The question relates to the scope of the legislative field covered by Entry 45 of List I viz. ‘Banking’ and Entry 32 of List II of the Seventh Schedule of the Constitution of India, consequentially power of the Parliament to legislate. The moot question is the applicability of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, ‘the SARFAESI Act’) to the co­operative banks.

1
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J U D G M E N T
Arun Mishra, J.
1. The matters have been referred in view of conflicting decisions in
Greater Bombay Coop. Bank Ltd. v. United Yarn Tex (P) Ltd. and Ors.1
,
Delhi   Cloth   &   General   Mills   Co.   Ltd.   v.   Union   of   India   and   Ors.2
,
T. Velayudhan Achari and Anr. v. Union of India and Ors.3
, and Union
of India and Anr. v. Delhi High Court Bar Association and Ors.4
.  The
question relates to the scope of the legislative field covered by Entry 45
of List I viz. ‘Banking’ and Entry 32 of List II of the Seventh Schedule
of the Constitution of India, consequentially power of the Parliament to
legislate.  The moot question is the applicability of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (for short, ‘the SARFAESI Act’) to the co­operative
banks.
1. The   Parliament's   competence   to   amend   Section   2(c)   of   the
SARFAESI Act by adding sub­clause '(iva) ­ a multi­State co­operative
1 (2007) 6 SCC 236
2 (1983) 4 SCC 166
3 (1993) 2 SCC 582
4 (2002) 4 SCC 275
8
bank'   has   also   been   questioned.     The   issue   arises   whether   the
definition   of   'banking   company'   contained   in   Section   5(c)   of   the
Banking Regulation Act, 1949 (for short, ‘the BR Act, 1949’) covers cooperative banks registered under the State law and also multi­State
co­operative societies under the Multi­State Co­operative Societies Act,
2002   (for   short,   'the   MSCS   Act').     Consequently,   (i)   whether   cooperative banks at State and multi­State level are co­operative banks
within the purview of the SARFAESI Act ? and (ii) whether provisions
of the SARFAESI Act apply to the co­operative banks registered under
the MSCS Act ?
2. Section 56(c)(i)(cci) is contained in Part V of the BR Act, 1949,
and was brought into force on 1.3.1966.  It defines 'co­operative bank'
to mean a 'state co­operative bank,' a 'central co­operative bank,' and
a 'primary co­operative bank.'  By the notification issued in 2003, the
co­operative bank was brought within the class of banks entitled to
seek recourse to the provisions of the SARFAESI Act.  Section 2(1)(c)
(iva) was inserted into the SARFAESI Act, w.e.f. 15.1.2013.   Before
that, the co­operative bank and the multi­State co­operative bank took
recourse to the SARFAESI Act under the notification issued in 2003.
3. Writ   petitions   were   filed   questioning   vires   of   the   notification
dated 28.1.2003 issued under Section 2(1)(c)(v) of the SARFAESI Act
and the insertion of Section 2(1)(c)(iva) to the SARFAESI Act in 2013.
9
The backdrop history of litigation indicates that in Narendra Kantilal
Shah v. Joint Registrar, Co­operative Societies5
, a Full Bench of the
Bombay High Court opined that term 'banking company' also means
co­operative bank within the meaning of Section 2(d) of the RDB Act,
1993.     Hence,   with   effect   from   the   date   of   constitution   of   Debts
Recovery Tribunal under RDB Act, 1993, the courts and authorities
under the Maharashtra   Co­operative Societies Act, 1960, as also the
MSCS   Act   would   cease   to   have   jurisdiction   to   entertain   the
applications submitted by the co­operative banks for recovery of their
dues. The decision in Narendra Kantilal Shah (supra) was set aside by
this Court in  Greater Bombay Coop. Bank Ltd.  (supra).   This Court
opined that the co­operative banks established under the Maharashtra
Co­operative Societies Act, 1960 and Andhra Pradesh Co­operative
Societies Act, 1964, transacting the business of banking do not fall
within the meaning of 'banking company' as defined in Section 5(c) of
the BR Act, 1949.  Therefore, the provisions of the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993, now renamed as
The Recovery of Debts and Bankruptcy Act, 1993 (for short, 'the RDB
Act, 1993'), by invoking the doctrine of incorporation do not apply to
the recovery of dues by co­operative banks from their members.  The
field of co­operative societies cannot be said to have been covered by
the Central legislation by reference to Entry 45 of List I of the Seventh
5 AIR 2004 Bom 166
10
Schedule of the Constitution of India.  Co­operative banks constituted
under the Co­operative Societies Acts enacted by the respective States
would be covered by 'co­operative societies' by Entry 32 of List II of the
Seventh Schedule of the Constitution of India.  In the year 2004, the
Banking Regulation (Amendment) and Miscellaneous Provisions Act,
2004, was passed by the Union of India, amending various provisions
contained in the BR Act, 1949 retrospectively, w.e.f. 1.3.1966.  On the
same anvil, the question posed is whether provisions can be applied to
recovery provisions carved out in the SARFAESI Act.
4. Writ Petition No.2672 of 2007 was filed by Khaja Industries,
challenging the invocation of the SARFAESI Act by Jalgaon Peoples
Co­operative Bank.  The Bombay High Court dismissed the same.  The
recourse to the proceedings under the SARFAESI Act was upheld.  In
Rama Steel v. Union of India6
,  the decision in  Khaja Industries  was
followed.   Against the decision of Bombay High Court, appeals have
been filed.
5. On   13.8.2008,   Pandurang   Ganpati   Chougule   –   appellant,
questioned   the   action   of   Vishwasrao   Patil   Murgud   Sahakari   Bank
Limited under the SARFAESI Act before the Civil Judge in Spl. Civil
Suit No.226 of 2007.  Deciding the preliminary issue, the Trial Court
held that it did not have the jurisdiction to decide the suit.  The first
6 (2007) 6 Mah. L.J. 387
11
appeal preferred was dismissed.   Against that, the appeal has been
preferred before this Court.  A separate writ petition under Article 32
of   the   Constitution   of   India   has   also   been   filed,   questioning   the
invocation of the SARFAESI Act by issuing notices under Section 13
by   co­operative   banks.     During   the   pendency   of   the   matters,   the
Central Government brought into force the Enforcement of Security
Deposit   and   Debts   Law   (Amendment)   Act,   2012   (Act   1   of   2013),
amending the definition of Section 2(1)(c) of the SARFAESI Act; the
amendment has also been questioned in the writ petition filed in this
Court.
6. In Administrator, Shri Dhakari Group Co­operative Cotton Seal &
Ors. v. Union of India, (Special Civil Application No.930 of 2001), the
Gujarat High Court struck down the notification dated 28.1.2003,
relying upon Greater Bombay Coop. Bank Ltd. (supra), same has also
been questioned in the appeal.  Later on, Gujarat High Court in Neel
Oil   Industries   v.   Union   of   India7
,  rejected   the   challenge   to   the
Constitutional validity of clause (iva) ‘multi­State co­operative bank’
inserted by way of Amendment Act, 2013. 
7. On 30.7.2015, the matter was referred to a larger Bench.  After
that, on 26.2.2016, a three­Judge Bench referred the matter to a
larger Bench, due to conflicting decisions mentioned earlier of the
7 AIR 2015 Gujarat 171
12
three­Judge Bench of this Court.
ARGUMENTS:
8. Shri Devansh A. Mohta, learned counsel appearing on behalf of
the appellants, raised the following arguments:
(a) The scope of banking under Entry 45 of List I is to be interpreted
in light of the definition of expression 'banking' in terms of Section 5(b)
of the BR Act, 1949.  He has referred to Rustom Cavasjee Cooper v.
Union of India8
 in which this Court held that 'banking' under Entry 45
did not include 'banker' or 'bank.'   Banking is an activity.   Entry
pertains   to   the   activity   of   banking   alone.     Section   5(b)   read   with
Section 6(1) of the BR Act, 1949, recognizes two kinds of activities that
a bank may undertake: (1) the banking business, i.e., 'core banking
business'; and (2) any other business as provided in Section 6(1).   He
has also referred to the decision in Mahaluxmi Bank Ltd. v. Registrar of
Companies, West Bengal9
in which the court considered the meaning
of 'banking,' and held that the essence of banking was the relationship
brought into existence, i.e., the core of banking.
(a) As to the scope of Entry 45 List I, he has further referred to the
decision   in  ICICI   Bank   Limited   v.   Official   Liquidator   of   APS   Star
Industries Limited and Ors.10, wherein it was emphasised that even if a
8 (1970) 1 SCC 248
9 AIR 1961 Calcutta 666
10 (2010) 10 SCC 1
13
company was doing different businesses in addition to clause (a) to (o)
of Section 6(1), it would remain a banking company as long as it was
performing the core banking functions under Section 5(b).  The core
banking function is the sine qua non for being regulated by the BR Act,
1949.  Therefore, 'banking' in Entry 45 of List I is essentially meant to
be   confined   to   'core   banking   business'.     At   the   time   when   the
Constitution   of   India   was   promulgated,   a   well­defined   and   wellestablished meaning of the expression 'banking' prevailed in the form
of the definition of 'banking' under Section 5(b) of the BR Act, 1949.
The same expression was borrowed by the Framers of the Constitution
of   India,   and   same   meaning   was   to   be   given   to   the   expression
'banking' in the Entry as defined in the BR Act, 1949 as observed by
this Court in The State of Madras v. Gannon Dunkerley & Co., (Madras)
Ltd.11 and Diamond Sugar Mills Ltd. and Anr. v. State of Uttar Pradesh
and Anr.12
.
(b) There is a difference between 'entity' and 'activity'.  Section 6(1)
and 6(2) of the BR Act, 1949, enable only a banking entity to perform
certain additional business/functions.  The performance of additional
business/functions does not confer any status of a banking company
upon such an entity.  He also referred to Sections 32 and 33 of the
State Bank of India Act, 1955 (for short, 'the SBI Act').   Section 32
11 AIR 1958 SC 560
12 AIR 1961 SC 652
14
recognises that the State Bank of India can carry 'agency business' on
behalf   of   Reserve   Bank   of   India,   that   is   not   a   banking   business
performed by the State Bank of India as apparent from the perusal of
Section 33, which categorically enables the State Bank of India to
carry on banking business under Section 5(b) and other forms of
business   under   Section   6(1)   of   the   BR   Act,   1949.     Thus,   it   was
submitted that every activity performed by a bank is not a banking
activity.
(c) That   Entry   43   of   List   I   of   the   Seventh   Schedule   of   the
Constitution of India confers upon the Parliament the competence to
pass law pertaining to 'incorporation, regulation and winding up' of a
trading   corporation,   more   particularly   a   banking   corporation.
However,   'co­operative   societies'   are   expressly   excluded   from   the
purview of the Parliament's competence being a State subject under
Entry 32 of List II.  He argued that the legislative history of the BR Act,
1949, made a difference between 'entity' and 'activity.'  The expression
'banking' was defined in Chapter X­A of the Companies Act (VII of
1913).  Sections  277F  to  277N were  inserted  vide  Amendment  Act
No.22 of 1936.  After that, the BR Act, 1949, was enforced, providing a
comprehensive   definition   of  'banking'  to   bring within  its   scope   all
institutions which receive deposits repayable on demand or otherwise
for lending or investment.   At that time, the relevant entries of the
Government   of   India   Act,   1935,   which   dealt   with   the   subject   of
15
banking   as   well   as   trading   corporation,   were   in   List   I   (Federal
Legislative List).  Entry 38 and Entry 33 were in relation to 'banking'
and 'corporation' respectively.  In the Constitution of India, Entry 38
and Entry 33 have been substituted.  Entry 38 is substituted as Entry
45 of List I and Entry 33 has been bifurcated into Entry 43, and 44 of
List I.  Until 1965 before the amendment was inserted in the BR Act,
1949, it dealt with 'banking companies.'   The word 'companies' was
omitted in the year 1965.  The function of the State Bank of India was
governed by a separate statute such as the State Bank of India Act,
1955.  In the year 1965, the Central Government passed the Banking
Laws [Application of Cooperative Societies Act, 1965 (Act No.23 of
1965)].   He has referred to the Statement of Objects and Reasons,
which brings out that the BR Act, 1949, was only to regulate the
banking business relatable to Entry 45 and not to regulate the cooperative societies.
(d) Section   2(10)   of   the   Maharashtra   Co­operative   Societies   Act,
1960,   is   related   to   the   management   and   business   of   co­operative
societies.   Under   Section   91   of   the   Maharashtra   Act,   any   dispute
touching the constitution, management or business is required to be
referred to a co­operative court.
(e) Similarly,   Section   3(f)   of   the   MSCS   Act   defines   'co­operative
bank' to mean a multi­State co­operative society, which undertakes
the banking business.  Under Section 84(2) of the MSCS Act, a dispute
16
can   be   raised.     The   power   of   Parliament   is   confined   to   specific
provisions of the BR Act, 1949 (a legislation referable to Entry 45 of
List I), and the Reserve Bank of India Act (a legislation referable to
Entry 38 of List I).   The Parliament lacks legislative competence to
regulate   any   other   business,   function,   or   facets   of   co­operative
societies.  It could have extended the provisions of said Act only.  The
Parliament cannot regulate these co­operative societies like a company
performing banking functions or a banking corporation.
(f) The object of the SARFAESI Act is to regulate securitisation and
reconstruction   of   financial   assets   and   enforcement   of   security
interests.   The business of securitisation is not a banking business.
Under Section 2(1)(l) of the SARFAESI Act, a 'financial asset' means
debt or receivable and includes inter alia any financial asset.  Section
2(1)(ha) defines 'debt' to mean the same as defined in clause (g) of
Section 2 of the RDB Act, 1993.   Financial assistance to members is
another form of business that is not a banking business.  Therefore,
an attempt to regulate the assets of a co­operative bank by bringing
them   within   the   purview   of   the   SARFAESI   Act   is   contrary   to   the
original intent of the extending provisions of the BR Act, 1949 and
that would amount to exercising control over the entities which are
beyond the purview of competence of Parliament.
(g) The Parliament lacks legislative competence to regulate financial
17
assets related to the non­banking activity of a co­operative society as
they are expressly excluded from the purview of Entry 43 of List I.  The
regulation cannot be based upon an interpretation of only Entry 45
without   any   regard   to   Entry   43.     The   legislative   action   would   be
inconsistent   with   the   limitation   inherent  in   the   federal   scheme   of
distribution of legislative powers between the Union and the State.  It
would   amount   to   regulation   of   co­operative   society   which   subject
matter is covered under Entry 32 of List II and also confer upon them
a status of a banking corporation or a banking company.   It would
render an entity falling under Entry 32 of List II subject to the control
of the Parliament, which would be contrary not only to the text but
also   to   the   constitutional   intendment   as   opined   in  I.T.C.   Ltd.   v.
Agriculture Produce Market Committee and Ors.13
(h) Notification   No.105(E)   dated   28.1.2003   is  ultra   vires  as   the
Parliament has included only two classes of entities, i.e., banking
company and banking corporation within its purview.  The definition
of 'bank' under Section 2(1)(c)(v) means 'such other bank which the
Central Government may by notification, specify for this Act.'   The
power of the Central Government is confined to the entity of the kind
referred under Clauses (i) to (iv) and not beyond that, i.e., a banking
company   or   a   banking   corporation   only   and   not   co­operative
societies/banks.  The co­operative bank is neither a banking company
13 (2002) 9 SCC 232
18
nor a banking corporation; thus, it falls outside the purview of Section
2(1)(c)(v) of the SARFAESI Act.   The notification is  ultra vires  and
violative of not only the parent statute but also the Constitution of
India.  For this purpose, learned counsel relied upon Hinsa Virodhak
Sangh v. Mirzapur Moti Kuresh Jamat and Ors.14.   Recovery of debts
due is essential for the bank, i.e., entity and not for the banking
business, i.e., activity.  In Greater Bombay Coop. Bank Ltd. (supra), the
argument based upon the banking business of the co­operative bank
to be covered by Entry 45, was rejected.  Therefore, recovery of dues
was held to be outside the purview of Entry 45 of List I.  The Central
legislation seeking to regulate banks can only bring within its purview
entities falling in Entry 43, i.e., banking corporation and banking
companies.   Thus, the Parliament is not competent to enact a law
concerning the subject matter of Entry 32 of List II.
(i) The   amendment   incorporated   is   a   colourable   exercise.     The
notification dated 28.1.2003 is ultra vires in view of the decisions in
K.C. Gajapati Narayan Deo and Ors. v. State of Orissa15 and State of
Tamil Nadu and Ors. v. K. Shyam Sunder and Ors16
.   Once entities are
excluded by Entry 43, the Union of India cannot control it by an
indirect method.  The Multi­State Co­operative Bank is a primary cooperative   bank   that   is,   in   turn,   a   co­operative   society.     In Apex
14 (2008) 5 SCC 33
15 AIR 1953 SC 375
16 (2011) 8 SCC 737
19
Cooperative   Bank   of   Urban   Bank   of   Maharashtra   &   Goa   Ltd.   v.
