf  of  the
Appellants. They have referred in detail to the provisions  of  Article  370
of the Constitution of India, read with Section 5 of  the  Jammu  &  Kashmir
Constitution,  1956.   It  is  their  submission  that  the  Instrument   of
Accession of Jammu and Kashmir, 1947 itself makes it clear that  List  I  of
the 7th Schedule of the Government of India Act, 1935 would apply, and  that
the various Constitution Application to J & K Orders   issued from  time  to
time under Article 370 makes it clear that Article 246 (1) read  with  Entry
45 and 95 List I would clothe Parliament with power to enact  SARFAESI.   In
fact, according to them, even  the  impugned  judgment  of  the  High  Court
concedes this. According to  them,  once  Entry  45  List  I  has  no  other
competing  Entry,  inasmuch  as  List  II  of  the  7th  Schedule   to   the
Constitution of India has  not  been  extended  to  the  State  of  Jammu  &
Kashmir, and Entry 11A dealing with Administration of Justice  contained  in
List III of the 7th Schedule to the Constitution of India does not apply  to
Jammu & Kashmir, and Entry 6 List III  dealing  with  transfer  of  property
also does not apply, it is their case that Entry 45 List I is to be read  in
its full plenitude and is not cut  down  by  the  provisions  of  any  other
Entry.  If it is found that the entire SARFAESI is  in  fact  enacted  under
Entry 45 read with 95 of List I, it would be clear that no other enquiry  is
necessary, as the Act in pith and substance would be referable to these  two
entries.  This being the case, the State’s legislative power comes  in  only
if none of the entries of List I or III are attracted.  To  refer  to  Entry
11A and to Entry 6, and further to state that Section 140  of  the  Transfer
of Property Act of Jammu &  Kashmir  would  render  the  key  provisions  of
SARFAESI  without  legislative  competence,  is  wholly   incorrect.    They
referred to a number of judgments to show that recovery of loans is as  much
part of the business of banking as the giving of loans, and  that  therefore
the entire 2002 Act would fall within Entry 45 read with Entry  95  List  I.
According to them, therefore, the impugned  judgment  is  wrong  on  several
fundamentals and needs to be set aside.  They referred to and relied upon  a
number of other judgments which we will deal with  in  the  course  of  this

6.    Shri Vijay Hansaria, learned senior advocate, appearing on  behalf  of
the private respondent, has argued  that  since  both  the  Constitution  of
India and the Constitution  of  Jammu  &  Kashmir  are  expressions  of  the
sovereign  will  of  the  people,  they  have  equal  status  and  none   is
subordinate to the other.  His basic argument to  meet  the  contentions  of
the appellants is that the SARFAESI Act, in pith and substance,  relates  to
“transfer of property” and not “banking” and would,  therefore,  be  outside
the competence of Parliament and exclusively within the  competence  of  the
State Legislature.  He further  argued  that  the  power  of  Parliament  is
expressly “limited” under Article 370(1)(b) of  the  Constitution  of  India
whereas under the Constitution of Jammu &  Kashmir,  the  State  Legislature
has plenary powers over all matters, except those where the  Parliament  has
power to make laws. He also argued that the subjects mentioned in the  State
List of the 7th Schedule under the Constitution of  India  were  frozen  and
can never be delegated or conferred on Parliament so  long  as  Article  370
remains and therefore any transference  of  a  State  List  subject  to  the
Concurrent List later cannot apply to the State  of  Jammu  &  Kashmir.   He
also argued that it is not enough under  Article  370  to  confer  power  on
Parliament by a Presidential Order, but that every time Parliament enacts  a
law under such power, before such law can operate in the State  of  Jammu  &
Kashmir, the State Government’s concurrence  must  be  obtained.   This  was
stated to be also for the reason that an amendment made to the  Constitution
of India will not apply unless the State  concurs  in  applying  it  to  the
State of Jammu & Kashmir, in which case only a Presidential  Order  applying
such  amendment   would take effect. Further, according to him, Section  140
of the   Jammu & Kashmir Transfer of Property  Act  is  in  direct  conflict
with  Section 13 of SARFAESI Act and the  Transfer  of  Property  Act   must
prevail.  He further argued that Section 17A and 18B of  the  SARFAESI  Act,
being   Sections  relatable  to   administration   of   justice,  which   is
purely   a   State   subject,  would also  be   ultra    vires   Parliament.
He relied   upon  Article 35A and supported the impugned  judgment  on  this
score, and further stated that the various judgments cited on behalf of  the
appellants were distinguishable as the fact situation in  the  present  case
was completely different from the situation in those judgments.

7.    Shri Sunil Fernandes, learned Standing Counsel for the State of  Jammu
& Kashmir, referred to Article 370 and the Constitution of Jammu  &  Kashmir
in some detail and cited judgments of this Court dealing with the same.   He
also pointed out local  statutory  laws  which  prohibit  transfer  of  land
belonging to State residents to non  State  residents.  His  submission  was
that though the SARFAESI Act was enacted by Parliament by  virtue  of  Entry
45 List  I,  yet  Section  13(4)  alone  incidentally  encroaches  upon  the
property rights of permanent residents of the State of Jammu &  Kashmir  and
must be read down so that it will not be permissible under this  Section  to
sell property belonging to a permanent resident of the  State  to  a  person
who is  not  a  permanent  resident  of  the  State.   It  was  his  further
submission that the proviso added to Rule 8(5) of the  SARFAESI  Rules  must
be read along with Section 13(4) of the SARFAESI Act and  if  so  read,  the
State of Jammu & Kashmir  would  have  no  objection  to  the  SARFAESI  Act
applying to the State of Jammu & Kashmir.

8.    As Article 1 of the Constitution of India states, India is a Union  of
States.  In an illuminating judgment, namely, State of West Bengal v.  Union
of India, 1964 (1) SCR 371, Chief Justice Sinha, in the  majority  judgment,
has held that India is quasi-federal with a strong tilt to the  Centre.   In
so  holding,  the  learned  Judge  referred  to  four  indicia  of  a   real
federation, as follows:-

“(a) A truly federal form of Government envisages  a  compact  or  agreement
between  independent  and  sovereign  units  to  surrender  partially  their
authority in their common interest and vesting it in a Union  and  retaining
the residue of the authority  in  the  constituent  units.  Ordinarily  each
constituent unit has its separate Constitution by which it  is  governed  in
all matters except those surrendered to the Union, and the  Constitution  of
the Union primarily operates upon  the  administration  of  the  units.  Our
Constitution was not the result of  any  such compact  or  agreement:  Units
constituting a unitary State which were non-sovereign  were  transformed  by
abdication of power into a Union.

(b) Supremacy of the Constitution which cannot  be  altered  except  by  the
component units. Our Constitution is undoubtedly supreme but  it  is  liable
to be altered by the Union Parliament alone and the units have no  power  to
alter it.

(c) Distribution of powers between the Union and the regional units each  in
its sphere coordinate and independent  of  the  other.  The  basis  of  such
distribution of power is that in matters of national importance in  which  a
uniform policy is desirable in the  interest  of  the  units,  authority  is
entrusted to the Union, and matters of local concern remain with the State.

(d) Supreme authority of the Courts to interpret  the  Constitution  and  to
invalidate action violative of the Constitution. A federal Constitution,  by
its  very  nature,  consists  of  checks  and  balances  and  must   contain
provisions for resolving conflicts between  the  executive  and  legislative
authority of the Union and the regional units.” [at pages 396 - 397]

9.    It was found that so far as States other than the  State  of  Jammu  &
Kashmir are concerned, indicia (a) and (b) were absent whereas  indicia  (c)
and (d) were present, and this coupled  with  a  reading  of  various  other
Articles of the Constitution led a  Constitution  Bench  of  this  Court  to
decide that  the  federal  structure  of  the  Constitution  tilts  strongly
towards the Central Legislature and Central Government.

10.   Insofar as the State of Jammu & Kashmir  is  concerned,  it  is  clear
that indicia (b) is absent.  Insofar as the  other  indicia  are  concerned,
the State does have its own separate Constitution by which  it  is  governed
in all matters, except those surrendered to the Union of India.   Amendments
that are made in the Constitution of India are made to apply  to  the  State
of Jammu & Kashmir only if  the  President,  with  the  concurrence  of  the
State Government, applies such amendments to the State of Jammu  &  Kashmir.
The distribution of powers between the  Union  and  the  State  of  Jammu  &
Kashmir reflects that matters of national importance,  in  which  a  uniform
policy is desirable, is retained with the Union of  India,  and  matters  of
local concern remain with the State of Jammu & Kashmir.   And,  even  though
the Jammu & Kashmir Constitution sets up the District Courts  and  the  High
Court in the State, yet, the supreme authority of courts  to  interpret  the
Constitution  of  India  and  to  invalidate   action   violative   of   the
Constitution is found to be fully present.  Appeals from the High  Court  of
Jammu & Kashmir lie to the Supreme Court of India, and shorn of a few  minor
modifications, Articles 124 to 147  all  apply  to  the  State  of  Jammu  &
Kashmir, with Articles 135 and 139 being omitted.  The  effect  of  omitting
Articles 135 and 139 has a very small  impact,  in  that  Article  135  only
deals with jurisdiction and powers of the Federal Court to be  exercised  by
the Supreme Court, and Article 139 deals with Parliament’s power  to  confer
on the Supreme Court the power to issue directions, orders,  and  writs  for
purposes other than those mentioned in Article 32 (2). We may also add  that
permanent residents of the State of Jammu & Kashmir are citizens  of  India,
and that there is no dual citizenship  as  is  contemplated  by  some  other
federal Constitutions in other parts of the world.  All  this  leads  us  to
conclude that even qua the State of  Jammu  &  Kashmir,  the  quasi  federal
structure of the Constitution of India continues,  but  with  the  aforesaid
differences.  It is therefore difficult  to  accept  the  argument  of  Shri
Hansaria that the Constitution of India and that of  Jammu  &  Kashmir  have
equal status.  Article 1 of the Constitution of India and Section 3  of  the
Jammu & Kashmir  Constitution make it clear that India shall be a  Union  of
States, and that the State of Jammu & Kashmir is and shall  be  an  integral
part of the Union of India.

11.   It is interesting to note that the State of Jammu & Kashmir, though  a
state within the meaning of Article 1 of  the  Constitution  of  India,  has
been accorded a special status from the very beginning  because  of  certain
events that took place at the time that  the  erstwhile  Ruler  of  Jammu  &
Kashmir acceded to the Indian Union.  These events  have  been  set  out  in
detail in Prem Nath Kaul v. State of Jammu & Kashmir,  (1959)  Supp.  2  SCR
270, to which we will refer in some detail. The State of Jammu & Kashmir  is
dealt with by a special provision, namely, Article 370.  At  this  juncture,
it is necessary to set out this Article which reads as follows:-

Article 370. Temporary provisions with respect to the  State  of  Jammu  and

(1) Notwithstanding anything in this Constitution,

(a) the provisions of Article 238 shall not apply in relation to  the  State
of Jammu and Kashmir;

(b) the power of Parliament to  make  laws  for  the  said  State  shall  be
limited to

(i) those matters in the Union  List  and  the  Concurrent  List  which,  in
consultation  with  the  Government  of  the  State,  are  declared  by  the
President to correspond to matters specified in the Instrument of  Accession
governing the accession of the  State  to  the  Dominion  of  India  as  the
matters with respect to which the Dominion Legislature  may  make  laws  for
that State; and

(ii) such other matters in the said Lists as, with the  concurrence  of  the
Government of the State, the President may by order specify.