Maharashtra State Cooperative Bank Ltd. and Ors.17
,  it was observed
that co­operative societies are in the purview of the State List.
(j) The   MSCS   Act   is   relatable   to   Entry   44.     This   Court   is   not
required to pronounce upon the validity of the said Act.  The source of
legislative authority to regulate such banks would be Entry 43.  The
purpose of Act No.23 of 1965 was to regulate the banking business of
certain co­operative societies.   They do not cease to be co­operative
societies as held in  Virendra Pal Singh and Ors. v. District Assistant
Registrar, Cooperative Societies, Etah, and Anr.18.  There is a difference
in the Entries 43, 44 and 32 as held in  S.S. Dhanoa v. Municipal
Corporation, Delhi and Ors.19, Daman Singh and Ors. v. State of Punjab
and Ors.20
, and Dalco Engineering Private Limited v. Satish Prabhakar
Padhye and Ors.21
.   The decision in Greater Bombay Coop. Bank Ltd.
(supra) laid down the law correctly. 
(k) There has to be harmonious construction of the Entries in List I
and List II.  Any argument of alarm relating to an adverse effect on the
banking   sector   would   be   of   no   consequence   or   relevance   to   the
question of construction of the constitutional entry as held in  I.T.C.
17 (2003) 11 SCC 66
18 (1980) 4 SCC 109
19 (1981) 3 SCC 431
20 (1985) 2 SCC 670
21 (2010) 4 SCC 378
20
Ltd. (supra).
9. Shri   Vijay   Kumar,   learned   counsel   appearing   on   behalf   of
petitioners, submitted that Parliament is not competent to enact laws
concerning co­operative societies/banks.  Banking business for a cooperative society is merely an incidental/ancillary business.   A cooperative society doing business remains a co­operative society and is
covered under Entry 32 of List II.   He has placed reliance on  Iqbal
Naseer Usmani v. Central Bank of India and Ors.22.  There is complete
mechanism provided under the State Co­operative Societies Acts and
MSCS   Act;   thus,   the   amendment   to   the   SARFAESI   Act   and   the
notification deserve to be struck down.
10. Shri   Vishwas   Shah,   learned   counsel   appearing   on   behalf   of
appellants, has argued that it is not necessary to question the 1965
Amendment made to the BR Act, 1949.  The validity of the notification
and the provisions of the SARFAESI Act have to be tested on their
own.   The co­operative banks differ from other banks.   Entities are
basically   co­operative   societies,   and   it   incidentally   trenches   on
banking.  The dominant legislation on the subject is State legislation
under Entry 32.   The co­operative banks are different from banking
companies to the extent that they advance loans to their members
only.  The banking companies/corporations deal with the public.  The
22 (2006) 2 SCC 241
21
co­operative banks do not carry the business as defined in the BR Act,
1949.   The Doctrine of Pith and Substance has to be applied, cooperative   society   engaged   in   banking   does   not   cease   to   be   a   cooperative society.  In Entry 45 of List I, 'banking' does not include cooperative banks.   He relied upon  Gannon Dunkerley & Co. (Madras)
Ltd. (supra) and I.T.C. Ltd. (supra).
11. Shri   Satpal   Singh,   learned   counsel,   has   re­emphasised   that
amendment   made   by   inserting   the   definition   of   'multi­State   cooperative bank' is colourable legislation and deserves to be struck
down.  The Co­operative Acts are comprehensive.  The meaning of the
expression 'bank' could not have been enlarged.
12. Per   contra,  Shri   Shekhar   Naphade,   learned   senior   counsel,
appearing on behalf of Cosmos Bank, raised the following arguments:
(a) Section   2(1)(c)   of   the   SARFAESI   Act   defines   'bank'   to   mean
'banking company' as defined in Section 5(c) of the BR Act, 1949.
Thus, the definition of 'bank' contained in Section 5(c) of the BR Act,
1949 stands incorporated in Section 2(d) of the SARFAESI Act, that
came into existence on 21.6.2002; hence, it is necessary to examine
Section 5(c) of the BR Act, 1949, as it stood on 21.6.2002.   It is
covered   by   way   of   incorporation,   w.e.f.   1.3.1966.     Section   56(a)
became part of Statute since 1.3.1966, the reference to a 'banking
company' or a 'company' shall be construed as a reference to a co­
22
operative bank.  Section 56(a) becomes part of Section 5(c) of the BR
Act, 1949, and stands incorporated in Section 5(c) of the BR Act,
1949.  Thus, a reference to the banking company has to be read as a
reference to the co­operative bank.
(a) Section 56(a) becomes part of Section 5(c) of the BR Act, 1949.
Although Section 56(a) is located in a separate place, its impact on
Section 5(c) results in a co­operative bank both on State level as well
as multi­State level becoming part of a banking company.  Therefore,
the SARFAESI Act covers in its purview co­operative banks and multiState co­operative banks.
(b) The insertion of a ‘multi­State co­operative bank’ in Section 2(1)
(c)(iva) is  ex majori cautela  as multi­State co­operative bank comes
under the ambit of ‘banking company’ mentioned in Section 2(1)(c)
and as defined in Section 2(d) of the SARFAESI Act.  In Daman Singh
(supra), this Court held that expression 'corporation' occurring under
Article 31A(1)(3) of the Constitution of India is required to be given a
broad interpretation and takes within its compass a registered cooperative society.
(c) He relied on  The Majoor Sahakari Bank Ltd. v. N.N. Majmudar
and Anr.23 in which the Bombay High Court observed that co­operative
society   doing   business   of   banking   is   a   company.     The   question
23 AIR 1957 Bom 36
23
mentioned   above   arose   as   the   Government   of   Bombay   issued   a
notification   and   directed   that   all   the   provisions   of   the   Bombay
Industrial   Disputes   Act   shall   apply   to   the   business   of   banking
companies registered under any of the enactments relating to the
companies for the time being in force.
(d) Article 246 distributes legislative powers between the Union and
the State regarding three lists in the Seventh Schedule.  Under Article
246(1), the Parliament has exclusive power to make laws in respect of
97 matters enumerated in List I notwithstanding anything contained
in clauses (2) and (3).  As per Article 246(3), the State legislature has
legislative powers to make laws with respect to 66 matters enumerated
in List II.  The exclusive power of the State legislature to legislate with
respect to any of the matters enumerated in List II has to be exercised
subject to Article 246(1), i.e., the exclusive power of the Parliament to
legislate concerning matters enumerated in List I.  As a consequence if
there is a conflict in an Entry in List I and an Entry in List II, which is
not   capable   of   reconciliation,   the   power   of   Parliament   to   legislate
concerning matters enumerated in List I must supersede pro tanto the
power of the State legislature.   Both the Parliament and the State
legislatures   have   concurrent   power   of   legislation   for   47   matters
enumerated in List III.
(e) Reliance has been placed on Virendra Pal Singh (supra), in which
24
the Court examined the powers of the State legislature relating to the
service   conditions   of   employees.     The   Court   held   that   the   State
legislature was competent to legislate concerning employees of the
bank.  This Court did not deal with the banking business of the cooperative societies.  He argued that regulating the non­banking affairs
of society and regulating the banking business of society are two
different things.   Entry 32 of List II deals with regulation of nonbanking affairs of the co­operative society, on the other hand, Entry
45 of List I deals with banking; hence, any legislation dealing with
regulation of banking will be traceable to Entry 45 of List I and only
the Parliament will be competent to legislate.  The SARFAESI Act does
not   deal   with   incorporation,   regulation,   and   winding   up   of   the
corporation, company, or co­operative societies.  It does not regulate
the working of a corporation, company, or co­operative society.  It only
provides  for  the  recovery  of  dues  of  banks,   including  co­operative
banks, the procedure for recovery, the authority competent to recover
the loan, and the judicial forum to deal with disputes arising out of
recovery.  Thus, the Act does not touch upon Entry 32 of List II.  The
decision   in  Greater   Bombay   Coop.   Bank   Ltd.  (supra)   requires
reconsideration and clarification.  There is no in­depth consideration
of its provisions and, more particularly, Section 56 of the BR Act,
1949.
(f) The ratio of the judgment is material.  The obiter relates to the
25
finding of court on an issue that arises in the matter but is not
required to be decided for the final decision of the case.   Thus, the
finding of an issue is considered as an obiter.  In contrast to ratio and
obiter, the opinion of the court on an issue that does not arise is a
casual or passing observation. The question in Greater Bombay Coop.
Bank Ltd. (supra) was whether the court and authorities constituted
under the State Co­operative Societies Act and the MSCS Act continue
to   have   jurisdiction   to   consider   applications/disputes   submitted
before  them  by  State  level  and  multi­State  co­operative   banks  for
recovery of debts due to them.  The question was of the applicability of
the RDB Act, 1993 to debts due to co­operative banks constituted
under the MCS Act, 1960, the MSCS Act, and the APCS Act, 1964.
The question whether the State legislature was competent to legislate
law concerning co­operative societies transacting business of banking
in the light of Entry 32 of List II of the Seventh Schedule, did not arise
in the matter; hence, any observation made by this Court, concerning
the said issue, cannot be considered as the ratio of the judgment in
Greater Bombay Coop. Bank Ltd. (supra).
(g) He relied upon the decision of a Division Bench of the Bombay
High Court in  The Shamrao Vithal Co­operative Bank Ltd., Mumbai,
and   Anr.   v.   M/s.   Star   Glass   Works,   Mumbai   and   Ors.24  in   which
meaning of incorporation by reference was considered.  The same has
24 AIR 2003 Bom 205
26
to   be   taken   to   a   logical   end.     The   Parliament   has   provided   an
additional   remedy   to   co­operative   banks   to   recover   their   dues   by
recourse to the Co­operative Societies Act.  The Court did not consider
the said aspect in  Greater   Bombay  Coop.   Bank  Ltd.  (supra).   The
distinction between co­operative banks serving the members and the
corporate   bank   doing   commercial   transactions   would   make   no
difference.  The activity remains banking merely by the fact that cooperative banks are co­operative societies doing banking business; it
does not make the banking activity carried out by them incidental one.
It   remains   their   activity.     It   was   observed   that   the   definition   of
'banking company' in Section 5(c) had not been altered by Act No.23 of
1965.  The incorporation, by reference, has the effect of changing the
definition of 'banking company.'  Even if in the RDB Act, 1993, the cooperative bank is not included right from the beginning, nothing came
in the way of Parliament to enact a law that provides for an additional
remedy to co­operative banks.
13. Shri Jaideep Gupta, learned senior counsel appearing on behalf
of the Reserve Bank of India, raised the following arguments:
(a) The   matter   is   covered   by   Entry   45   of   List   I   of   the   Seventh
Schedule   of   the   Constitution   of   India.     For   the   very   reason,   the
Parliament has the right to legislate in respect of the banking business
as defined in Section 5(b) of the BR Act, 1949.
27
(a) Banking operations would  inter alia  include accepting of loans
and deposits, the grant of loans and recovery of debts due to the bank.
There can be little doubt that the Parliament can enact a law about
the  conduct  of  the  business  by a bank.    Recovery of  dues  is  an
essential function of a banking institution.  Entry 45 of List I would
mean legislation regarding all aspects of banking, including ancillary
or subsidiary matters relating to that.  The SARFAESI Act falls within
the ambit of Entry 45 of List I.
(b) The Parliament can enact a law in respect of matters contained
in Entry 45 of List I, even if the bank in question is a co­operative
society.   Entry 45 of List I makes no difference whether an entity
carrying business of banking is a company or statutory corporation or
a co­operative society.
(c) The 1965 amendment to the BR Act, 1949, brought within its
ken co­operative banks, is not under challenge and has never been
successfully questioned.   The Parliament has the power to legislate
concerning matters referred to in the SARFAESI Act under Entry 45 of
List I, even if the entity which carries out the activity of banking, is a
co­operative society.   It is permissible for the Parliament to include
multi­State   co­operative   banks   within   the   definition   of   'bank.'
Similarly,   the   Government   could   have   notified   co­operative   banks
under the purview of Section 2(1)(c)(v) of the SARFAESI Act, more so,
in view of the definition in clause (cci) of Section 56 of the BR Act,
28
1949.
(d) The   argument   of   the   appellant   that   Section   2(1)(c)   of   the
SARFAESI Act refers to an entity and not the activity, therefore, it
cannot be justified under Entry 45 of List I, is misconceived.  Section
2(1)(c) is only a definition provision.  The subject matter of legislation
is securitisation, reconstruction of financial assets and enforcement of
security interest of banks or financial institutions.  The subject matter
of legislation is not based on the entity.
(e) The SARFAESI Act is not a legislation relating to incorporation,
regulation, and winding up of the co­operative societies or multi­State
co­operative society engaged in banking.   The same is traceable to
Entry 45 of List I, i.e., the activity of banking.
(f) The Statement of Objects and Reasons of the SARFAESI Act
indicates   that   it   relates   to   the   business   of   banking   and   matters
incidental to it.   It confers the power upon the bank and financial
institutions to take possession of security and sell them to overcome
the slow pacing of recovery of default loans and mounting levels of
non­performing assets of banks and financial institutions.   It was
based on the recommendation of the Narasimham Committee I and II
and the Andhyarujina Committee formed by the Central Government
to examine the banking sector reforms.   The legislation in question,
thus, relates to the business of banking.
29
(g) The argument of the appellant that 'such other banks' cannot
include co­operative banks, is also without basis, and the Parliament
has the power to legislate.   Certain observations made in  Greater
Bombay   Coop.   Bank   Ltd.  (supra) are incorrect and  required  to be
overruled.  The questions which arose in the said case were different.
14. Shri Vijay Hansaria, learned senior counsel appearing on behalf
of   Maharashtra   State   Co­operative   Bank,   reiterated   the   aforesaid
arguments and additionally urged that the Maharashtra State Cooperative Bank has 41 branches in the State of Maharashtra.  As on
31.3.2015, it had deposits of Rs.9,992 crores and has granted loans
and   advances   to   the  extent  of  Rs.12,006  crores   and  has   working
capital   to   the   extent   of   Rs.20,947   crores.     There   are   total   2115
members   including   1818   co­operative   institutions,   296   individuals
and individual societies and 1 State Government and the number of
total shares held by them is 45,67,280 (35,66,104 are held by cooperative institutions, 1176 are held by individuals and individual
societies, and 10,00,000 are held by the State Government).  The MSC
Bank advances various terms loans and working capital loans to cooperative processing units like Sugar Factories, Private Sugar Mills,
Spinning   Mills,   Oil   Mills,   Marketing   Co­operatives,   Educational
Institutions, and other co­operative Industrial Units.   It is the apex
institution   of   all   District   Central   Co­operative   Banks,   Urban   Co­
30
operative Banks, and Primary Agricultural Co­operative Societies. It
has a network of co­operative banks and the agricultural co­operative
societies in the State of Maharashtra on 31.3.2015 as under:
Total number of District Central Co­operative Banks 31
Number of branches of District Central Co­operative
Banks
3,734
Number of Primary Agriculture Credit Societies 21,124
Number of members of Primary Agriculture Credit
Societies
1,14,54,704
He   further   pointed   out   that   out   of   31   District   Co­operative
Banks, 30 primarily cater to the financial needs of the agriculture
sector. MSC Bank provides re­finance facilities to the District Central
Co­operative Bank, and it also takes care of the financial needs of the
non­farming sector by providing re­finance facilities to the District Cooperative Banks under the NABARD's general re­finance to enable
them to help rural artisans and small­scale industries.   It has also
introduced   the   crop   loan   system   in   the   State   in   association   with
District Co­operative Banks.   Thus, the notification issued and the
amendment   are   appropriate,   more   so,   in   light   of   the   amendment
incorporated in 1965.  The matter is covered under Entry 45 of List I
of the Seventh Schedule.
15. On behalf of the Indian Banks Association, Shri P.V. Yogeswaran
learned counsel, supported the arguments raised on behalf of the
Banks.  He further argued that the enactment of the SARFAESI Act is
within the   legislative   competence   of   the   Parliament.     It   does   not
31
deprive borrowers’ right to challenge the action under Section 13 of
the SARFAESI Act as well as under the Maharashtra Co­operative
Societies Act and is not violative of Article 14.   It only provided an
additional remedy.  This Court upheld the validity of Sections 13 and
17 of the SARFAESI Act.  The Parliament can legislate concerning cooperative banks within the purview of Entry 45 of List I.
16. Shri Vinay Navre, learned senior counsel appearing on behalf of
Co­operative Banks, vehemently argued that:
(a) The   expression   ‘incorporation,   regulation   and   winding   up’   in
Entries 43 and 44 of List I and Entry 32 of List II refers only to
organisational   aspects   of   the   corporations.     It   does   not   have   any
bearing on the business/transactional aspects.   He has relied upon
decisions in  Hindustan Lever and Anr. v. State of Maharashtra and
Anr.25
, Kerala State Electricity Board v. Indian Aluminium Co. Ltd.26 and
Sita Ram Sharma and Ors. v. State of Rajasthan and Ors.27.   The
framers of the Constitution deliberately did not define many terms
used in the Lists in the Seventh Schedule.  Wherever it was required,
they defined such terms.  Some of the subjects enumerated in Lists of
the Seventh Schedule are defined in Article 366 of the Constitution,
for instance, Agricultural Income (List I, Entry 82), Corporation Tax
(List I, Entry 85), Debt (List II, Entry 42), Pension (List I, Entry 71) and
25 (2004) 9 SCC 438
26 (1976) 1 SCC 466
27 (1974) 2 SCC 301
32
(List II, Entry 42).   The framers of the Constitution avoided defining
the term 'banking' in Article 366.  The intention was not to restrict its
meaning.     For   certain   Entries,   the   framers   of   the   Constitution
specified the meaning, such as in Entry 71 of List I and Entries 5, 8,
13, 17, 18 of List II.
(a) There was a purpose for the framers not to define as an Entry
has   to   be  given   meaning  as  per changes   in  society,  science,  and
technology.  When the American Constitution was framed more than
200   years   before   the   Indian   Constitution,   space   science   and
technology were unknown to the human. The Entry 'defence' in the
Union   List   was   interpreted   to   include   even   space   science   and
technology. He argued that the internet was unknown in 1950.  Today
Entry 31 of List I of the VII Schedule of the Constitution of India can
include the internet.   The courts interpreted an Entry taking into
account   the   changing   perspectives   of   the   time,   retaining   the
substance.
(b) The term 'banking' as understood in 1950 was too narrow, and
after   70   years,   the   banking   industry   has   undergone   significant
changes.   Today it includes portfolio management, underwriting of
shares, and investment banking.  There are grey areas like credit card
companies, i.e., VISA or American Express.  The definition in the BR
Act, 1949, cannot be used to restrict the scope of the term 'banking' in
33
Entry 45 of List I.
(c) If the argument of the appellants that co­operative banks are not
covered by Entry 45 of List I is accepted, the consequences will be
disastrous.     Entire   Part   V   of   the   BR   Act,   1949,   would   become
unconstitutional.  The Parliament can amend Section 84 of the MSCS
Act, and it could enact the SARFAESI Act.   Similarly, power can be
provided to recover dues under the SARFAESI Act also.  The argument
raised on behalf of appellants as to 'occupied field' cannot be accepted
as   the   question   of   'occupied   field'   is   germane   concerning   the
Concurrent List as held in State of A.P. and Ors. v. Mcdowell & Co. and
Ors.28.  The recovery of dues is an essential function of a bank.  The
argument to the contrary cannot be accepted.   The purpose of the
SARFAESI   Act   is   the   enforcement   of   security   interests.     The
consequence thereof is a recovery, which is an incidental one.
(d) The   SARFAESI   Act   is   for   enforcement   of   security,   and   it   is
referable to Entry 6 of List III also, more so, because of the provisions
contained in Sections 69 and 69A of the Transfer of Property Act,
1882.   Section 13 or other provisions of the SARFAESI Act do not
interfere with the legislative field occupied by Entry 32 of List II.  The
Maharashtra Co­operative Societies Act, 1960, provides two remedies
to the co­operative banks for recovery of their dues.  Section 91 is akin
28 (1996) 3 SCC 709
34
to a civil suit, and Section 101 provides a summary procedure for
issuance of a revenue recovery certificate.  The SARFAESI Act does not
take away the remedies of the co­operative banks under Section 91 or
101 of the said Act; it provides additional remedy under Section 13 to
co­operative banks to recover the dues and enforce security interest.
It is a classic case of co­operative/collaborative federalism.
17.  Shri Abhijet Sengupta, learned counsel appearing on behalf of
Jana Seva Sahakari Bank Ltd., urged that petition under Article 32 of
the   Constitution   cannot   be   said   to   be   maintainable,   given   the
decisions in Dewan Bahadur Seth Gopal Das Mohta v. Union of India
and Ors.29
,  and  Khyerbari Tea Co. Ltd. and Ors. v. State of Assam30
.
Entry 45 of List I and Entry 32 of List II are to be read harmoniously.
18. Following questions arise for consideration:
(1) Whether 'co­operative banks', which are co­operative societies
also, are governed by Entry 45 of List I or by Entry 32 of List II of
the Seventh Schedule of the Constitution of India, and to what
extent?
(2) Whether ‘banking company’ as defined in Section 5(c) of
the BR Act, 1949 covers co­operative banks registered under the
State   Co­operative   Laws   and   also   multi­State   co­operative
29 (1955) 1 SCR 773
30 (1964) 5 SCR 975
35
societies?
(3)(a) Whether co­operative banks both at the State level and
multi­State level are 'banks' for applicability of the SARFAESI
Act?
(3)(b) Whether provisions of Section 2(c) (iva) of the SARFAESI
Act on account of inclusion of multi­State co­operative banks
and notification dated 28.1.2003 notifying cooperative banks in
the State are ultra vires?
IN REFERENCE QUESTION NO.1:
19. In order to appreciate the rival submissions, we have to consider
Entries 43, 44 and 45 of List I and Entry 32 of List II of the Seventh
Schedule of the Constitution of India.   The Entries are reproduced
hereunder:
“43.   Incorporation,   regulation   and   winding   up   of
trading corporations, including banking, insurance
and   financial   corporations   but   not   including   cooperative societies.
44.   Incorporation,   regulation   and   winding   up   of
corporations, whether trading or not, with objects
not   confined   to   one   State,   but   not   including
universities.
45. Banking.
***
32.   Incorporation,   regulation   and   winding   up   of
corporation, other than those specified in List I, and
universities;   unincorporated   trading,   literary,
scientific,   religious   and   other   societies   and
associations; co­operative societies.”
36
20. In the BR Act, 1949, ‘banking’ has been defined under Section
5(b) thus:
“5.   Interpretation. —  In this Act, unless there is
anything repugnant in the subject or context,—
(b) “banking” means the accepting, for the purpose
of lending or investment, of deposits of money from
the public, repayable on demand or otherwise, and
withdrawable by cheque, draft, order or otherwise;”
21. Under   Section   5(c)   of   the   BR   Act,   1949,   the   term   ‘banking
company’ has been defined thus:
“5.   Interpretation.— In this Act, unless there is
anything repugnant in the subject or context,—
(c) “banking company” means any company which
transacts the business of banking in India;
Explanation.—  Any company which is engaged in
the manufacture of goods or carries on any trade
and   which   accepts   deposits   of   money   from   the
public   merely   for   the   purpose   of   financing   its
business as such manufacturer or trader shall not
be   deemed   to   transact   the   business   of   banking
within the meaning of this clause;”
22. Section 6 in Part II of the BR Act, 1949 deals with forms of
business   in   which   banking   companies   may   engage,   is   extracted
hereunder:
“6.   Forms   of   business   in   which   banking
companies  may   engage.— (1) In addition to the
business   of   banking,   a   banking   company   may
engage in any one or more of the following forms of
business, namely:—
(a) the borrowing, raising, or taking up of money;
the lending or advancing of money either upon or
without security; the drawing, making, accepting;
discounting, buying, selling collecting and dealing in
bills   of   exchange,   hoondees,   promissory   notes,
coupons,   drafts,   bills   of   lading,   railway   receipts,
warrants, debentures, certificates, scrips and other
37
instruments, and securities whether transferable or
negotiable or not; the granting and issuing of letters
of credit, traveller’s cheques and circular notes; the
buying, selling and dealing in bullion and specie;
the buying and selling of foreign exchange including
foreign bank notes; the acquiring, holding, issuing
on commission, underwriting and dealing in stock,
funds, shares, debentures, debenture stock, bonds,
obligations, securities and investments of all kinds;
the purchasing and selling of bonds, scrips or other
forms   of   securities   on   behalf   of   constituents   or
others, the negotiating of loans and advances; the
receiving of all kinds of bonds, scrips or valuables
on deposits or for safe custody or otherwise; the
providing of safe deposit vaults: the collecting and
transmitting of money and securities;
(b) acting as agents for any Government or local
authority   or   any   other   person   or   persons;   the
carrying on of agency business of any description
including   the   clearing   and   forwarding   of   goods,
giving   of   receipts   and   discharges   and   otherwise
acting as an attorney on behalf of customers, but
excluding   the   business   of   a   managing   agent   or
secretary and treasurer of a company;
(c)   contracting   for   public   and   private   loans   and
negotiating and issuing the same;
(d)   the   effecting,   insuring,   guaranteeing,
underwriting,   participating   in   managing   and
carrying out of any issue, public or private, of State,
municipal   or   other   loans   or   of   shares,   stock,
debentures,   or   debenture   stock   of   any   company,
corporation or association and the lending of money
for the purpose of any such issue;
(e)   carrying   on   and   transacting   every   kind   of
guarantee and indemnity business;
(f)   managing,   selling   and   realising   and   property
which may come into the possession of the company
in   satisfaction   or   part   satisfaction   of   any   of   its
claims;
(g) acquiring and holding and generally dealing with
any property or any right, title or interest in any
such property which may form the security or part
38
of the security for any loans or advances or which
may be connected with any such security;
(h) undertaking and executing trusts;
(i)   undertaking   the   administration   of   estates   as
executor, trustee or otherwise;
(j)   establishing   and   supporting   or   aiding   in   the
establishment   and   support   of   associations,
institutions,   funds,   trusts   and   conveniences
calculated to benefit employees or ex­employees of
the company or the dependents or connections of
such   persons;   granting   pensions   and   allowances
and   making   payments   towards   insurance;
subscribing   to   or   guaranteeing   moneys   for
charitable or benevolent objects or for any exhibition
or for any public, general or useful object;
(k) the acquisition, construction, maintenance and
alteration   of   any   building   or   works   necessary   or
convenient for the purposes of the company;
(l)   selling,   improving,   managing,   developing,
exchanging,   leasing,   mortgaging,   disposing   of   or
turning into account or otherwise dealing with all or
any part of the property and rights of the company;
(m) acquiring and undertaking the whole or any part
of the business of any person or company, when
such   business   is   of   a   nature   enumerated   or
described in this sub­section;
(n) doing all such other things as are incidental or
conducive to the promotion or advancement of the
business of the company;
(o) any other form of business which the Central
Government   may,   by   notification   in   the   Official
Gazette, specify as a form of business in which it is
lawful for a banking company to engage.
(2) No banking company shall engage in any form of
business other than those referred to in sub­section
(1).”
39
23. Initially, the provisions of the BR Act, 1949, applied only to
banking   companies.     The   provisions   of   the   BR   Act,   1949,   were
extended to co­operative banks by Act No.23 of 1965, w.e.f. 1.3.1966.
Earlier   Section   56   was   repealed   by   Act   No.36   of   1957,   w.e.f.
17.9.1957.     Bill   No.85   of   1964   was   introduced   in   Parliament   on
17.12.1964 to amend the Reserve Bank of India Act, 1934 and the
Banking Companies Act, 1949 to regulate the banking business of
certain co­operative societies and for matters connected in addition to
that.
24. Before we come to the amendments made, it is necessary to
consider the Statement of Objects and Reasons.   It was considered
necessary   to   extend   provisions   of   the   BR   Act,   1949   to   State   cooperative   banks,   the   central   co­operative   banks,   and,   more
importantly, to primary non­agriculture credit societies, which were
relatable   to   banking.     The   Statement   of   Objects   and   Reasons   is
extracted hereunder:
“STATEMENT OF OBJECTS OF REASONS
The provisions of the Banking Companies Act, 1949
are   not   now   applicable   to   or   in   relation   to   cooperative banks. The deposits and working funds of
co­operative   banks   are   now   so   large   that   the
extension of the more important provisions of the
Banking Companies Act, 1949 (and of certain other
allied provisions of the Reserve Bank of India, Act,
1934) to these banks will be in the public interest.
The Bill seeks accordingly to extend to the State cooperative banks, the central co­operative banks and
the   more   important   primary   non­agricultural   cooperative banks certain provisions of the existing
Central laws which are relatable to “banking”.
40
2. The notes on clauses explain in detail the various
provisions of the Bill.”
(emphasis supplied)
The   President's   recommendation   under   Article   117   of   the
Constitution   contained   in   appended   Notes   on   clauses   is   also
significant.    The   State  or apex  co­operative   banks,  all   central   cooperative banks, and primary non­agricultural credit societies, which
have paid­up capital and reserves of a nominal value of Rs.1 lakh or
more, were to be deemed to be co­operative banks.   Consequential
change in the qualifications of directors was proposed to be made.
Clause 6 provided to keep reserve at 3 per cent for apex co­operative
banks.  It was proposed to control co­operative banks effectively under
the   provisions   of   the   Reserve   Bank   of   India   Act   and   Banking
Companies   Act.     It   would   not   be   necessary   to   make   separate
provisions concerning them, as such the Banking Companies Act was
to   be   renamed   as   Banking   Regulation   Act,   and   it   would   not   be
confined any longer to companies incorporated under the Companies
Act carrying on the business of banking. 
25. What is of utmost significance is that extensive amendments and
omissions of several provisions of the BR Act, 1949 became necessary
concerning matters covered under Entry 32 of List II; as such various
amendments   were   separately   reflected   in   a   separate   chapter,
amendments were incorporated under various provisions of the Act in
41
Parts IIA, III and IIIA.  The provisions relatable directly or indirectly to
incorporation,   management   and   winding   up   of   co­operative   banks
were proposed to be omitted as these Parts or provisions were not in
pith and substance within the scope of any entry in the Central or
Concurrent   List   of   subjects   in   the   Seventh   Schedule   of   the
Constitution of India.   Following is the relevant extract of the Notes
appended  to  President's  recommendation  under  Article  117  of  the
Constitution of India:
“According   to   the   scheme   of   control   as   it   is
envisaged in the Reserve Bank of India Act and in
the Banking Companies Act, (a) all the State or apex
co­operative   banks,   (b)   all   central   co­operative
banks and (c) such of the primary non­agricultural
credit societies, including in particular urban cooperative   banks,   as   have   paid­up   capital   and
reserves of a nominal value of Rs. 1 lakh or more,
will   be   deemed   to   be   co­operative   banks.   The
definition of the expression "co­operative bank" will
exclude (a) all primary agricultural credit societies,
whatever the nominal value of their paid­up capital
may be, (b) primary non­agricultural credit societies
with paid­up capital and reserves of a nominal value
of less than rupees one lakh, even though they may
be accepting deposits from non­members and (c) all
other co­operative societies which do not obtain, or
may hereafter cease to obtain, deposits from nonmembers.
Clauses 8 and 9 provide for the modification of the
definition of (a) financial institutions and (b) nonbanking insitutions for the purposes of Chapter IIIB
of the Reserve Bank of India Act.  It is proposed that
(a) all co­operative banks, (b) all agricultural credit
societies and (c) all primary non­agricultural credit
societies which are not co­operative banks should
be   excluded   from   the   scope   of   the   statutory
provisions   relating   to   the   Reserve   Bank’s   control
over the loan investment or other allied policies  of
financial   and   non­banking   institutions.    Cooperative   banks   will   be   effectively   controlled   in
42
accordance with other provisions which are being
made for this purpose in the Reserve Bank of India
Act and the Banking Companies Act and it will not,
therefore,   be   necessary   to   make   any   separate
provision   in   regard   to   them.    Agricultural   credit
societies   have   been   excluded   generally   from   the
scope of the various provisions of the present Bill.
The working funds and turnover of primary nonagricultural   credit   societies   which   are   not   cooperative banks are relatively insignificant, with the
result   that   the   trouble   or   expense   involved   in
controlling their loans or advances or investment
policies may not be worthwhile.
Clauses 10 and 11.— Chapter III provides for the
amendments necessary to Banking Companies Act.
Clauses 10 and 11 seek to alter the description of
this Act and to make certain consequential changes
in the long title and the preamble. The Act, it is
proposed,   should   be   known   in   future   as   the
Banking   Regulation   Act,   1949.   This   will   be
appropriate, as its application will not be confined
any   longer   to   companies   incorporated   under   the
Companies   Act   and   carrying   on   the   business   of
banking.
Parts IIA, III and IlIA and such of the provisions in
the other Parts of the Act as are relatable either
directly   or   indirectly   to   the   incorporation,
management and winding up of co­operative banks
are   proposed   to   be   omitted,   as   these   Parts   or
provisions are not in pith and substance within the
scope of any entry in the Central or Concurrent List
of   subjects   in   the   Seventh   Schedule   to   the
    Constitution.”