Explanation.- For the purposes of this article, the Government of the  State
means the person for the time being  recognised  by  the  President  as  the
Maharaja of Jammu and Kashmir  acting  on  the  advice  of  the  Council  of
Ministers for the time being in office  under  the  Maharaja’s  Proclamation
dated the fifth day of March, 1948 ;

(c) the provisions of Article 1 and of this article shall apply in  relation
to that State;

(d) such of the  other  provisions  of  this  Constitution  shall  apply  in
relation to that State subject to such exceptions and modifications  as  the
President may by order specify:

Provided that no such order which relates to the matters  specified  in  the
Instrument of Accession of the State referred to in  paragraph  (i)  of  sub
clause (b) shall be issued except in consultation  with  the  Government  of
the State:

Provided further that no such order which  relates  to  matters  other  than
those referred to in the last preceding proviso shall be issued except  with
the concurrence of that Government.

(2) If the concurrence of  the  Government  of  the  State  referred  to  in
paragraph (ii) of sub clause (b) of clause (1) or in the second  proviso  to
sub clause (d) of that clause be given before the Constituent  Assembly  for
the purpose of framing the Constitution of the State is convened,  it  shall
be placed before such Assembly for such decision as it may take thereon.

(3) Notwithstanding anything in the foregoing provisions  of  this  article,
the President may, by public notification, declare that this  article  shall
cease to be operative or shall be operative only with  such  exceptions  and
modifications and from such date as he may specify:

Provided that the recommendation of the Constituent Assembly  of  the  State
referred to in clause (2) shall be necessary  before  the  President  issues
such a notification.

12.   The first thing that is noticed in Article 370 is  that  the  marginal
note states that it is a temporary provision with respect to  the  State  of
Jammu & Kashmir.  However, unlike Article 369, which  is  also  a  temporary
provision limited in point of time to five years from  the  commencement  of
this Constitution, no such limit is to be found  in  Article  370.   Despite
the fact that it is, therefore, stated  to  be  temporary  in  nature,  sub-
clause (3) of Article 370 makes it clear that this Article  shall  cease  to
be  operative  only  from  such  date  as  the  President  may   by   public
notification declare.  And this cannot be done under the proviso to  Article
370 (3) unless there is a recommendation of the Constituent Assembly of  the
State so to do.  This takes us to an interesting  judgment  of  this  Court,
namely, Sampat Prakash v. the State of Jammu & Kashmir, (1969)  2  SCR  365.
In this case, a writ petition under Article 32  was  filed  challenging  the
detention of the petitioner, in which it  was  contended  that  Article  370
contained only temporary provisions which cease to be  effective  after  the
Constituent Assembly of the State  had  completed  its  work  by  framing  a
Constitution for the State.  The detention of the petitioner  was  continued
without making a reference to the Advisory Board inasmuch as  Article  35(c)
of the Constitution had given protection to any law relating  to  preventive
detention  in  Jammu  &  Kashmir  against  invalidity  on  the   ground   of
infringement of any of the fundamental rights guaranteed by Part III of  the
Constitution initially for a period of five years, which was  then  extended
to ten years and fifteen years.  These extensions were  the  subject  matter
of challenge, and it was sought to  be  contended  that  the  power  of  the
President, depending on the concurrence of the Government of  the  State  of
Jammu & Kashmir, must be exercised under Article 370 before  dissolution  of
the Constituent Assembly of the State, and that such power must be  held  to
cease to exist after dissolution of the Constituent Assembly. This  argument
was repelled by the Constitution Bench by giving three reasons.   First  and
foremost, it was stated that the reason for the  Article  was  that  it  was
necessary to empower the President of India to exercise his discretion  from
time to time in applying the Indian Constitution.  This  being  so,  Article
370 would necessarily have to be invoked every time the President, with  the
State’s concurrence, feels it necessary that amendments to the  Constitution
of India be made applicable to Jammu & Kashmir, given  the  special  proviso
to Article 368  which  applies  only  to  the  State  of  Jammu  &  Kashmir.
Further, it was also held that the Article will cease to operate under  sub-
clause (3) only when a recommendation is made by  the  Constituent  Assembly
of the State to that effect. It was  found  that  in  fact  the  Constituent
Assembly of the State had made a recommendation that the Article  should  be
operative with one modification to be incorporated  in  the  explanation  to
clause (1) of the Article, namely, that the Maharaja of Jammu &  Kashmir  be
substituted by the expression “Sadar-I Riyasat of Jammu  &  Kashmir”.  Also,
it is important to note that Article 370 (2) does not in  any  manner  state
that the said Article shall cease on the  completion  of  the  work  of  the
Constituent Assembly  or  its  dissolution.   Having  regard  to  all  these
factors, this Court clearly held that though the  marginal  note  refers  to
Article 370 as only a temporary provision, it is in fact  in  current  usage
and will continue to be in force until the  specified  event  in  sub-clause
(3) of the said Article takes place.    It was further held  by  the  Sampat
Prakash judgment that Section 21 of the General Clauses Act, 1897  was  also
applicable so that the power under this Article can be  used  from  time  to
time to meet with varying circumstances.

13.    Article  370  begins  with  a  non  obstante  clause   stating   that
notwithstanding anything contained in the Constitution, first and  foremost,
under sub-clause (1)(a) the provisions of Article 238  shall  not  apply  in
relation to the State of Jammu  &  Kashmir.   Article  238  has  since  been
repealed and is not of any  importance  today.   It  only  referred  to  the
application of the provisions of Part VI to States in  Part  B  of  the  1st
Schedule.  Since the scheme of Article 370 was different, the  said  Article
was stated not to apply.  But more importantly, the power of  Parliament  to
make laws for the said State shall be limited, in sub-clause (b)(i), to  the
matters in the Union List and the Concurrent List of  the  7th  Schedule  to
the Constitution of India, which in consultation with the Government of  the
State, are declared by the President to correspond to matters  specified  in
the Instrument of  Accession.   If  other  matters  contained  in  the  said
Constitution outside the Instrument of Accession in the said  Lists  are  to
be extended, then they can be extended only  with  the  concurrence  of  the
State.  The difference between consultation and concurrence was  highlighted
in Prem Nath Kaul’s case, supra.  At this stage, it is  necessary  to  refer
to this case in some detail as it  goes  into  the  legislative  history  of
Article 370, and the Presidential Orders made under the  said  Article.   We
are not directly concerned here with the Jammu & Kashmir Big Landed  Estates
(Abolition) Act, 1950, whose validity was challenged in the  said  judgment.
The judgment goes into great detail as to how the  Instrument  of  Accession
to the Union  of  India  was  made  by  Maharaja  Hari  Singh.  What  is  of
importance is to note that after the reins of power were handed over to  his
son Yuvraj Karan Singh by  a  proclamation  dated  20.6.1949,  Yuvraj  Karan
Singh, by a proclamation dated 25.11.1949, stated that the  Constitution  of
India, which was yet to be promulgated, would apply to the State of Jammu  &
Kashmir.  Also, by a proclamation dated 20.4.1951,  a  Constituent  Assembly
was to be set up on  the  basis  of  adult  franchise  in  order  that  this
Assembly give to the State its own Constitution.  The judgment then goes  on
to refer to  the  Jammu  &  Kashmir  Presidential  Order  of  1950  and  its
amendments, which was then supplanted by the 1954 Order.  It  then  goes  on
to state  that,  whereas  sub-clause  (1)  (b)  (i)  of  370  requires  only
consultation with the Government of  the  State,  sub-clause  (ii)  requires
concurrence, which scheme applies under sub-clause (d) of the  said  Article
in relation to the extension or modification  of  other  provisions  of  the
Indian Constitution as well. Under sub-clause (d), other provisions  of  the
Constitution may, by Presidential Order, be held to apply to  the  State  of
Jammu & Kashmir.  If matters specified in the Instrument  of  Accession  are
to be applied, then there is only consultation with the  Government  of  the
State, and if not, there must be concurrence. The scheme of Article  370(1),
therefore, is clear.  Since the Instrument  of  Accession  is  an  agreement
between the erstwhile Ruler of Jammu & Kashmir and the Union  of  India,  it
must be respected, in which case if a matter is already provided for in  it,
it would become applicable straightaway without more, and only  consultation
with the Government of the State is necessary  in  order  to  work  out  the
modalities of the extension of the provisions of  the  Government  of  India
Act corresponding to the Constitution of India referred to in it.   However,
when it comes to applying the provisions of the Constitution of India  which
are not so reflected in the Instrument  of  Accession,  they  cannot  be  so
applied without the concurrence of the  Government  of  the  State,  meaning
thereby that they can only be applied if the State Government  accepts  that
they ought to be so applied. Under Article 370(2), the  concurrence  of  the
Government of the State, given before the Constituent Assembly is  convened,
can only be given effect to if ratified by the Constituent  Assembly.   This
legislative scheme therefore illustrates that the State of Jammu  &  Kashmir
is to be dealt with separately owing to the special conditions that  existed
at the time of the Instrument of Accession.

14.   Under sub-clause (1)(d)  of  Article  370,  other  provisions  of  the
Indian Constitution shall apply in relation to the State of Jammu &  Kashmir
subject to such exceptions and modifications as the President may  by  order
specify.  In Puranlal Lakhanpal v. President of India,  (1962)  1  SCR  688,
this Court held that  “modification”  in  sub-clause  (d)  is  a  very  wide
expression which includes amendment by way of change.  This Court held:
“The question that came for consideration in In re: Delhi Laws  Act  case(')
was with respect to the power of delegation to a  subordinate  authority  in
making  subordinate  legislation.  It  was  in   that   context   that   the
observations  were  made  that  the  intention  of  the  law   there   under
consideration when it used the word  "modification"  was  that  the  Central
Government would extend certain laws to Part C States  without  any  radical
alteration in them. But in the present case we have to find out the  meaning
of the word  "modification"  used  in Art.  370(1) in  the  context  of  the
Constitution. As we  have  said  already  the  object  behind  enacting Art.
370(1) was to recognise the special position  of  the  State  of  Jammu  and
Kashmir and to provide for that special position  by  giving  power  to  the
President to apply the provisions of the Constitution  to  that  State  with
such exceptions and modifications as the President might by  order  specify.
We have already pointed out that the power to make exceptions  implies  that
the President can provide that a particular provision  of  the  Constitution
would not apply to that State. If  therefore  the  power  is  given  to  the
President to efface in effect any provision of the  Constitution  altogether
in its application to the State of Jammu and Kashmir, it seems that when  he
is also  given  the  power  to  make  modifications  that  power  should  be
considered  in  its  widest  possible  amplitude.  If  he  could  efface   a
particular provision of the Constitution altogether in  its  application  to
the State of Jammu  and  Kashmir,  we  see  no  reason  to  think  that  the
Constitution did not intend that  he  should  have  the  power  to  amend  a
particular provision in its application to the State of Jammu  and  Kashmir.
It seems to us that when  the  Constitution  used  the  word  "modification"
in Art. 370(1) the intention was that the President would have the power  to
amend the provisions of the Constitution if  he  so  thought  fit  in  their
application to the State  of  Jammu  and  Kashmir.  In  the  Oxford  English
Dictionary (Vol. VI) the word 'modify" means inter  alia  "to  make  partial
changes in; to change (as object) in respect of some of  its  qualities;  to
alter  or  vary  without  radical  transformation".   Similarly   the   word
"modification" means "the action of making  changes  in  an  object  without
altering  its  essential  nature  or   character;   the   state   of   being
thus  changed;     partial   alteration".   Stress     is    being    placed
on the  meaning  "to  alter  or  vary  without  radical  transformation"  on
behalf of the petitioner; but that is not the  only  meaning  of  the  words
"modify" or "modification". The word "modify" also means  "to  make  partial
changes in" and "modification" means "partial alteration". If therefore  the
President changed the method of direct election to indirect election he  was
in essence making a partial change or  partial  alteration  in Art.  81  and
therefore the modification made in the present case  would  be  even  within
the dictionary meaning of that word. But, in  law,  the  word  "modify"  has
even a wider meaning. In "Words and Phrases" by Roland Burrows, the  primary
meaning of the word "modify" is given as "to limit"  or  "restrict"  but  it
also means "'to vary" and may even mean to "extend" or  "enlarge".  Thus  in
law the word "modify" may just  mean  "vary",  i.e.,  amend;  and  when Art.
370(1) says that the President may apply the provisions of the  Constitution
to the State of Jammu and Kashmir with  such  modifications  as  he  may  by
order specify it means that he may vary (i.e., amend) the provisions of  the
Constitution in its application to the State of Jammu and  Kashmir.  We  are
therefore of opinion that in the context of the Constitution  we  must  give
the widest effect to the meaning of the word  'modification"  used  in  Art.
370(1) and in that sense it includes an amendment. There  is  no  reason  to
limit the  word  "modifications"  as  used  in  Art.  370(1)  only  to  such
modifications as do not make any "radical  transformation".”  [pages  692  –