(emphasis supplied)
The provisions of Bankers' Books Evidence Act, 1891 were also
proposed to be suitably modified to apply to the co­operative banks
thus:
“The provisions of the Bankers' Books Evidence Act,
1891   and   the   Banking   Companies   (Legal
Practitioners'   Clients'   Accounts)   Act,   1949   are
proposed to be modified suitably, so that the special
procedure as to evidence or the protection in respect
of   certain   accounts   may   be   extended   to   or   be
43
available in future in relation to co­operative banks
[clause (zk)].
The   Third   Schedule   as   proposed   to   be   amended
provides   for   the   prescribed   Forms   in   which   the
ba1ance­sheets and profit and loss accounts of cooperative   banks   will   have   to   be   maintained.   The
Forms may, if necessary, be modified in future in
the light of further experience and in accordance
with the procedure which is already prescribed in
the Act for this purpose.”
The co­operative banks were also required to submit the balance
sheet and profit and loss account to the Reserve Bank of India.
26. Various amendments were carried out in the Reserve Bank of
India Act to make it applicable to the co­operative banks.  The 'central
co­operative bank' was defined by substituting clause (bi) to Section 2
of the Reserve Bank of India Act, 1934.  Similarly, 'co­operative bank',
'co­operative credit society' and 'co­operative society' were defined by
substituting   Section   2(bii),   Section   2(biii)   and   Section   2(biv)
respectively.  The relevant definitions as inserted in the Reserve Bank
of India Act, 1934 are extracted hereunder:
“(bi) "central co­operative bank" means the principal
co­operative   society   in   a   district   in   a   State,   the
primary object of which is the financing of other cooperative societies in that district:
Provided that in addition to such principal society
in a district or where there is no such principal
society   in   a   district,   the   State   Government   may
declare   any   one   or   more   co­operative   societies
carrying   on   the   business   of   financing   other   cooperative societies in that district to be a central cooperative bank or banks within the meaning of this
definition;
(bii) “co­operative bank” means a State co­operative
bank, a central co­operative bank and a primary co­
44
operative bank;
(biii)   "co­operative   credit   society"   means   a   cooperative society, the primary object of which is to
provide   financial   accommodation   to   its   members
and includes a co­operative land mortgage bank:
(biv)   "co­operative   society"   means   a   society
registered, or deemed to be registered, under the
Co­operative Societies Act, 1912 or any other law
relating to co­operative societies for the time being
in force in any State;”
The   'primary   co­operative   bank'   has   been   defined   in   Section
2(ciii), and 'primary credit society' has been defined in Section 2(civ).
The definitions are extracted hereunder:
“(ciii)   "primary   co­operative   bank"   means   a   cooperative society, other than a primary agricultural
credit society,—
(1)   the   primary   object   or  principal  business   of
which is the transaction of banking business;
(2)   the   paid­up   share   capital   and   reserves   of
which are not less than one lakh of rupees; and
(3) the bye­laws of which do not permit admission
of any other co­operative society as a member;
(civ) "primary credit society" means a co­operative
society,   other   than   a   primary   agricultural   credit
society,—
(1)   the   primary   object   or  principal  business   of
which is the transaction of banking business;
(2)   the   paid­up   share   capital   and   reserves   of
which are less than one lakh of rupees; and
(3) the bye­laws of which do not permit admission
of any other co­operative society as a member;
Explanation.— If any dispute arises to the primary
object   or   principal   business   of   any   co­operative
society referred to in this clause or clause (cii) or
clause (ciii), a determination thereof by the Bank
shall be final.';”
Other corresponding changes were brought in the provisions to
apply the Reserve Bank of India Act to co­operative banks.
45
(a) Various   amendments   have   been   carried   out   in   the   Banking
Companies Act, 1949, it was renamed as the BR Act, 1949.   The
'primary agricultural credit society' was excluded from the purview of
the Reserve Bank of India Act and the BR Act, 1949.   Co­operative
land mortgage banks and any other co­operative society except in the
manner and to the extent specified in Part V were also excluded.
Section 3 of the BR Act, 1949 was substituted as under:
“3. Nothing in this Act shall apply to­
(a) a primary agricultural credit society;
(b) a co­operative land mortgage bank; and
(c)   any   other   co­operative   society,   except   in   the
manner and to the extent specified in Part V.”
(b) As it became necessary to apply certain provisions of the BR Act,
1949 to the co­operative banks in the modified form without inserting
the amendments/omissions in the various provisions, as that would
have   made   the   understanding   of   provisions   a   little   complicated.
Entire amendments made which applied to or about the co­operative
societies concerning co­operative banks were specified in Section 56,
Chapter   V,   though   they   had   the   effect   of   amending   the   main
provisions of the Act wherever they occurred.
(c) It   was   provided   by   Section   56(a)   of   the   BR   Act,   1949   that
throughout the Act, unless the context otherwise requires, references
to a banking company or the company or such company shall be
construed as references to a co­operative bank.  Section 56(a)(i) and
46
(ii) is extracted hereunder:
“56. The provisions of this Act, as in force for the
time   being,   shall   apply   to,   or   in   relation   to,   cooperative societies as they apply to, or in relation to
banking   companies   subject   to   the   following
modifications, namely:—
(a)   Throughout   this   Act,   unless   the   context
otherwise requires,—
(i) references  to  a “banking  company" or,
"the company" or "such company" shall be
construed as   references to a co­operative
bank,
(ii)   references   to   "commencement   of   this
Act"   shall   be   construed   as   references   to
commencement   of   the   Banking   Laws
(Application to Co­operative Societies) Act,
1964”
By virtue of Section 56(b) in Section 2, the words and figures 'the
Companies Act, 1956' were omitted.   After clause (cc) in Section 5
definition of 'central co­operative banks' in clause (ccc) was added as
under:
“(ccc)   "central   co­operative   bank",   "co­operative
bank",   "co­operative   society",   "director",   "primary
agricultural   credit   society",   "primary   co­operative
bank",   "primary   credit   society"   and   "State   cooperative   bank"   shall   have   the   meanings
respectively assigned to them in the Reserve Bank of
India Act, 1934.”
(d) Section   5A   was   modified   concerning   the   co­operative   banks.
Section 5A provided that the provisions of Part V shall prevail and
override bye­laws of a co­operative society or any agreement executed
by it, whether the same be registered, executed or passed, before or
after  the  commencement  of  the  Banking Laws  (Application   to  Cooperative Societies) Act, 1964.  Section 5A is extracted hereunder:
47
“5A. (1) The provisions of this Part shall have effect,
notwithstanding anything to the contrary contained
in the bye­laws of a co­operative society, or in any
agreement   executed   by   it,   or   in   any   resolution
passed by it in general meeting, or by its Board of
directors   or   other   body   entrusted   with   the
management   of   its   affairs,   whether   the   same   be
registered, executed or passed, as the case may be,
before or after the commencement of the Banking
Laws   (Application   to   Co­operative   Societies)   Act,
1964.
(2)   Any   provision   contained   in   the   bye­laws,
agreement   or   resolution   aforesaid   shall,   to   the
extent to which it is repugnant to the provisions of
this Part, become or be void, as the case may be.";”
(e) By virtue of provisions contained in Section 56(e) in Part V of the
BR Act, 1949 so far as it extends to co­operative society/banks, the
modification   has   been   made   in   Section   6(1)(b)   to   the   extent   'but
excluding the business of a managing agent or secretary and treasurer
of   the   company'   shall   be   omitted.     In   clause   (d)   after   the   word
'company,' the words 'or co­operative society' shall be inserted. 
(f) In Section 6(1) in clause (d), the words 'co­operative society' were
inserted  after the  word  'company.'    For co­operative  society  to  be
named as a co­operative bank, the following section was substituted:
“7.   (1)  No   co­operative   society   other   than   a   cooperative bank shall use as part of its name any of
the words "bank", "banker" or "banking" and no cooperative    society  shall  carry  on  the   business  of
banking in India unless it uses as part of its name
at least one of such words.
(2) Nothing in this section shall apply to­
(a) a primary credit society, or
(b) a co­operative society formed for the protection
48
of the mutual interests of co­operative banks or
co­operative land mortgage banks.;”
(emphasis supplied)
(g) Section 11 was substituted in application to co­operative banks.
The relevant portion of Section 11(1) is extracted hereunder:
“11.   (1)   Notwithstanding   any   law   relating   to   cooperative societies for the time being in force, no cooperative   bank   shall   commence   or   carry   on   the
business of banking in India unless the aggregate
value of its paid­up capital and reserves is not less
than one lakh of rupees:”
(h) Section 18 was substituted, which provided for maintaining cash
reserve.  Every co­operative bank not being a State co­operative bank
included in the Second Schedule to the Reserve Bank of India Act,
1934, shall maintain in India by way of cash reserve of 3 per cent of
the amount. The relevant portion of Section 18 is extracted hereunder:
“18. Every co­operative bank, not being a State cooperative bank ∙for the time being included in the
Second Schedule to the Reserve Bank of India Act,
1934,   shall   maintain   in   India,   by   way   of   cash
reserve with itself or in current account opened with
the Reserve Bank or the State Bank of India or the
State co­operative bank of the State concerned or
with   any   other   bank   notified   by   the   Central
Government   in   this   behalf   or,   in   the   case   of   a
primary   co­operative   bank,   with   the   central   cooperative bank of the district concerned or partly in
cash   with   itself   and   partly   in   such   account   or
accounts, a sum equivalent to at least three per cent
of the total of its time and demand liabilities in India
and shall submit to the Reserve Bank before the
15th   day   of   every   month   a   return   showing   the
amount   so   held   on   Friday   of   each   week   of   the
preceding month with particulars of its time and
demand liabilities in India on each such Friday, or,
if any such Friday is a public holiday under the
Negotiable Instruments Act, 1881, at the close of
business on the preceding working day.”
49
(i) Section 19 was substituted concerning the application to the cooperative societies.  The relevant portion of Section 19 is as under:
“19. No co­operative bank shall hold shares in any
other co­operative society except to such extent and
subject to such conditions as the Reserve Bank may
specify in that behalf:  ...”
The restriction was imposed under Section 19 on holding shares
in other co­operative societies except as provided by the Reserve Bank
of India.
(j) Section 22 of the BR Act, 1949, as amended in its application
with respect to the co­operative banks, provides that no co­operative
society shall carry on banking business in India unless it is a primary
credit society or a co­operative bank and holds a licence issued in that
behalf by the Reserve Bank.  Thus, it was necessary that only primary
credit society could involve in the banking business in India and to
hold a licence from the Reserve Bank of India.  The provisions of subSections   (1)   and   (2)   of   Section   22   were   also   substituted   in   their
application to the co­operative bank as under:
“(0) in section 22,—
(i) for sub­sections (1) and (2), the following subsections shall be substituted, namely:­
"(1)  Save  as hereinafter provided,  no  co­operative
society   shall   carry   on   banking   business   in   India
unless—
(a) it is a primary co­operative society, or
(b) it is a co­operative bank and holds a licence
issued in that behalf by the Reserve Bank, subject
to such conditions, if any, as the Reserve Bank
may deem fit to impose:
50
Provided  that  nothing  in this  sub­section  shall
apply to a co­operative society, not being a primary
credit  society  or a  co­operative  bank  carrying  on
banking   business   at   the   commencement   of   the
Banking Laws (Application to Co­operative Societies)
Act,   1964,   for   a   period   of   one   year   from   such
commencement.
(2) Every co­operative society carrying on business
as a co­operative bank at the commencement of the
Banking Laws (Application to Cooperative Societies)
Act, 1964, shall before the expiry of three months
from   such   commencement,   every   primary   credit
society which becomes a primary co­operative bank
after such commencement shall before the expiry of
three months from the date on which it so becomes
a primary co­operative bank and every co­operative
society   other   than   a   primary   credit   society   shall
before   commencing   banking   business   in   India,
apply in writing to the Reserve Bank for a licence
under this section:
Provided that nothing in clause (b) of sub­section
(1) shall be deemed to prohibit a co­operative society
carrying on business as a co­operative bank at the
commencement of the Banking Laws (Application to
Co­operative   Societies)   Act,   1964,   and   a   primary
credit society which becomes a primary co­operative
bank after such commencement, from carrying on
banking business until it is granted a licence in
pursuance of this section or is by notice in writing
informed by the Reserve Bank that a licence cannot
be granted to it.;”
(emphasis supplied)
(k) The embargo has also been created by sub­Section (1) of Section
23, to open a new place of business insofar as it applies to the cooperative banks thus:
“(1) Without obtaining the prior permission of the
Reserve Bank, no co­operative bank shall open a
new   place   of   business   or   change   otherwise   than
within the same city, town or village, the location of
an existing place of business:”
It has been made necessary by substituting Sections 29 and 30
51
for every co­operative bank to submit accounts and balance sheets to
the Reserve Bank of India.  Reserve Bank of India has also been given
power under Section 35 to inspect primary co­operative banks.   In
Section   35A(1)(c),   after   the   words   'banking   company',   the   words
'banking business of any co­operative bank' has been substituted.
Forms   have   also   been   prescribed   for   submitting   balance   sheet,
property, and assets, and profit and loss account.
Thus,   it   is   apparent   that   deep   and   pervasive   control   by  the
Reserve Bank of India is provided on primary credit society, which is
involved in banking.  As per the provisions of the BR Act, 1949, no
business can be done by any co­operative society without obtaining a
licence from the Reserve Bank of India.  The very existence of the cooperative banks is dependent and is governed by the Reserve Bank of
India Act as well as the BR Act, 1949.  The aforesaid legislations are
under Entry 38 and Entry 45, respectively, of List I of the Constitution
of India.
27. Before   proceeding   further,   it   is   necessary   to   consider   the
provisions contained in the SARFAESI Act.   The SARFAESI Act has
been enacted to regulate securitisation and reconstruction of financial
assets and enforcement of security interest and for matters connected
therewith and incidental to that.  It was considered that banks do not
have the power to take possession of the property and sell them.  The
52
legal system related to commercial transactions has not kept pace
with the changing commercial practices and financial sector reforms.
The relevant portion of the Statement of Objects and Reasons of the
SARFAESI Act is extracted hereunder:
“STATEMENT OF OBJECTS AND REASONS
The financial sector has been one of the key drivers
in   India’s   efforts   to   achieve   success   in   rapidly
developing its economy. While the banking industry
in   India   is   progressively   complying   with   the
international   prudential   norms   and   accounting
practices   there   are   certain   areas   in   which   the
banking and financial sector do not have a level
playing field as compared to other participants in
the financial markets in the world. There is no legal
provision for facilitating securitisation of financial
assets of banks and financial institutions. Further,
unlike international banks, the banks and financial
institutions   in   India   do   not   have   power   to   take
possession of securities and sell them. Our existing
legal framework relating to commercial transactions
has not kept pace with the changing commercial
practices   and   financial   sector   reforms.   This   has
resulted in slow pace of recovery of defaulting loans
and   mounting   levels   of   non­performing   assets   of
banks   and   financial   institutions.   Narasimham
Committee  I  and  II and Andhyarujina  Committee
constituted   by   the   Central   Government   for   the
purpose of examining banking sector reforms have
considered the need for changes in the legal system
in respect of these areas. These Committees,  inter
alia, have suggested enactment of a new legislation
for   securitisation   and   empowering   banks   and
financial   institutions   to   take   possession   of   the
securities and to sell them without the intervention
of   the   court.   Acting   on   these   suggestions,   the
Securitisation   and   Reconstruction   of   Financial
Assets   and   Enforcement   of   Security   Interest
Ordinance,   2002   was   promulgated   on   the   21st
June,   2002   to   regulate   securitisation   and
reconstruction of financial assets and enforcement
of   security   interest   and   for   matters   connected
therewith or incidental thereto. The provisions of the
Ordinance   would   enable   banks   and   financial
institutions   to   realise   long­term   assets,   manage
problem of liquidity, asset liability mismatches and
53
improve   recovery   by   exercising   powers   to   take
possession of securities, sell them and reduce nonperforming   assets   by   adopting   measures   for
recovery or reconstruction.
2. It is now proposed to replace the Ordinance by a
Bill,   which,  inter   alia,   contains   provisions   of   the
Ordinance to provide for—
(g)   defining   ‘security   interest’   as   any   type   of
security   including   mortgage   and   charge   on
immovable properties given for due repayment of
any   financial   assistance   given   by   any   bank   or
financial institution;
(h) empowering banks and financial institutions
to take possession of securities given for financial
assistance and sell or lease the same or take over
management   in   the   event   of   default,   i.e.
classification of the borrower’s account as nonperforming   asset   in   accordance   with   the
directions   given   or   guidelines   issued   by   the
Reserve Bank of India from time to time;”
28. Under Section 13 of the SARFAESI Act, it is open to the Bank to
enforce   the   security   interest   without   intervention   of   the   court   or
tribunal in accordance with the provisions of the Act, and the appeal
to Debts Recovery Tribunal is provided.  The Appellate Tribunal has
been defined to mean Debts Recovery Appellate Tribunal, and the right
to appeal/application against the action has been provided in Section
17 to the Debts Recovery Tribunal. Thus, Debts Recovery Tribunal is
constituted under the RDB Act, 1993.