15.   It has been argued that Parliamentary legislation would also need  the
concurrence of the State Government before it can  apply  to  the  State  of
Jammu & Kashmir under  Article  370.   This  is  a  complete  misreading  of
Article 370 which makes it clear that once a  matter  in  either  the  Union
List or the Concurrent  List  is  specified  by  a  Presidential  Order,  no
further  concurrence  is  needed.   Indeed,   the   argument   is   that   a
Constitutional amendment does not ipso facto apply to the State of  Jammu  &
Kashmir under the proviso to Article 368 as applicable  in  the  said  State
unless  there  is  concurrence  of  the  State  Government  and   therefore,
logically, it must follow that Parliamentary legislation would also  require
concurrence of the State Government before it can be said to  apply  in  the
State of Jammu & Kashmir.  We fail  to  understand  or  appreciate  such  an
argument.  A constitutional  amendment  is  different  in  quality  from  an
ordinary law and, as has been held by us, it is clear that the  language  of
Article 368 proviso and the language of Article 370 are different  and  have
to be applied according to their terms.

16.   The Instrument  of  Accession  of  Jammu  &  Kashmir  State  is  dated
26.10.1947, and states, in paragraphs 1, 3, 8, and 9, the following:

“1. I hereby declare that I accede to the Dominion of India with the  intent
that the Governor General of India, the Dominion  Legislature,  the  Federal
Court and any other Dominion authority established for the purposes  of  the
Dominion shall by virtue of this my  Instrument  of  Accession  but  subject
always to the terms thereof, and for the  purposes  only  of  the  Dominion,
exercise in relation to the State of Jammu & Kashmir  (hereinafter  referred
to as "this State") such functions as may be vested in them by or under  the
Government of India Act, 1935, as in force in the Dominion of India, on  the
15th day of August 1947, (which Act as so in force is hereafter referred  to
as "the Act').

3. I accept the matters specified in the  schedule  hereto  as  the  matters
with respect to which the Dominion Legislature may make law for this State.

8. Nothing in this Instrument affects the continuance of my  Sovereignty  in
and over this State, or, save as provided by or under this  Instrument,  the
exercise of any powers, authority and rights now enjoyed by me as  Ruler  of
this State or the validity of any law at present in force in this State.

9. I hereby declare that I execute this Instrument on behalf of  this  State
and that any reference in this Instrument to me  or  to  the  Ruler  of  the
State is  to  be  construed  as  including  a  reference  to  my  heirs  and

The Schedule which is referred to in clause 3 refers to defence, external
affairs, communications and certain ancillary matters.

17.   At this stage, it is necessary to see which of the provisions  of  the
Constitution of India have in fact been applied by Article 370 to the  State
of Jammu & Kashmir.  First and foremost, in  sub-clause  (1)(c)  of  Article
370, the provisions of Article 1 and Article 370 itself are  said  to  apply
by virtue of this sub-clause straightaway.  In order to find out what  other
provisions of the Constitution have been extended to the State  of  Jammu  &
Kashmir, we have necessarily to go to the Presidential Order of 1950.   This
Order, which is called the  Constitution  Application  to  Jammu  &  Kashmir
Order, 1950, began rather warily by extending a few Entries  in  List  I  of
Schedule  7  and  applying  only  certain  clauses  and  Articles   of   the
Constitution.  Since  this  Order  and  its  amendments  are  of  historical
importance only, it is not necessary to refer to them in any detail,  as  it
is the Constitution  Application  to  Jammu  &  Kashmir  Order,  1954,  that
superseded the 1950 Order, and went on to apply various  provisions  of  the
Constitution of India to the State of Jammu & Kashmir that we are  concerned
with.  Insofar as this case is concerned, it is important to note  that,  in
Part XI, in Article 246,  it  was  stated  that  the  words,  brackets,  and
figures “notwithstanding anything contained in clauses 2  and  3”  occurring
in clause 1, and clauses 2, 3, and 4 shall  be  omitted.   Article  254  was
also, by sub-clause (f) of paragraph 6, extended with certain  modifications
and omissions.  The 7th schedule Union List was extended containing most  of
the Entries  therein  except  what  was  expressly  omitted  by  clause  22.
Interestingly enough, Entry 45 and 95 with which we are  directly  concerned
were applied for the first time by this Order, and have continued  to  apply
to the State since.  Significantly, the State List and the  Concurrent  List
of the 7th Schedule were omitted by the original 1954 Order.

18.   This order has been amended  repeatedly  by  a  number  of  subsequent
orders, and the Order with which we  are  directly  concerned  is  the  1954
Order as amended from time to time.  This Order adopts  all  the  provisions
of the Constitution of India as in force on the 20th  June,  1964,  together
with  certain  amendments  and  modifications.  The  argument  that  Article
370(1)(b) ‘limits’ the power of Parliament  is answered  by  the  fact  that
the entire Constitution of India, as  it  exists  in  1964,  has  been  made
applicable by Presidential order to the State of Jammu &  Kashmir,  availing
both Articles 370(1)(b)  and  (d)  for  this  purpose.  And  the  expression
‘limited to’ does not occur in Article 370(1)(d),under which it is  open  to
adopt  the  entire  Constitution  of  India  subject   to   exceptions   and
modifications,  as has been noted above.  The  opening  paragraphs  of  this
Order read as follows:-

“In exercise of the powers conferred by clause (1) of  article  370  of  the
Constitution, the President, with the concurrence of the Government  of  the
State of Jammu and Kashmir, is pleased to make the following Order:-

(1)     This Order may be called the Constitution (Application to Jammu  and
Kashmir) Order, 1954.

(2)     It shall come into force on the fourteenth day  of  May,  1954,  and
shall  thereupon  supersede  the  Constitution  (Application  to  Jammu  and
Kashmir) Order, 1950.

2. The provisions of the Constitution as in force on the 20th day  of  June,
1964 and as amended by the Constitution (Nineteenth  Amendment)  Act,  1966,
the Constitution (Twenty-first  Amendment)  Act,  1967,  Section  5  of  the
Constitution (Twenty-third Amendment) Act, 1969, the  Constitution  (Twenty-
fourth Amendment) Act, 1971, section 2  of  the  Constitution  (Twenty-fifth
Amendment) Act, 1971, the Constitution (Twenty-sixth Amendment)  Act,  1971,
the  Constitution  (Thirtieth  Amendment)  Act,  1972,  section  2  of   the
Constitution  (Thirty-first  Amendment)  Act,  1973,  section   2   of   the
Constitution (Thirty-third Amendment) Act, 1974, sections 2, 5, 6 and  7  of
the Constitution (Thirty-eighth   Amendment)  Act,  1975,  the  Constitution
(Thirty-ninth Amendment) Act, 1975, the  Constitution  (Fortieth  Amendment)
Act, 1976, sections 2, 3 and 6 of the Constitution (Fifty-second  Amendment)
Act, 1985 and the Constitution (Sixty-first Amendment) Act, 1988  which,  in
addition to article 1 and article 370, shall apply in relation to the  State
of Jammu and Kashmir and the exceptions and modifications subject  to  which
they shall so apply shall be as follows:-”

By this Order, in Part XI of the Constitution of India, in Article  246  for
the words, brackets, and figures "clauses (2) and (3)" occurring  in  clause
(1), the word, brackets and figure "clause (2)" shall  be  substituted,  and
the words, brackets and figure "Notwithstanding  anything  in  clause  (3),"
occurring in clause (2), and the whole of  clauses  (3)  and  (4)  shall  be
omitted.  This being the case, it is clear that Article  246  as  applicable
to the State of Jammu & Kashmir would read thus:-

“246. Subject matter of laws made by Parliament and by the  Legislatures  of

(1) Notwithstanding anything in clause  (  2  ),  Parliament  has  exclusive
power to make laws with respect to any of the matters enumerated in  List  I
in the 7th Schedule (in this Constitution referred to as the Union List)

(2)  Parliament, and, subject to clause (1), the Legislature  of  any  State
also, have power to make laws with respect to any of the matters  enumerated
in List III in the 7th Schedule (in this Constitution  referred  to  as  the
Concurrent List)”

19.   Equally, Article 248 and Entry 97 List I have been  modified  so  that
Parliament has the residuary power to make laws only with respect  to  three
subjects – (1) the prevention of activities involving  terrorist  acts,  (2)
the prevention of activities directed towards questioning or disrupting  the
sovereignty and territorial integrity of India or bringing about cession  of
any part of the territory  of  India,  and  (3)  taxes  on  three  specified
subjects.  Significantly, clause (f),  which  contained  Article  254  in  a
modified form, was omitted by C.O. No.66, by which it has become clear  that
after 1963, Article 254 in its current form in  the  Constitution  of  India
will apply to the State of Jammu & Kashmir.  Equally, in  the  7th  Schedule
Union List, the omission of Entries has now come  down  to  only  four  i.e.
Entries 8, 9, 34, and 79,  with  a  few  other  Entries  being  modified  or
substituted.  Significantly, Entries 45 and 95 of List I continue  to  apply
to the State of Jammu & Kashmir.  The State List  continues  to  be  omitted
altogether, and from 1963 onwards, the Concurrent List applies to the  State
of Jammu & Kashmir with a number of  Entries  being  omitted.   What  is  of
importance for the decision of this case is that Entry 6  dealing  with  the
transfer of property and Entry 11A of the Concurrent List do  not  apply  to
the State of Jammu & Kashmir.  Entry 6 does not apply  because  it  has  not
been extended to the State, and Entry 11A does not apply  because  the  42nd
Amendment to the Constitution of India, which introduced Entry 11A into  the
Concurrent List, is itself not applicable.

20.   At this stage, it is important to refer to the Constitution  of  Jammu
&  Kashmir,  1956.   This  Constitution  came  into  effect  on  17.11.1956.
Section 2(1)(a), and Sections 3, 4, and 5 read as follows:-

“2. Definitions:-

(1) In  this  Constitution,  unless  the  context  otherwise  requires-  (a)
"Constitution of India" means the Constitution of  India  as  applicable  in
relation to this State;

3. Relationship of the State with the Union of  India:-The  State  of  Jammu
and Kashmir is and shall be an integral part of the Union of India.