29. What is of significance is the definitions of ‘bank’ and ‘banking’
which have been provided in the SARFAESI Act in Section 2(1)(c) and
2(1)(d) respectively thus:
54
“2. Definitions.—(1) In this Act, unless the context
otherwise requires,—
(c) “bank” means—
(i) a banking company; or
(ii) a corresponding new bank; or
(iii) the State Bank of India; or
(iv) a subsidiary bank; or
(iva) a multi­State co­operative bank; or
(v)   such   other   bank   which   the   Central
Government may, by notification, specify for
the purposes of this Act;
***
(d) “banking  company” shall have  the  meaning
assigned to it in clause (c) of section 5 of the
Banking Regulation Act, 1949 (10 of 1949);”
30. In exercise of power conferred under Section 2(1)(c)(v) of the
SARFAESI Act, a notification was issued by the Ministry of Finance
and Company Affairs on 28.1.2003 specifying co­operative banks as
defined in clause (cci) of Section 5 of the BR Act, 1949 for the purpose
of the SARFAESI Act.  Following notification was issued:
“S.O.105   (E).—   In   exercise   of   the   powers
conferred   under   item   (v)   of   clause   (c)   of   Subsection (1) of Section 2 of the Securitisation and
Reconstruction   of   Financial   Assets   and
Enforcement of Security Interest Act, 2002 (54 of
2002), the Central Government hereby specifies
“Co­operative Bank” as defined in clause (cci) of
Section 5 of the Banking Regulation Act 1949 (10
of   1949)   as   ‘bank’   for   the   purpose   of   the
Securitization   and   Reconstruction   of   Financial
Assets and Enforcement of Security Interest Act,
2002 (54 of 2002).”
31. In Section 2(1)(c) of the SARFAESI Act, further amendments have
been made by incorporating a 'multi­State co­operative bank,' w.e.f.
15.1.2013 by way of Enforcement of Security Interest and Recovery of
55
Debts Laws (Amendment) Act, 2012 (No.1 of 2013).  Other provisions
of the SARFAESI Act were also amended.  A similar amendment was
made to the RDB Act, 1993, in Section 2(d) by inserting clause (vi) 'a
multi­State co­operative bank.'  Section 2(d) is extracted hereunder:
“2.   Definitions.—In   this   Act,   unless   the   context
otherwise requires,—
(d) “bank” means—
(i) a banking company;
(ii) a corresponding new bank;
(iii) State Bank of India;
(iv) a subsidiary bank; or
(v) a Regional Rural Bank;
(vi) a multi­State­co­operative bank;”
32. We have to examine the legislative competence of the Parliament
with respect to co­operative banks within the State as the MSCS Act,
2002 is enacted in exercise of power under Entry 44 List I of the
Seventh   Schedule   of   the   Constitution   of   India.   The   legislative
competence of Parliament regarding the MSCS Act, 2002 is not in
issue.
MEANING OF ‘BANKING’
33. The main issue is as to the meaning of ‘banking’ used in Entry
45 of List I of the Seventh Schedule of the Constitution of India.  It is
necessary to understand the meaning of 'bank' and 'banking.'  Before
the Constitution was promulgated, banking was dealt with by the
erstwhile Banking Companies Act, 1949.   Upon its extension to cooperative banks run by co­operative societies, it was renamed as the
56
BR Act, 1949.  Before we consider the definition of 'banking' under the
BR Act, 1949, it is necessary to understand the meaning of 'bank' and
'banking.'     The   bank   ordinarily   means   any   establishment   which
carries the business of banking.   The expression 'bank' has been
defined in several enactments.  In Concise Oxford English Dictionary,
'bank' has been defined thus:
“bank   •  n.   1  a financial establishment that uses
money deposited by customers for investment, pays
it out when required, makes loan at interest, and
exchanges currency.”
In Concise Oxford English Dictionary, the word 'banking' has
been defined thus:
“banking   •  n.  the business conducted or services
offered by a bank.”
In Black’s Law Dictionary, Ninth Edition ‘banking’ means the
business carried on by or with a bank.  ‘Bank’ is defined thus:
“bank.  (15c)  1.  A  financial  establishment  for  the
deposit, loan, exchange, or issue of money and for
the transmission of funds; esp., a member of the
Federal Reserve System.  • Under securities law, a
bank includes any financial institution, whether or
not incorporated, doing business under federal or
state law, if a substantial portion of the institution’s
business consists of receiving deposits or exercising
fiduciary   powers   similar   to   those   permitted   to
national banks and if the institution is supervised
and   examined   by   a   state   or   federal   banking
authority;   or   a   receiver,   conservator,   or   other
liquidating agent of any of the above institutions.
15USCA § 78c(a)(6). [Cases: Banks and Banking 2,
232, 289, 359.].
2.    The   office   in   which   such   an   establishment
conducts transactions.”
57
Banks  can  be  of  different  kinds  such  as  Co­operative   Bank,
Collecting Bank, Commercial Bank, Correspondent Bank, Custodian
Bank,   Depository   Bank,   Drawee   Bank,   Federal   Home   Loan   Bank,
Federal   Land   Bank,   Intermediary   Bank,   Investment   Bank,   Mutual
Savings   Bank,   Nationalised   Banks,   Negotiable   Bank,   Non­Member
Bank, Payor Bank, Savings and Loan Bank, Saving Bank.
The expression 'bank' has been defined in various enactments
relating to it. 
34. The 'Reserve Bank' has been defined in Section 5(l) to mean
Reserve Bank of India constituted under Section 3 of the Reserve
Bank   of   India   Act,   1934   (2   of   1934).     Section   5(ha)   defines   the
'National Bank' to mean the National Bank for Agriculture and Rural
Development established under Section 3 of the National Bank for
Agriculture and Rural Development Act, 1981.   The 'State Bank of
India' is defined in Section 5(nc) to mean the State Bank of India
constituted under Section 3 of the State Bank of India Act, 1955 (23 of
1955). 
35. The   term   ‘banking’   used   in   Entry   45   List   I,   came   up   for
consideration in Rustom Cavasjee Cooper (supra), in which 11­Judge
Bench of this Court considered the question of ‘banking’ and observed:
58
“27.  The   argument   raised   by   Mr   Setalvad,
intervening on behalf of the State of Maharashtra
and   the   State   of   Jammu   and   Kashmir,   that   the
Parliament is competent to enact Act 22 of 1969,
because   the   subject­matter   of   the   Act   is   “with
respect to” regulation of trading corporations and
matters subsidiary and incidental thereto, and on
that account is covered in its entirety by Entries 43
and 44 of List I of the Seventh Schedule, cannot be
upheld.   Entry   43   deals   with   incorporation,
regulation and winding up of trading corporations
including  banking   companies.   Law   regulating  the
business of a corporation is not a law with respect
to   regulation   of   a   corporation.   In   List   I   entries
expressly   relating   to   trade   and   commerce   are
Entries 41 and 42. Again several entries in List I
relate to activities commercial in character. Entry 45
“Banking”;   Entry   46   “Bills   of   exchange,   cheques,
promissory notes and other like instruments”; Entry
47   “Insurance”;   Entry   48   “Stock   Exchanges   and
future markets”; Entry 49 “Patents, inventions and
designs”.   There   are   several   entries   relating   to
activities commercial as well as non­commercial in
List II — Entry 21 “Fisheries”; Entry 24 “Industries
X X X” ; Entry 25 “Gas and Gas works”; Entry 26
“Trade   and   commerce”;   Entry   30   “Money­lending
and   money­lenders”;   Entry   31   “Inns   and   Innkeeping”;   Entry   33   “Theatres   and   dramatic
performances,   cinemas   etc.”.   We   are   unable   to
accede to the argument that the State Legislatures
are competent to legislate in respect of the subjectmatter of those entries only when the commercial
activities are carried on by individuals and not when
they are carried on by corporations.
31. The expression “banking” is not defined in any
Indian statute except in the Banking Regulation Act,
1949. It may be recalled that by Section 5(b) of that
Act “banking” means “the accepting for the purpose
of lending or investment of deposits of money from
the public repayable on demand or otherwise, and
withdrawable by cheque, draft or otherwise”. The
definition did not include other commercial activities
which a banking institution may engage in.
32. In support of his contention Mr Palkhivala relied
upon   the   observation   of   Lord   Porter   in
Commonwealth of Australia  v.  Bank of New South
Wales,  LR (1950) AC 235 that banking consists of
59
the creation and transfer of credit, the making of
loans, purchase and disposal of investments and
other kindred transactions; and upon the statement
in  Halsbury’s Laws of England, 3rd Edn., Vol. 2,
Article 270 at pp. 150 and 151 that:
“A   ‘banker’   is   an   individual   partnership   or
corporation,   whose   sole   or   predominating
business is banking, that is the receipt of money
on current or deposit account and the payment of
cheques drawn by and the collection of cheques
paid by a customer.”
and in the footnote (g) at p. 151 that:
“Numerous other functions are undertaken at
the present day by banks such as the payment of
domiciled bills, custody of valuables, discounting
bills, executor and trustee business, or acting in
relation   to   stock   exchange   transactions,   and
banks   have   functions   under   certain   financial
legislation, X  X  X  .”
These functions are not strictly banking business.
33.  The Attorney­General said that the expression
“banking” in Entry 45, List I means all forms of
business which since the introduction of western
methods of banking in India, banking institutions
have been carrying on in addition to banking as
defined in Section 5(b) of the Banking Regulation
Act,   and   on   that   account   all   forms   of   business
described in Section 6(1) of the Banking Regulation
Act in clauses (a) to (n) are, if carried on in addition
to   the   “hard­core   of   banking”   banking   and   the
Parliament is competent to legislate in respect of
that business under Entry 45, List I. In support of
his   contention   that   apart   from   the   business   of
accepting   money   from   the   public   for   lending   or
investment, and withdrawable by cheque, draft or
otherwise, banking includes many allied business
activities which banking institutions were engaged
in,   the   Attorney­General   invited   our   attention   to
clause 21 of the Charter of the Bank of Bengal (Act
6 of 1839); Section 27 of Act 4 of 1862; to Sections
36 and 37 of the Presidency Banks Act 11 of 1876;
to Section 91(15) of the British North America Act;
to Paget’s Law of Banking, 7th Edn., at p. 5; to the
Standard Form of Memorandum of Association of a
Banking Company in Palmer’s Company Precedents
Form   138;   and   to   the   Statement   of   Objects   and
60
Reasons in support of the Bill which was enacted as
the Indian Companies (Amendment) Act, 1936.
34.  The   Charter   of   the   Bank   of   Bengal,   the
Presidency Banks Act 4 of 1862, Ch. X­A of the
Indian Companies Act, 1913, as incorporated by the
Indian Companies (Amendment) Act, 1936, merely
described the business which a banking institution
could   carry   on.   It   was   not   intended   thereby   to
include   those   activities   within   the   expression
“banking”.   The   Acts   enacted   after   the   Banking
Regulation Act, 1949, also support that inference.
Under Section 33 of the State Bank of India Act,
1955, the State Bank is entitled to carry on diverse
business   activities   beside   banking.   Similarly   the
Banks subsidiary to the State Bank were by Section
36 of Act 38 of 1959 to act as agents of the State
Bank, and also to carry on and transact business of
banking as defined in Section 5(b) of the Banking
Regulation Act, 1949, and were also competent to
engage in such one or more other forms of business
specified   in   Section   6(1)   of   that   Act.   These
provisions   do   not   aid   in   construing   the   Entry
“Banking” in Entry 45, List I.
    35. In modern times in India as elsewhere, to attract
business,   banking   establishments   render,   and
compete   in   rendering,   a   variety   of   miscellaneous
services   for   their   constituents.  If   the   test   for
determining   what   “banking”   means   in   the
constitutional   entry   is   any   commercial   activity
which   bankers   at   a   given   time   engage   in,   great
obscurity will be introduced in the content of that
expression. The coverage of constitutional entry in a
Federal   Constitution   which   carves   out   a   field   of
legislation must depend upon a more satisfactory
basis.
36.  The legislative entry in List I of the Seventh
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   re­writing   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
61
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.
148. Counsel for the petitioner contended that the
word “banking” would have the same meaning as
the definition of “banking” occurring in Section 5(b)
of the Banking Regulation Act of 1949 hereinafter
referred to for the sake of brevity as the 1949 Act.
This contention was amplified to exclude four types
of   business   from   the   banking   business   and
therefore the Act of 1969 was said to be not within
the legislative competence of Banking under Entry
45 in List I. These four types of business are: (1) the
receiving of scrips or other valuables on deposit or
for safe custody and providing of safe deposit vaults,
(2)   agency   business,   (3)   business   of   guarantee,
giving   of   indemnity   and   underwriting   and   (4)
business   of   acting   as   executors   and   trustees.
“Banking” was defined for the first time in the 1949
Act as meaning the acceptance for the purpose of
lending or investments of deposits of money from
the public repayable on demand or otherwise and
withdrawable   by   cheque,   draft   or   otherwise.   In
England there is no statutory definition of banking
but   the   Courts   have   evolved   a   meaning   and
principle as to what the legitimate business of a
bank is.
152.  Keeping   valuables   for   safe   custody,   the
providing of safe deposit vaults occur in clause (a) of
Section 6(1) along with various types of business
like borrowing, raising or taking up of money, or
lending or advancing of money. It will appear from
clause (n) of Section 6(1) of the 1949 Act that in
addition   to   the   forms   of   business   mentioned   in
clauses (a) to (m) a banking company may engage in
“doing  all such  other  things as  are  incidental or
conducive to the promotion or advancement of the
business of the company”. The words “other things”
appearing   in   clause   (n)   after   enumeration   of   the
various types of business in clauses (a) to (m) point
to one inescapable conclusion that the businesses
62
mentioned in clauses (a) to (m) are all incidental or
conducive to the promotion or advancement of the
business   of   the   company.   Therefore   these
businesses are not only legitimate businesses of the
banks   but   these   also   come   within   the   normal
business activities of commercial banks of repute.
Entry   45   in   List   I   of   the   7th   Schedule   of   the
Constitution, namely, “banking” will therefore have
the   wide   meaning   to   include   all   legitimate
businesses   of   a   banking   company   referred   to   in
    Section 5(  b) as well as in Section 6(1) of the 1949
Act. The contention on behalf of the petitioner that
the   four   disputed   businesses   are   not   banking
businesses is not supportable either on logic or on
principle when businesses mentioned in the subclauses   of   Section   6(1)   of   the   1949   Act   are
recognised to be legitimate business activities of a
banking company by statute and practice and usage
fully supports that view.
158. It was suggested by counsel for the petitioner
that by banking business is meant only the hard
    core of banking as defined in Section 5(  b) of the
1949   Act.   It   is  unthinkable   that   the   business   of
banks is only confined to that aspect and not to the
various forms of business mentioned in Section 6(1)
of the 1949 Act.  Receiving valuables on deposit or
for   safe   custody   and   providing   for   safe   custody
vaults   which   are   contemplated   in   clause   (a)   of
Section 6(1) of the 1949 Act cannot be dissociated
from   other   forms   of   unchallenged   business   of   a
bank mentioned in that clause because any such
severance   would   be   illogical   particularly   when
deposit for safe custody and safe deposit vaults are
mentioned in the long catalouge of businesses in
clause (a). The agency business which is mentioned
in clause (b) of Section 6(1) is one of the recognised
forms of business of commercial banks with regard
to   mercantile   transactions   and   payment   or
collection   of   price.   Agency   is   after   all   a
comprehensive word to describe the relationship of
appointment   of   the   bank   as   the   constituent’s
representative.   The   forms   of   agency   transactions
may be varied. It may be acting as collecting agent
or disbursing agent or as depository of parties. The
categories of agency can be multiplied in terms of
transactions. That is why the business of agency
mentioned in clause (b) is first in the general form of
acting   as   an   agent   for   any   Government   or   local
63
authority, secondly carrying on of agency business
of   any   description   including   the   clearing   and
forwarding of goods and thirdly acting as attorney
on   behalf   of   the   customers.  The   business   of
guarantee   is   in   the   modern   commercial   word
practically indissolubly connected with a bank and
forms a part of the business of the bank. It is almost
common   place   for   Courts   to   insist   on   bank
guarantee in regard to furnishing of security. There
may be so many instances of guarantee.  As to the
business of trusteeship and executorship it may be
said that this is the wish of the settler who happens
to be a constituent of the bank appointing the bank
as executor or trustee because of the utmost faith
and   confidence   that   the   constituent   has   in   the
solvency   and   stability   of   the   bank   and   also   to
preserve   the   continuity   of   the   trustee   or   the
executor  irrespective   of   any  change   by   reason   of
death or any other incapacity. It is needless to state
that these four disputed forms of business all spring
out of the relation between the bank on the one
hand and the customer on the other and the bank
earns commission on these transactions or charges
fees   for   the   services   rendered.   Although   trust
accounts   may   be   kept   in   a   separate   account   all
moneys arising out of the trust money go to the
general pool of the bank and the bank utilises the
money and very often trust moneys may be kept in
fixed deposit with the trustee bank and expenses on
account of the trust are met out of the general funds
of the trustee bank. Payments to beneficiaries are
made by crediting the beneficiaries accounts in the
trustee bank and if they are not constituents other
modes of payment through other banks are adopted.
The position of the banks as executor is similar to
that of a trustee. Whatever moneys the bank may
spend are recouped by the bank out of the accounts
of the trust estate.
160. There are various provisions in the 1949 Act to
indicate that a banking company cannot carry on
business   of   a   managing   agent   or   Secretary   and
treasurer of a company and that it cannot acquire,
construct,   maintain,   alter   any   building   or   works
other than those necessary or convenient for the
purpose   of   the   company.   A   banking   company
cannot   acquire   or   undertake   the   whole   or   any
portion of any business unless such business is of
one of those enumerated in Section 6(1) of the 1949
64
Act.   A   bank   cannot   deal   in   buying   or   selling   or
bartering of goods except in connection with certain
purposes   related   to   some   of   the   businesses
enumerated   in   the   aforesaid   Section   6(1).   These
provisions also establish that businesses mentioned
in   Section   6   of   the   1949   Act   are   incidental   and
conducive   to   banking   business.   A   bank   cannot
employ any person whose remuneration is in the
form of a commission or a share in the profits of the
banking company or whose remuneration is in the
opinion of the Reserve Bank excessive. One of the
most important provisions is Section 35 of the 1949
Act, which states that the Reserve Bank at any time
may and on being directed so to do by the Central
Government cause an inspection to be made by one
or more of its officers of the books of account and to
report to the Central Government on any inspection
and the Central Government thereafter if it is of
opinion after considering the report that the affairs
of the banking company are being conducted to the
detriment   of   the   interests   of   its   depositors,   may
prohibit the banking company from receiving fresh
deposits or direct the Reserve Bank to apply under
Section   38   for   the   winding   up   of   the   banking
company. Another important provision in the 1949
Act,   is   found   in   Section   27   which   provides   for
monthly returns in the prescribed form and manner
showing   assets   and   liabilities.   The   power   of   the
Reserve Bank under Sections 27 and 35 of the 1949
Act relates to the affairs of the banking company
which comprehend the various forms of business of
the bank mentioned in Section 6 of the 1949 Act.
Then again Section 29 of the 1949 Act contemplates
accounts   relating   to   accounts   of   all   business
transacted by the bank. Section 35­A of the 1949
Act   confers   power   on   the   Reserve   Bank   to   give
directions with regard to the affairs of a bank. These
provisions indicate beyond any measure of doubt
that all forms of business mentioned in Section 6(1)
of the 1949 Act are lawful, legitimate businesses of a
bank as these have grown along with increase of
trade and commerce. The word “banking” has never
had any static meaning and the only meaning will
be   the   common   understanding   of   men   and   the
established practice in relation to banking. That is
why   all   these   disputed   forms   of   business   come
within the legitimate business of a bank.”
(emphasis supplied)
65
The submission raised by the petitioner that banking business
meant only the hardcore of banking, was not accepted.  It was held
that the word 'banking' has never had any static meaning, and the
only meaning will  be the common understanding of men and the
established practice about banking.  Various forms of business come
within the legitimate business of a bank.
36. It was argued on behalf of appellants that the BR Act, 1949
recognises   two   categories   of   finance   activity   which   a   bank   may
undertake such as (1) the banking business under Section 5(b), i.e.,
core banking business; and (2) any other business as provided in
Section 6(1).   For the purpose, reliance has been placed on  Rustom
Cavasjee Cooper (supra).  The decision of the High Court of Calcutta in
Mahaluxmi Bank Ltd.  (supra), is pressed into service, wherein it was
held:
“5. After this an application was made to this Court for
sanction   of   the   special   resolution   effecting   the   said
alterations. The Court directed certain advertisements
to issue and also directed service of the usual notices as
required by Sec.17 of the Companies Act, 1956. The
Registrar of Joint Stock Companies filed an affidavit­inopposition and at the hearing opposed the application
but no creditor or share­holder of the company opposed
the application. P. B. Mukharji, J., before whom the
application was heard, gave effect to the contentions
raised by the Registrar and dismissed the application.
In dismissing the application the learned Judge made
inter alia the following observations in his judgment:
"At the outset it must be said that it is a curious
application. If the object is "to lend money to such
person or persons or firms and at such terms as
may   seem   expedient,"   then   it   may   amount   to
some kind of a banking in disguise. It is quite
66
true   that   under   the   Banking   Companies   Act,
banking' is defined to mean the acceptance, "for
the purpose of lending or investment of deposits
of money from the public, repayable on demand
or otherwise, and withdrawable by cheque, draft,
order   or   otherwise."   With   a   little   clever
manipulation, the petitioner might go on doing
the   banking   business   under   the   proposed
amendment   although   by   allowing   such
amendment   it   will   put   on   the   garb   of   a   nonbanking company."
It   has   been   argued   that   these   observations   of   the
learned Judge are due to a misconception of the true
nature and character of a banking business. Reliance is
placed   by   the   learned   counsel   for   the   appellant
company   on   the   definition   of   the   word   'banking'   as
given in Sec.5  (1)(b)  of the Banking Companies  Act,
1949, which is as follows:
"'Banking' means the accepting, for the purpose
of lending or investment, of deposits of money
from   the   public,   repayable   on   demand   or
otherwise,   and   withdrawable   by   cheque,   draft,
order or otherwise."
Now this definition makes it clear that receiving money
on   deposit   from   customers   and   honouring   their
cheques is the essential characteristic of banking. The
money deposited by the customers can be utilised by
the banker for lending it or for investing it but the bank
also undertakes the obligation to repay the deposit on
demand   or   otherwise   and   the   mode   by   which   the
withdrawal of the deposit can be effected is by the issue
of cheques, drafts, orders or otherwise, that is, by like
methods.
6.   In   Hart's   Law   of   Banking,   a   banker   or   bank   is
defined   as   one   who,   in   the   ordinary   course   of   his
business, receives money which he pays by honouring
the cheques of persons from or on whose account he
receives it. Sir John Paget in his book On Banking has
pointed   out   that   "no   person   or   body   corporate   or
otherwise can be a banker who does not (1) take deposit
accounts, (2) take current accounts, (3) issue and pay
cheques, and (4) collect cheques crossed and uncrossed
for his customers." Sheldon in his book on the Practice
and   Law   of   Banking,   seventh   edition   at   page   183,
formulates the following definition of a banker.
"A   person   cannot   claim   to   be   carrying   on   the
67
business of banking unless he receives money or
instruments   representing   money   on   current
account,   honours   cheques   drawn  thereon,   and
collects   the   proceeds   of   cheques   which   his
customers place into his hands for collection.''
In the case of Re Bottomgate Industrial Co­operative
Society, (1891) 65 LT 712 at p. 714, Smith, J. defines
the business of bankers thus:
"The principal part of the business of a banker is
receiving money on deposit, allowing the same to
be   drawn   against   as   and   when   the   depositor
desires,   and   paying   interest   on   the   amounts
standing on deposit.''
7. Then Sec.6 (1) of the Banking Companies Act, 1949,
provides that in addition to the business of banking, a
banking company may engage in any one or more of the
different kinds of business specified in the various subclauses of sub­sec. (1) of Sec. 6. This indicates that the
main   or   real   business   of   a   banking   company   is   as
stated in Sec. 5 (1)(b) of the Act but banking companies
usually carry on and are permitted to carry on other
kinds of business which are auxiliary or incidental to
the main business. Sub­section (2) of Sec. 6 Iays down
that no banking company shall engage in any form of
business other than those referred to in sub­section (1).
So the banking company is expressly prohibited from
carrying on any kind of incidental or allied business
other than those enumerated in sub­clauses (a) to (o) of
sub­section   (1)   of   Sec.   6   of   the   Act.   Thus   it   is
abundantly clear that the essence of banking is the
relationship which is brought into existence at the time
of the deposit; that is the core of banking. It is true that
the business of banking covers every possible phase or
combination   of   deposit,   custody,   investment,   loan,
exchange, issue and transmission of money, creation
and transfer of credit and other kindred activities but if
the   essential   characteristic   of   banking,   namely,   the
power to receive deposits from the public which are
repayable in the manner indicated in Sec. 5 (1) (b) of
the Banking Companies Act is absent and merely the
power of granting loans is retained and exercised that,
in my view, does not make the company a banking
company. Lending of money may be one phase of a
banking business but it is not the main phase or the
distinguishing phase.  In the case of Bank of Commerce
Ltd. v. Kunja Behari Kar, 1944 FCR 370: (AIR 1945 FC
2) it was argued before the Federal Court that Bengal
68
Money Lenders’ Act, 1940, was a legislation which fell
within the item of banking in entries Nos. 33 and 38 of
List 1 of Schedule VII of the Government of India Act,
1935   inasmuch   as   lending   money   to   customers   or
advancing money on promissory notes is a principal
part of the banking business and the case of Tennant v.
Union Bank of Canada, 1894 AC 31 was referred to, but
the Federal Court did not accept the contention. It was
pointed out that money lending by a bank qua bank
might   make   such   money   lending   part   of   a   banking
business but not otherwise (per Spens, C. J. at page
389).”
37. The decision in ICICI Bank Ltd. (supra) has been relied upon in
which the Court emphasised that even if different businesses under
clause (a) to (o) of section 6(1) are shut down, the company would still
be a banking company as long as it is performing the core banking
functions under Section 5(b).  The Court observed:
“37. The point we are trying to make is that apart
from the principal business of accepting deposits
and lending the said 1949 Act leaves ample scope
for   the   banking   companies   to   venture   into   new
businesses subject to such businesses being subject
to the control of  the  regulator  viz. RBI. In other
words, the 1949 Act allows banking companies to
undertake activities and businesses as long as they
do   not   attract   prohibitions   and   restrictions   like
those   contained   in   Sections   8   and   9.   In   this
connection we need to emphasise that Section 6(1)
(n) enables a banking company to do all things as
are   incidental   or   conducive   to   promotion   or
advancement   of   the   business   of   the   company.
Section 6(1) enables banking companies to carry on
different types of businesses. Under Section 6(1),
these different types of businesses are in addition to
business   of   banking   viz.   core   banking.   The
importance of the words “in addition to” in Section
6(1)   is   that   even   if   different   businesses   under
clauses (a) to (o) are shut down, the company would
still be a banking company as long as it is in the
core banking of accepting deposits and lending so
that its main income is from the spread or what is
called as “interest income”. Thus, we may broadly
69
categorise   the   functions   of   the   banking   company
into   two   parts   viz.   core   banking   of   accepting
deposits and lending and miscellaneous functions
and services. Section 6 of the BR Act, 1949 provides
for   the   form   of   business   in   which   banking
companies may engage. Thus, RBI is empowered to
enact   a   policy   which   would   enable   banking
companies to engage in activities in addition to core
banking and in the process it defines as to what
constitutes “banking business”.”
38. Learned counsel urged that performing core banking function is
the sine qua non for being regulated by the BR Act, 1949.  The BR Act,
1949  applies   to  a primary credit  society  which   has  been  brought
within its purview, leaving out primary agricultural credit society and
a co­operative land mortgage bank.  The business of banking cannot
be carried out in India as per Section 22 of the BR Act, 1949 as
applicable to the co­operative banks/societies, unless it is a primary
credit society, and it is a co­operative bank and holds a licence issued
by the Reserve Bank of India.  It is not in dispute that all co­operative
banks   run   by   cooperative   societies   hold   the   licence,   and   all   cooperative banks are doing the business within the purview of the BR
Act, 1949.   We are unable to accept the submission that banking
under Entry 45 of List I does not cover ‘co­operative banks’.   The
activity of the co­operative bank is covered under Section 5(1)(b).  A
similar   submission   was   not   accepted   in  Rustom   Cavasjee   Cooper
(supra).   No doubt about it that every commercial activity cannot be
brought within the scope of ‘banking’ in Entry 45 of List I.  ‘Banking’
itself has a wide meaning, and the activity of co­operative banks is
70
definitely, beyond an iota of doubt, covered by Entry 45 of List I.
39. It was argued on behalf of appellants that banking’s legal term
‘nomen juris’ is defined under Section 5(b) of the BR Act, 1949.  When
the Constitution was being drafted, the definition of 'banking' in the
said Act prevailed.  The makers of the Constitution adopted the same
expression.  Thus, intent bore the precise and definite meaning it had
in law and, therefore, must be construed having regard to its known
legal   import.     For   this   purpose,   reference   has   been   made   to   the
observations made by this Court in Gannon Dunkerley & Co., (Madras)
Ltd. (supra), in which it was held:
“(36) The principle of these decisions is that when,
after the enactment of a legislation, new facts and
situations arise which could not have been in its
contemplation,   the   statutory   provisions   could
properly be applied to them if the words thereof are
in a broad sense capable of containing them. In that
situation, “it is not,” as observed by Lord Wright in
1936 AC 578 (H), “that the meaning of the words
changes, but the changing circumstances illustrate
and illuminate the full import of that meaning”. The
question   then   would   be   not   what   the   framers
understood   by   those   words,   but   whether   those
words are broad enough to include the new facts.
Clearly,   this   principle   has   no   application   to   the
present  case.  Sales tax was  not  a subject  which
came into vogue after the Government of India Act,
1935. It was known to the framers of that statute
and they made express provision for it under Entry
48.   Then   it   becomes   merely   a   question   of
interpreting the words, and on the principle, already
stated,   that   words   having   known   legal   import
should be construed in the sense which they had at
the time of the enactment, the expression “sale of
goods” must be construed in the sense which it has
in the Sale of Goods Act.
71
(37)  A contention was also urged on behalf of the
respondents that even assuming that the expression
“sale of goods” in Entry 48 could be construed as
having the wider sense sought to be given to it by
the appellant and that the provisions of the Madras
General   Sales   Tax   Act   imposing   a   tax   on
construction contracts could be sustained as within
that entry in that sense, the impugned provisions
would still be bad under S. 107 of the Government
of   India   Act,   and   the   decision   in  Dukhineswar
Sarkar v. Commercial Tax Officer,  (S) AIR 1957 Cal
283   (Z19)   was   relied   on   in   support   of   this
contention. Section 107, so far as is material, runs
as follows:
S. 107 — (1) “If any provision of a Provincial
law is repugnant to any provision of a Dominion
law which the Dominion Legislature is competent
to enact or to any provision of an existing law
with respect to one of the matters enumerated in
the Concurrent Legislative List, then, subject to
the provisions of this section, the Dominion law,
whether passed before or after the Provincial law,
or, as the case may be, the existing law, shall
prevail and the Provincial law shall, to the extent
of the repugnancy, be void.
(2) Where a Provincial law with respect to one
of   the   matters   enumerated   in   the   Concurrent
Legislative List contains any provision repugnant
to the provisions of an earlier Dominion law or an
existing law with respect to that matter, then, if
the Provincial law, having been reserved for the
consideration   of   the   Governor­General   has
received the assent of the Governor­General, the
Provincial law shall in that Province prevail, but
nevertheless the Dominion Legislature may at any
time enact further legislation with respect to the
same matter.”
Now, the argument is that the definition of “sale”
given in the Madras General Sales Tax Act is in
conflict with that given in the Sale of Goods Act,
1930,   that   the   sale   of   goods   is   a   matter   falling
within Entry 10 of the Concurrent List, and that, in
consequence,   as   the   Madras   General   Sales   Tax
(Amendment) Act, 1947, (Mad. 25 of 1947) under
which the impugned provisions had been enacted,
had   not   been   reserved   for   the   assent   of   the
Governor­General  as  provided   in  S.   107   (2).     Its
provisions   are   bad   to   the   extent   that   they   are
72
repugnant to the definition of “sale” in the Sale of
Goods   Act,   1930.   The   short   answer   to   this
contention is that the Madras General Sales Tax Act
is a law relating not to sale of goods but to tax on
sale of goods, and that it is not one of the matters
enumerated in the Concurrent List or over which
the Dominion legislature is competent to enact a
law, but is a matter within the exclusive competence
of the Province under Entry 48 in List II. The only
question that can arise with reference to such a law
is whether it is within the purview of that Entry. If it
is, no question of  repugnancy  under S.  107  can
arise. The decision in (S) AIR 1957 Cal 283 (Z19) on
this point cannot be accepted as sound.”