4. Territory of the State:-The territory of the  State  shall  comprise  all
the territories which on the fifteenth day of August, 1947, were  under  the
sovereignty or suzerainty of the Ruler of the State.

5. Extent of executive and legislative power of the  State:-  The  executive
and legislative power of the State extends to all matters except those  with
respect to which Parliament has power to make laws for the State  under  the
provisions of the Constitution of India.”

21.   What is important to note in this Constitution, which was  drafted  by
a Constituent Assembly elected on the basis of adult franchise, is that  the
State of Jammu & Kashmir is stated to be an integral part of  the  Union  of
India, and that the executive and legislative power of the State extends  to
all matters except those with respect to which Parliament has power to  make
laws for the State under Article  370  of  the  Constitution  of  India.   A
combined reading, therefore, of Article 370 of the  Constitution  of  India,
the  1954  Presidential  Order  as  amended  from  time  to  time,  and  the
Constitution of Jammu & Kashmir, 1956 would lead to the  following  position
insofar as the legislative competence of the Parliament of  India  vis-à-vis
the State of Jammu & Kashmir is concerned:

All entries specified by the 1954 Order contained  in  List  I  of  the  7th
Schedule  to  the  Constitution  of  India  would  clothe  Parliament   with
exclusive jurisdiction to make laws in relation to the subject  matters  set
out in those entries.
Equally, under the residuary power contained in Entry 97 List  I  read  with
Article 248, the specified subject matters set out would indicate  that  the
residuary power of Parliament  to  enact  exclusive  laws  relating  to  the
aforesaid subject  matters  would  extend  only  to  the  aforesaid  subject
matters and no further.
Parliament would have concurrent power with the State  of  Jammu  &  Kashmir
with respect to the entries that are specified in the Presidential Order  of
1954 under List III of the 7th Schedule of the Constitution of India.   This
would mean that all the decisions of this Court on principles of  repugnancy
applicable to Article 254 would apply in full force to laws made  which  are
relatable to these subject matters.
Every other subject matter which is not  expressly  referred  to  in  either
List I or List III of the 7th Schedule of  the  Constitution  of  India,  as
applicable in the State of  Jammu  &  Kashmir,  is  within  the  legislative
competence of the State Legislature of Jammu & Kashmir.

22.   An argument was made by learned counsel on behalf of  the  respondents
that the subjects mentioned in the State List of the  7th  Schedule  to  the
Constitution of India as originally adopted were frozen  and  can  never  be
delegated or conferred on the Parliament so long  as  Article  370  remains,
since  under  Article  370(1)(b),  the  President  could  declare  that  the
Parliament shall have power to make laws for the State of  Jammu  &  Kashmir
only on the fields of legislation  mentioned  in  the  Union  List  and  the
Concurrent List.  We are afraid that this submission is also  without  force
for the reason that Article 368 proviso,  as  applicable  to  the  State  of
Jammu & Kashmir,  expressly  allows  any  Constitutional  amendment  to  the
Constitution of India to be applied with the concurrence  of  the  State  of
Jammu & Kashmir.  This would include within  its  ken,  an  amendment  which
either  adds  to  or  subtracts  from  the  State  List  and  confers   upon
Parliament, either exclusively under List I or concurrently under List  III,
a subject matter hitherto in the State List.   This  has  been  so  held  in
Sampat Prakash’s case (supra).  Also, in Puranlal Lakhanpal’s case  (supra),
the expression “modifications”  occurring  in  Article  370(1)(d)  has  been
construed not only to mean “to limit or restrict” but  even  “to  extend  or
enlarge.”  Thus, the word “modification” must be given  the  widest  meaning
and would include all amendments which either limit or  restrict  or  extend
or enlarge the provisions of the Constitution of  India.   For  this  reason
also it is clear that nothing can ever be frozen so long  as  the  drill  of
Article 370 is followed.

23.   Given this legislative scenario, we have now to  examine  SARFAESI  in
its applicability to the State of Jammu & Kashmir.  Entries  45  and  95  of
List I of the 7th Schedule of the Constitution of India read as follows:-

“45. Banking.

95. Jurisdiction and powers of all courts, except the  Supreme  Court,  with
respect to any of the matters in this List; admiralty jurisdiction.”

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 Court 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 loans and deposits, granting  of  loans  and  recovery  of  the
debts due to the bank. There can be little doubt  that  under  Entry  45  of
List I, 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  of
banking 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  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 DRT 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  if  the  observations  contained  in Kesoram
Industries case [(2004) 10 SCC  201]  are  treated  as  law  declared  under
Article 141 of the Constitution, the State  legislations  cannot  be  struck
down  on  the  ground  that  the  same  are   in   conflict   with   Central
legislations.” [para 36]

26.   In a recent judgment, namely, UCO Bank &  Anr.  V.  Dipak  Debbarma  &
Ors., [Civil Appeal No. 11247 of 2016 and Civil Appeal No.  11250  of  2016]
delivered by this Court on 25th November, 2016, this Court has held:
“18. The Act of 2002 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 187, operated validly.  However,  the  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 of 2002,  must  give
way. The dominant  legislation  being  the  Parliamentary  legislation,  the
provisions of the Tripura Act 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 31B read with Ninth Schedule, it was held that the  Tripura  Act,
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 of India.