In Diamond Sugar Mills Ltd. (supra), it was held:
“(10) In considering the meaning of the words “local
area” in entry 52 we have, on the one hand to bear
in mind the salutary rule that words conferring the
right   of  legislation  should   be   interpreted   liberally
and the powers conferred should be given the widest
amplitude;   on   the   other   hand   we   have   to   guard
ourselves   against   extending   the   meaning   of   the
words beyond their reasonable connotation, in an
anxiety to preserve the power of the legislature. In
Re the Central Provinces & Berar Sales of Motor
Spirit and Lubricants Taxation Act, 1938, 1939 FCR
18 at p. 37: (AIR 1939 FC 1 at p. 4) Sir Maurice
Gwyer, C.J., observed:
“I   conceive   that   a   broad   and   liberal   spirit
should inspire those whose duty it is to interpret
it; but I do not imply by this that they are free to
stretch or pervert the language of the enactment
in   the   interests   of   any   legal   or   constitutional
theory, or even for the purpose of correcting any
supposed errors.”
Again, in Navinchandra Mafatlal v. Commissioner
of Income Tax, Bombay City, 1955 1 SCR 829: ( (S)
AIR 1955 SC 58) Das, J. (as he then was) delivering
the judgment of this Court observed: —
“……….   The   cardinal   rule   of   interpretation
however, is that words should be read in their
ordinary,   natural   and   grammatical   meaning
subject to this rider that in construing words in a
constitutional   enactment   conferring   legislative
power the most liberal construction should be put
upon the words so that the same may have effect
in their widest amplitude.”
73
(25)   It   is   true   that   when   words   and   phrases
previously interpreted by the courts are used by the
Legislature   in   a   later   enactment   replacing   the
previous statute, there is a presumption that the
Legislature intended to convey by their use the same
meaning   which   the   courts   had   already   given   to
them. This presumption can however only be used
as an aid to the interpretation of the later statute
and should not be considered to be conclusive. As
Mr   Justice   Frankfurter   observed   in   Federal
Communication   Commissioner   v.   Columbia
Broadcasting System of California, (1940) 311 U.S.
132 when considering this doctrine, the persuasion
that lies behind the doctrine is merely one factor in
the total effort to give fair meaning to language. The
presumption will be strong where the words of the
previous statute have received a settled meaning by
a series of decisions in the different courts of the
country;   and   particularly   strong   when   such
interpretation   has   been   made   or  affirmed   by   the
highest court in the land. We think it reasonable to
say however that the presumption will naturally be
much weaker when the interpretation was given in
one solitary case and was not tested in appeal. After
giving careful consideration to the view taken by the
learned Judge of the Allahabad High Court in ILR
(1942) All 302: (AIR 1942 All 156) (supra) about the
meaning of the words “local area” & proper weight to
the rule of interpretation mentioned above, we are of
opinion that the Constitution makers did not use
the words “local area” in the meaning which the
learned Judge attached to it. We are of opinion that
the  proper meaning  to be  attached  to  the  words
“local area” in Entry 52 of the Constitution, (when
the area is a part of the State imposing the law) is
an   area   administered   by   a   local   body   like   a
municipality, a district board, a local board, a union
board, a Panchayat or the like. The premises of a
factory is therefore not a “local area”.
40. In our opinion, the framers of the Constitution cannot be said to
have confined the meaning of 'banking' to a particular definition, as
given in the BR Act, 1949.  The word 'banking' has been incorporated in
Entry 45 of List I.   The decision in  Rustom Cavasjee Cooper (supra)
74
vividly leaves no room for doubt that banking done by the co­operative
bank is covered within the ambit of Entry 45 of List I.  The decision in
Gannon Dunkerley & Co., (Madras) Ltd.  (supra) stands neutralised by
introduction of Article 366(29A) of the Constitution of India and the
meaning of the said term has been redefined.  Entries have to be given
full effect in pith and substance considering forms of business of cooperative banks performing the activities of banking under a licence.
The same is covered within the purview of Entry 45 of List I.
41. On the strength of Sections 32 and 33 of the State Bank of India
Act, 1955, learned counsel on behalf of appellants argued that Section
32 recognises that State Bank of India can carry on 'agency business'
on behalf of Reserve Bank of India.  Section 33 enables the State Bank
of India to carry on banking business under Section 5(b) and other
forms   of   business   under   Section   6(1)   of   the   BR   Act,   1949.     The
argument   is   of   no   avail.   The   State   Bank   of   India   Act,   1955,   is
independent and is not co­related with the co­operative banks, and
the State Bank of India has been established as a corporation under
the Act.  Thus, the provision is of no help to take home the submission
espoused on behalf of appellants to take them out of the purview of
Entry 45 of List I.
42. Learned Counsel on behalf of appellants argued that there is a
difference between entity and activity.  On a plain reading of Section
75
6(1) of the BR Act, 1949, it becomes evident that there is a distinction
between the business of banking and entity that performs the banking
functions.   Section 6(1) and 6(2) enable only an entity to perform
certain additional business functions.   It does not confer any such
status upon such an entity.
43. In our opinion, Section 6 deals with the forms of business in
which banking companies may engage.  There cannot be any form of
activity/business of banking without there being an entity.  Section 6
is   not   a   provision   of   the   conferral   of   the   status   of   the   banking
company.   The definitions of 'banking' and 'banking company' are
contained in Section 5(b) and 5(c) of the BR Act, 1949 respectively,
and when reading with Section 56(a), it means co­operative banks
also.  The co­operative bank falls within the definition of Section 5(c),
and its activity is of banking, and in addition to the business of
banking, a co­operative bank may engage in any of the business as
enumerated in Section 6.
EFFECT  OF  ENTRIES  43  AND  45  OF  LIST  I  AND  ENTRY  32  OF
LIST II OF THE SEVENTH SCHEDULE OF THE CONSTITUTION OF
INDIA
44. Entry 43 of List I of the Seventh Schedule of the Constitution of
India has been pressed into service on behalf of appellants.  It confers
upon the Parliament the competence to pass the law pertaining to
'incorporation, regulation and winding up' of the trading corporation,
76
more   particularly,   a   banking   corporation.     However,   co­operative
societies are expressly excluded from the purview of the Parliament's
competence.     No   doubt   about   it   that   in   Entry   43   of   List   I
'incorporation, regulation and winding up' of the co­operative societies
have been kept out of the purview of the Union List by specifically
excluding the co­operative societies, otherwise, they would have been
included for 'incorporation, regulation and winding up' in Entry 43 of
List I.   The terms "incorporation, regulation and winding up of cooperative societies" were reserved as State subjects under Entry 32 of
List II, it was so omitted from List 43 of List I.  But the exclusion from
Entry 43 of List I taking out 'incorporation, regulation and winding up'
of co­operative societies out of the purview of the Parliament, does not
advance the cause of the co­operative banks.   As a corollary to the
aforesaid submission, it was also urged that the banking company
was defined and governed by Sections 277F to Section 277N under
Chapter X­A of the Companies Act (VII of 1913).  It was inserted vide
Amendment   Act   No.22   of   1936.     On   10.3.1949,   the   Banking
Companies Act, 1949, was enforced.   The primary objective of the
Banking   Companies   Act,   1949,   was   to   provide   a   comprehensive
definition of 'banking' to bring within its scope all the institutions
which receive deposits repayable on demand or otherwise for lending
or investment.   At the relevant time, the Government of India Act,
1935, which dealt with the subject of 'banking' as well as 'trading
77
corporation,' was in List I (Federal Legislative List), thus:
“Entry 38 in relation to "banking": "Banking," that is
to   say,   the   conduct   of   banking   business   by
corporations   other   than   corporations   owned   and
controlled   by   a   federated   state   and   carrying   on
business only within that State.
Entry 33  in relation to corporation: "Corporations,"
that   is  to  say,  the  incorporation,  regulation,   and
winding­up   of   trading   corporations,   including
banking, insurance, and financial corporations, but
not including corporations owned or controlled by a
Federated   State   and   carrying   on   business   only
within that State or co­operative societies, and of
corporations, whether trading or not, with objects
not   confined   to   one   unit   (but   not   including
Universities)."
Entry  38   of   the   Government  of   India   Act  was   re­enacted   as
'banking' in  Entry 45 of List I, while  Entry 33 was bifurcated in
Entries 43 and 44.  Learned Counsel further argued that up to 1965,
the   primary   entity   which   was   regulated   by   the   Parliament   was   a
company that found a place in Entry 43.  Thus, both in its function,
i.e., banking and as an entity, fell in List I (banking under Entry 45
and company under Entry 43).  Therefore, it was within the control of
the Parliament.  Up to 1965, Banking Companies Act, 1949, only dealt
with   a   juristic   entity   called   banking   companies.     Then   from   the
Preamble, the word "company" was omitted.  The banking corporation
was   governed   by   the   State   Bank   of   India   Act,   1955.     Thus,   the
question of regulating the banking business of an entity outside the
purview  of   List  I  never arose.     In  1965,   the  Government  enacted
Banking Laws (Application to Co­operative Societies Act, 1965 (Act
78
No.23 of 1965) and extended the provisions of Banking Companies
Act, 1949, and Reserve Bank of India Act to co­operative banks.  Thus,
learned counsel urged that the Statement of Objects and Reasons of
the said Amendment Act was only to regulate relatable Entry 45 and
not to regulate the co­operative societies.   The provisions relatable
either directly or indirectly to 'incorporation, management and winding
up' of co­operative banks were omitted as they were not covered under
Entry 45 of List I.
45. Shri Devansh A. Mohta, learned counsel, further argued that
Section 2(10) of the Maharashtra Co­operative Societies Act, 1960 has
defined 'co­operative bank' thus:
“Section 2 ­ Definitions
In this Act, unless the context otherwise requires, —
(10) "co­operative bank" means a society which is
doing the business of banking as defined in clause
(b) of sub­section (1) of section 5 of the Banking
Companies   Act,   1949   and   includes   any   society
which   is   functioning   or   is   to   function   as a   Cooperative   Agriculture   and   Rural   Multipurpose
Development Bank under Chapter XI;”
       Under Section 91 of the Maharashtra Act, any dispute relating to
constitution, management or business is required to be referred to a
co­operative   court.     Similarly,   Section   2(f)   of   the   Multi­State   Cooperative Society Act defines 'co­operative bank' to mean multi­State
co­operative society, which undertakes the banking business.  Under
Section 84(2), a claim for any debt or demand due shall be deemed to
be a dispute touching the constitution, management, or business of a
79
multi­State co­operative society.  The Parliament has extended specific
provisions of the BR Act, 1949, and the Reserve Bank of India Act,
1934, which legislations are relatable to Entry 45 of List I and Entry
38 of List I, respectively.  The Parliament lacks legislative competence
to   regulate   any   other   business,   function,   or   facet   of   co­operative
societies.  It could not have provided a recovery procedure as that is
within the domain of the State legislature.   We cannot accept the
aforesaid submission raised by the learned Counsel.
46. In  Delhi High Court Bar Association  (supra), this Court in the
context of the RDB Act, 1993 held that Parliament has the legislative
competence to enact the Act.   'Banking' in Entry 45 of List I would
comprehend legislation in respect of matters ancillary or subsidiary to
it.   The Parliament can enact a law regarding the conduct of the
banking business, which includes recovery of banks' dues, and for
that purpose, set up the adjudicatory body like the Banking Tribunal
is permissible.   Thus, the establishment of Debts Recovery Tribunal
under the RDB Act, 1993, was upheld.  The Court opined:
“14. 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   11­A   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
80
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.”
47. In view of the aforesaid discussion, we are of the opinion that
recovery   of   dues   would   be   an   essential   function   of   any   banking
institution and the Parliament can enact a law under Entry 45 of List I
as the activity of banking done by co­operative banks is within the
purview of Entry 45 of List I. Obviously, it is open to the Parliament to
provide the remedy for recovery under Section 13 of the SARFAESI
Act. Co­operative bank's entire operation and activity of banking are
governed by a law enacted under Entry 45 of List I, i.e., the BR Act,
1949, and the RBI Act under Entry 38 of List I.
81
48. In  UCO   Bank   and   Anr.   v.   Dipak   Debbarma   and   Ors.31
,  the
question arose under the SARFAESI Act vis­a­vis the provisions of
Section 187 of Tripura Land Revenue and Land Reforms Act, 1960 as
under the Tripura Act there was a legislative embargo on the sale of
mortgaged properties by the bank to any person who is not a member
of a Scheduled Tribe. The auction purchasers in the case were not
members of the Scheduled Tribe.  This Court observed that provisions
of   the   SARFAESI   Act   enable   the   bank   to   take   possession   of   any
property where a security interest has been created in its favour and
sell such property to any person to realise dues.  This Court observed
that the Parliament enacted the law traceable to Entry 45 dealing
exclusively with activities relating to the sale of secured assets, which
being Central legislation would prevail, thus:
“15.  In the present case the conflict between the
Central   and   the   State   Act   is   on   account   of   an
apparent overstepping by the provisions of the State
Act dealing with land reform into an area of banking
covered   by   the   Central   Act.   The   test,   therefore,
would be to find out as to which is the dominant
legislation having regard the area of encroachment.
18. The 2002 Act is relatable to the entry of banking
which is included in List I of the Seventh 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
31 (2017) 2 SCC 585
82
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
2002 Act, must give way. The dominant legislation
being the Parliamentary legislation, the provisions of
the   Tripura   Act,   1960,   pro   tanto,   (Section   187)
would be invalid. It is the provisions of the 2002 Act,
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, 1960.”
49. In State Bank of India v. Santosh Gupta and Anr.32, the question
arose   concerning  the   rights   of   banks   to   enforce   security   interests
outside   the   court's   process   by   acting   under   Section   13   of   the
SARFAESI   Act   and   its   applicability   to   the   State   of   Jammu   and
Kashmir.     The   recovery   of   debts   and   adjudicatory   mechanisms
provided in the SARFAESI Act, therefore, it comes within the purview
of subject 'banking' in Entry 45 of List I of the Seventh Schedule.  The
Presidential  order  under Article  370  empowered  the  Parliament to
legislate on the Seventh Schedule List I Entry 45 read with Entry 95 in
respect of the State of Jammu and Kashmir.  The SARFAESI Act can
be validly applied to the State of Jammu and Kashmir even if Section
140 of the Transfer of Property Act of J&K, 1920, conflicts with the
SARFAESI Act.   Thus,  the  transfer of property by way of sale  or
assignment is only one of the several ways for recovery of debts and,
32 (2017) 2 SCC 538
83
thus, the SARFAESI Act as a whole cannot be said to be in pith and
substance an Act relatable to the subject of transfer of property.  The
sale and mortgage of property for recovering loans/debts is also an
integral part of 'banking'.  The setting up of an adjudicatory body like
the banking tribunal would also fall under Entry 45 of List I of the
Seventh Schedule.  Thus, State law can operate if there is no Central
law regarding the same.   The State law cannot encroach upon the
Central law by operation of the principle of repugnancy if there is a
Central law.  The Parliament is qualified with exclusive power to make
law concerning banking.  It is not possible to dissect the provisions of
the SARFAESI Act and attach them to different entries under different
lists.  In pith and substance, the SARFAESI Act does not deal with the
transfer of property in Entry 6 of List III of the Seventh Schedule but
deals   with   the   recovery   of   debt   owing   to   banks   and   financial
institutions.  It was observed:
“30.  When it came to SARFAESI itself, this Court
has held in Central Bank of India v. State of Kerala,
(2009) 4 SCC 94: (SCC p. 116, para 36)
“36.  Undisputedly,   the   DRT   Act   and   the
Securitisation   Act   have   been   enacted   by
Parliament  under Schedule VII List  I  Entry 45
whereas the Bombay and Kerala Acts have been
enacted   by   the   State   Legislatures   concerned
under Schedule VII List II Entry 54. To put it
differently,   two   sets   of   legislations   have   been
enacted with reference to entries in different lists
in the Seventh Schedule. Therefore, Article 254
cannot be invoked per se for striking down State
legislations on the ground that the same are in
conflict with the Central legislations. That apart,
as will be seen hereafter, there is no ostensible
overlapping   between   two   sets   of   legislations.
84
Therefore, even if the observations contained in
Kesoram Industries case, (2004) 10 SSC 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.”