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 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,  1947  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 illuminating judgment, posed the question and answered it thus:-

“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 civil 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.”
(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 of India v. H.S. Dhillon,  1972(2)  SCR  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 if a 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  II.  If  it
is not, no further question arises.” (At page 67)

31.   At this juncture, it is important  to  advert  to  State  of  Jammu  &
Kashmir v. M.S. Farooqui, (1972) 1 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 case, 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, this Court concluded:-

“From the perusal of the provisions of the two statutory laws,  namely,  the
All India Services (Discipline and Appeal) Rules, 1955, 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 only manner 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.”  [paras
47 – 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 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  which  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
subject matter “transfer of property”.  At this juncture it is necessary  to
point out that insofar as  the  State  of  Jammu  &  Kashmir  is  concerned,
Sections 17A and Section 18B of SARFAESI, which apply to the State of  Jammu
& 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 of 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  of  reasons  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.

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 having jurisdiction  over  such  Court,  within
thirty days from the date of receipt of the order of the Court  of  District

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
determined by the Court 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.”

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 of India 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 of all courts except  the  Federal  Court,  with
respect to any of the matters in this List ….”

Entry 15, List III:
“Jurisdiction 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  ‘Administration
of Justice’ contained in Entry 1 of List 2 of the Government of  India  Act,
7th Schedule, would include jurisdiction and power of courts generally,  but
that Entry 53 of List 1  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 1, Parliament may not  have  been  able
to confer special jurisdiction on courts in regard to  matters  set  out  in
legislative List 1.  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 power of all courts”,  and  would  not  therefore  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

“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 III.

(c) Parliament may under 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 referable to Entry 46 of List III invest  the  High  Court  with
jurisdiction and powers with respect to any of  the  matters  enumerated  in
List III.” [para 53]

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 clear therefore that  the  entire  Act,  including
Sections 17A and 18B, 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 11A 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 laws 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  imposed  on
transfer of immovable property.

Nothing contained in Irshad dated  29th  Maghar,  1943,  or  any  law,  rule
order, notification, regulation, hidyat, ailan, circular,  robkar,  yadasht,
irshad, State Council resolution or any other instrument having   the  force
of law prohibiting or restricting the  transfer  of  immovable  property  in
favour of a person who is not a permanent resident of the State shall  apply

(h) a simple mortgage of immovable property executed or  created  in  favour
of a public financial institution, l as specified  in  section  4-A  of  the
Companies Act, 1956, a 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  loans,  guarantees,  issue  of
debentures or other form of financial assistance provided for  developmental
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 (Enforcement) Rules, 2002, which states as follows:-

“Provided that in case of sale of immovable property in the State  of  Jammu
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 that the 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 & Kashmir, the State has absolute  sovereign  power  to  legislate  in
respect of laws 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  laws
with respect to banking, and the entirety of SARFAESI  can  be  said  to  be
referable to Entry 45 and 95 of List I, 7th 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 Constitution of India  as  extended
to the State of Jammu & Kashmir, read with Section 5 of the Constitution  of
Jammu & Kashmir.  This being the 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 147 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 of not less than two-thirds of the total membership of  the  House,
it shall be presented 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) the provisions of the Constitution of India 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 of India, 1950.
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 pursuance of the accession of this State to  India  which  took
place on the twenty-sixth day  of  October,  1947,  to  further  define  the
existing relationship of the State with the Union of India  as  an  integral
part thereof, and to secure to ourselves-

JUSTICE, social, economic and political;

LIBERTY of thought, 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

      It is to be noted that the opening paragraph of  the  Constitution  of
India,  namely  “WE  THE  PEOPLE  OF  INDIA,  having  solemnly  resolved  to
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 made to further define the  existing  relationship  of  the
State with the Union of India 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 of India. Indeed, this is recognized by Section 6  of  the
Jammu & Kashmir Constitution which states:

“6. Permanent residents:-(1) Every person who is, or  is  deemed  to  be,  a
citizen of India under the provisions of the Constitution of India 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

(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, 1947, to the territory now included in  Pakistan,  returns  to
the State under a permit for resettlement in  the  State  or  for  permanent
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.  1-L/84  dated
the twentieth April, 1927, read with State Notification No. 13/L  dated  the
twenty 7th June, 1932.”

      They are 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.”

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 11A 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  17A  and
18B of SARFAESI.  There are  at  least  three  errors  in  this  conclusion.
First and foremost,  it  is  not  possible  to  dissect  the  provisions  of
SARFAESI 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  Jethabai  and  Jamshed
Guzdar’s case (supra), the High Court, even though it refers to  Narottamdas
Jethabai, has completely missed  this  crucial  aspect.   Most  importantly,
even if it is found that Section 140 of the  Jammu  &  Kashmir  Transfer  of
Property Act entitles only certain persons to  purchase  properties  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 SARFAESI, 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

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

“35A. Saving of laws with respect to permanent residents and  their  rights-
Notwithstanding anything contained in 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,-

 Defining the classes of persons who are, or shall be,  permanent  residents
of the State of Jammu and Kashmir; or

Conferring on such permanent residents any special rights and privileges  or
imposing upon other persons any restrictions as respects-

employment under the State Government;

acquisition of immovable property in the State;

settlement in the State; or

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  of  India  by  any
provision of this Part.”

46.   We fail to understand how Article 35A carries 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   Indian
Constitution.  The conferring of such rights and privileges as mentioned  in
Section 140 of the Jammu & Kashmir Transfer  of  Property  Act  is  not  the
subject matter of challenge on the ground that it violates  any  fundamental
right of the Constitution of India.   Furthermore,  in  view  of  Rule  8(5)
proviso, such rights are expressly preserved.

47.   We find that the High Court judgment ultimately states:

“It is held that the Union Parliament does not have  legislative  competence
to make laws contained in section 13, section 17(A), section  18(B)  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 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 of India excepting the State of J&K.”

Having held that the provisions of SARFAESI 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  &

48.   We therefore set aside the judgment of the High Court.  As  a  result,
notices issued by banks in terms 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.

(Kurian Joseph)

(R.F. Nariman)
      New Delhi;
December 16, 2016.