34.  A  judgment  of the Privy Council  in  Attorney
General   for   Canada  v.  Attorney   General   for   the
Province of Quebec,  1947 AC 33 (PC) 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 Parliament of Canada. Lord
Porter,   in   an   illuminating   judgment,   posed   the
question and answered it thus: (AC p. 44)
“Is then, the repayment of deposits to depositors
or   their   successors­in­title   under   the   law   as
existing   a   part   of   the   business   of   banking   or
necessarily incidental thereto, or is it primarily
concerned   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: (AC p. 46)
“… 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.”
85
37. 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   securitisation   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, insofar 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 subject­matter
“transfer of property”.
50. In Delhi Cloth & General Mills Co. Ltd. (supra), the question came
up for consideration concerning legislation whether it falls within one
entry or the other. However, some portion of the subject­matter of the
legislation incidentally trenched upon and might enter a field under
another list; then, it must be held to be valid in its entirety, even
86
though it might incidentally trench on matters which are beyond its
competence.  It was observed:
“33. Mr O.P. Malhotra raised a contention as to the
legislative   competence   of   the   Parliament   to  enact
Section   58­A   and   the   Deposits   Rules   enacted   in
exercise of the power conferred by Section 58­A read
with Section 642 of the Companies Act, 1956. This
is only to be mentioned to be rejected. Mr Malhotra
urged   that   when   a   company   invites   and   accepts
deposits,   there   comes   into   existence   a   lenderborrower relationship between the depositor and the
company, and therefore the legislation dealing with
the   subject   squarely   falls   under  Entry   30   of   the
State List, ‘money lending and moneylenders’. If this
submission were to carry conviction, every depositor
in   the   bank   would   be   a   moneylender   and   the
transaction would be one of moneylending. Is the
banking industry to be covered under Entry 30? On
the other hand, Entry 45 in Union List is a specific
Entry   ‘Banking’   and   therefore   any   legislation
relating to banking would be referable to Entry 45 in
the   Union   List.   Entry   43   in   the   Union   List   is:
“Incorporation, regulation and winding up of trading
corporations,   including   banking,   insurance   and
financial corporations but not including cooperative
societies”.   Entry   44   refers   to   “incorporation,
regulation, and winding up of corporation whether
trading or not when business is not confined to one
State but not including universities”. Obviously the
power to legislate about the companies is referable
to Entry 44 when the objects of the company are not
confined to one State and irrespective of the fact
whether   it   is   trading   or   not.   When   a   law   is
impugned on the ground that it is ultra vires the
powers of the legislature which enacted it, what has
to   be   ascertained   is   the   true   character   of   the
legislation. To do that one must have regard to the
enactment   as   a   whole,   to   its   objects   and   to   the
scope and effect of its provisions (see A.S. Krishna v.
State of Madras, 1957 SCR 399, 410). To resolve the
controversy if it becomes necessary to ascertain to
which   entry   in   the   three   Lists,   the   legislation   is
referable, the court has evolved the doctrine of pith
and   substance.   If   in   pith   and   substance,   the
legislation falls within one entry or the other but
some portion of the subject­matter of the legislation
incidentally trenches upon and might enter a field
87
under another List, then it must be held to be valid
in   its   entirety,   even   though   it   might   incidentally
trench on matters which are beyond its competence
(see Ishwari Khaetan Sugar Mills (P) Ltd. v. State of
U.P., (1980) 3 SCR 331, 343, Union of India V.H.S.
Dhillon, (1972) 2 SCR 33,  Kerala State  Electricity
Board v. Indian Aluminium Company, (1976) 1 SCR
552 and State of Karnataka v. Ranganatha Reddy,
(1978) 1 SCR 641). Applying this doctrine of pith
and substance, Section 58­A which is incorporated
in the Companies Act is referable to Entries 43 and
44 in the Union List and the enactment viewed as a
whole   cannot   be   said   to   be   legislation   on
moneylenders and moneylending or being referable
to Entry 30 in the State List. Undoubtedly, therefore
Parliament had the legislative competence to enact
Section 58­A.”
51. Reliance has also been placed on the decision of a Constitution
Bench in  I.T.C. Ltd.  (supra).   The question involved in the said case
was to the  applicability and validity of Bihar Agricultural Produce
Markets Act, 1960 and the Karnataka Agricultural Produce Marketing
(Regulation) Act, 1966, to the extent these State legislations deal with
the sale of tobacco in market areas with particular reference to the
levy thereupon of market fee after enactment of Tobacco Board Act,
1975 ­ parliamentary legislation. The scope of Entry 52 in the Union
List   of   the   Seventh   Schedule   of   the   Constitution   of   India   with
particular reference to the meaning of the expression 'Industries' as
also in Entry 24 in the State List of the Seventh Schedule of the
Constitution   came   up   for   consideration.   The   Court   relied   on   the
decision of Constitution Bench in Belsund Sugar Co. Ltd. v. State of
88
Bihar33, in which it was held that merely because the industry is
controlled by a declaration under Section 2 of the IDR Act enacted by
Entry 52 of the Union List, the State Legislature would not be denied
of its power to regulate the products of such industry by the exercise
of its legislative power under the State List.  The Court ultimately held
that State Legislation and the Tobacco Board Act, 1975 to the extent
they relate to the sale of tobacco in market areas, cannot co­exist. The
State legislatures were competent to pass legislation concerning such
goods.  In I.T.C. Ltd. (supra), it was observed:
“87.  Further, in  Belsund Sugar Co., (1999) 9 SCC
620, the Constitution Bench cited with approval the
decision   in  SIEL   case,  (1998)   7   SCC   26   and
reiterated   that   merely   because   the   industry   is
controlled by a declaration under Section 2 of the
IDR Act enacted by Entry 52 of the Union List, the
State Legislature would not be denied of its power to
regulate   the   products   of   such   an   industry   by
exercise of its legislative power under the State List.
It would be useful to extract para 119 of  Belsund
Sugar Co. case, (1999) 9 SCC 620, as under: (SCC
pp. 670­71)
“119. However, so far as the IDR Act is concerned,
it is enacted under Entry 52 of the First Schedule
which   deals   with   industries   in   general.
Simultaneously   in  the   State  List   itself   there  is
Entry 24 which deals with industries subject to
the   provisions   of   Entries   7   and   52   of   List   I.
Consequently,   the   products   of   such   controlled
industries would necessarily not be governed by
the sweep of the general legislation pertaining to
such industries as per Entry 52 of the Union List.
The  aforesaid Constitution Bench judgment  was
not concerned with any State legislation enacted
under   Entry   24.   On   the   contrary,   it   dealt   with
legislation of the Union Parliament under Entry 54
of the Union List read with Entry 23 of the State
33 (1999) 9 SCC 620
89
List. The scheme of the aforesaid legislative entries
is entirely different from the scheme of Entry 52 of
List I read with Entry 24 of List II with which we
are   concerned.   On   a   conjoint   reading   of   the
aforesaid two entries, therefore, the ratio of the
decision   of   the   Constitution   Bench   in   the
aforesaid case cannot be effectively pressed into
service by Shri Ranjit Kumar for supporting his
contention. In this contention, we may usefully
refer   to   a   decision   of   this   Court   in  SIEL   Ltd.,
(1998)   7   SCC   26,   where   one   of   us,   Sujata   V.
Manohar,   J.   was   a   Member.   It   has   rightly
distinguished the ratio of the Constitution Bench
decision in the case of  Hingir Rampur Coal Co.
Ltd.,  AIR 1961 SC 459 and taken the view that
merely   because   an   industry   is   controlled   by   a
declaration   under   Section   2   of   the   IDR   Act
enacted by Entry 52 of the Union List, the State
Legislature would not be denied of its powers to
regulate   the   products   of   such   an   industry   by
exercise of its legislative powers under Entry 24 of
the   State   List.   In   that   case   the   question   was
whether   the  U.P.   Sheera   Niyantran   Adhiniyam,
1964   could   be   said   to   be   repugnant   to   the
Molasses (Control) Order issued by the Central
Government under Section 18­G of the IDR Act
imposing restrictions on the sale of molasses and
fixing the maximum price of molasses. Answering
the question in the negative, it was held that the
term ‘industry’ in Entry 24 would not take within
its   ambit   trade   and   commerce   or   production,
supply and distribution of goods which are within
the   province   of   Entries   26   and   27   of   List   II.
Similarly,   Entry   52   in   List   I   which   deals   with
industry also would not cover trade and commerce
in, or production, supply and distribution of, the
products of those industries which fall under Entry
52 of List I. For the industries falling in Entry 52
of   List   I,   these   subjects   are   carved   out   and
expressly put in Entry 33 of List III. It was also
held that since the Molasses (Control) Order of
1961   passed   by   the   Central   Government   in
exercise of powers conferred by Section 18­G was
not extended at any point of time to the State of
U.P.   or   the   State   of   Bihar,   the   question   of
repugnancy between the Molasses Control Order,
1961 and the U.P. Sheera Niyantran Adhiniyam,
1964 does not arise. Consequently, it must be
held   that   in   the   absence   of   a   statutory   order
90
promulgated under Section 18­G of the IDR Act, it
cannot be said that the field for regulation of sale
and purchase of products of the flour industry
like  atta,  maida,  suji,  bran,  etc.  would  remain
outside the domain of the State Legislature.”
93.  That   the   legislative   power   of   Parliament   in
certain areas is paramount under the Constitution
is not in dispute. What is in dispute is the limits of
those areas as judicially defined. Broadly speaking,
parliamentary  paramountcy  is provided for under
Articles 246 and 254 of the Constitution. The first
three   clauses   of   Article   246   of   the   Constitution
relate   to   the   demarcation   of   legislative   powers
between   Parliament   and   the   State   Legislatures.
Under   clause   (1),   notwithstanding   anything
contained   in   clauses   (2)   and   (3),   Parliament   has
been given the exclusive power to make laws with
respect to any of the matters enumerated in List I or
the Union List in the Seventh Schedule. Clause (2)
empowers   Parliament,   and   the   State   Legislatures
subject to the power of Parliament under clause (1),
to make laws with respect to any of the matters
enumerated   in   List   III   in   the   Seventh   Schedule
described in  the  Constitution as  the  “Concurrent
List” notwithstanding anything contained in clause
(3).   Under   clause   (3)   the   State   Legislatures   have
been given exclusive powers to make laws in respect
of   matters   enumerated   in   List   II   in   the   Seventh
Schedule described as the “State List” but subject to
clauses   (1)   and   (2).   The   three   lists   while
enumerating   in   detail   the   legislative   subjects
carefully distribute the areas of legislative authority
between Parliament (List I) and the State (List II).
The supremacy of Parliament has been provided for
by the non obstante clause in Article 246(1) and the
words   “subject   to”   in   Articles   246(2)   and   (3).
Therefore, under Article 246(1) if any of the entries
in the three lists overlap, the entry in List I will
prevail (M.P.V. Sundararamier & Co. v. State of A.P.,
AIR 1958 SC 468). Additionally some of the entries
in the State List have been made expressly subject
to the power of Parliament to legislate either under
List I or under List III. Entries in the lists of the
Seventh  Schedule  have  been  liberally interpreted,
nevertheless courts have been wary of upsetting this
balance   by   a   process   of   interpretation   so   as   to
deprive any entry of its content and reduce it to
“useless lumber” (Calcutta Gas Co. (Proprietary) Ltd.
91
v. State of W.B., AIR 1962 SC 1044). The use of the
word “exclusive” in clause (3) denotes that within
the legislative fields contained in List II, the State
Legislatures   exercise   authority   as   plenary   and
ample as Parliament.
“276.   The   fact   that   under   the   scheme   of   our
Constitution, greater power is conferred upon the
Centre vis­à­vis the States does not mean that
States are mere appendages of the Centre. Within
the sphere allotted to them, States are supreme.
The   Centre   cannot   tamper   with   their   powers.
More particularly, the courts should not adopt an
approach, an interpretation, which has the effect
of or tends to have the effect of whittling down the
powers reserved to the States.”
126.  To   sum   up:   the   word   “industry”   for   the
purposes   of   Entry   52   of   List   I   has   been   firmly
confined by  Tika Ramji, AIR 1956 SC 676 to the
process   of   manufacture   or   production   only.
Subsequent   decisions   including   those   of   other
Constitution   Benches   have   reaffirmed   that  Tika
Ramji case, AIR 1956 SC 676 authoritatively defined
the   word   “industry”   —   to   mean   the   process   of
manufacture   or   production   and   that   it   does   not
include the raw materials used in the industry or
the   distribution   of   the   products   of   the   industry.
Given the constitutional framework, and the weight
of judicial authority it is not possible to accept an
argument canvassing a wider meaning of the word
“industry”.  Whatever  the  word  may  mean  in  any
other   context,   it   must   be   understood   in   the
constitutional context as meaning “manufacture or
production”.
130. It was held that: (AIR pp. 94­95, para 10)
“Market   no   doubt   ordinarily   means   a   place
where   business   is   being   transacted.   That   was
probably all that it meant at a time when trade
was not developed and when transactions took
place   at   specified   places.   But   with   the
development of commerce, bargains came to be
concluded   more   often   than   not   through
correspondence and the connotation of the word
‘market’ underwent a corresponding expansion. In
modern parlance the word ‘market’ has come to
mean   business   as   well   as   the   place   where
business is carried on.”
92
163.  As  noticed   earlier  the   majority  view   in  ITC
case, 1985 Supp SCC 476 has been upheld in the
judgment of Brother Pattanaik, on slightly different
reasoning and the decisions of this Court in  M.A.
Tulloch,  AIR   1964   SC   1284   and  Baijnath   Kadio,
(1969) 3 SCC 838 dealing with legislation on mining
and relied upon in the majority judgment of  ITC
case, 1985 Supp SCC 476 have been found to be
not   relevant   for   the   decision.   It   is   true,   while
legislating on any subject covered under an entry of
any   list,   there   can   always   be   a   possibility   of
entrenching upon or touching the field of legislation
of another entry of the same list or another list for
matters   which   may   be   incidental   or   ancillary
thereto. In such eventuality, inter alia, a broad and
liberal   interpretation   of   an   entry   in   the   list   may
certainly   be   required.   An   absolute   or   watertight
compartmentalization   of   heads   of   subject   for
legislation may not be possible but at the same time
entrenching into the field of another entry cannot
mean its total sweeping off even though it may be in
the exclusive list of heads of subjects for legislation
by the other legislature. As in the present case the
relevant heads of subject in List II, other than Entry
24, cannot be made to practically disappear from
List II and assumed to have crossed over in totality
to   List   I   by   virtue   of   declaration   of   the   tobacco
industry under Entry 52 of List I, in the guise of
touching or entrenching upon the subjects of List
II.”
52. In  Calcutta   Gas   Company   (Proprietary)   Ltd.   v.   State   of   West
Bengal and Ors.34
, a Constitution Bench of this Court considered the
meaning of ‘industry’ in Entry 52 of List I and Entries 24 and 25 of
List II and observed that having regard to the principles, while giving
the most extensive scope to both the entries, the interpretation which
harmonizes has to be adopted.  It was held:
“9.  With   this   background   let   us   construe   the
aforesaid   entries.   There   are   three   possible
34 AIR 1962 SC 1044
93
constructions, namely, (1) Entry 24 of List II, which
provides   for   industries   generally,   covers   the
industrial aspect of gas and gas­works leaving Entry
25   to   provide   for   other   aspects   of   gas   and   gasworks; (2) Entry 24 provides generally for industries,
and Entry 25 carves out of it the specific industry of
gas and gas­works, with the result that the industry
of gas and gas­works is excluded from Entry 24; and
(3) the industry of gas and gas­works falls under
both the entries, that is, there is a real overlapping
of the said entries. Having regard to the aforesaid
principle, while giving the widest scope to both the
entries,   we   shall   adopt   the   interpretation   which
reconciles and harmonizes them.”
53. In  Central   Bank   of   India   v.   State   of   Kerala   and   Ors.35,   the
question came up for consideration concerning Entry 45 of List I and
Entry 54 of List II.  The question arose whether Section 38­C of the
Bombay Sales Tax Act, 1959 and Section 26­B of the Kerala General
Sales Tax Act, 1963 and similar provisions contained in other State
legislation by which a first charge was created on the property of the
dealer or such other person, who was liable to pay sales tax, were
inconsistent with the provisions contained in the RDB Act, 1993 and
the   SARFAESI   Act   and   whether   central   legislations   would   have
primacy over the state legislations.  It was observed:
“92. An analysis of the abovenoted provisions makes
it clear that the primary object of the DRT Act was
to facilitate creation of special machinery for speedy
recovery   of   the   dues   of   banks   and   financial
institutions. This is the reason why the DRT Act not
only provides for establishment of the Tribunals and
the Appellate Tribunals with the jurisdiction, powers
and   authority   to   make   summary   adjudication   of
applications made by banks or financial institutions
and specifies the modes of recovery of the amount
35 (2009) 4 SCC 94
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determined   by   the   Tribunal   or   the   Appellate
Tribunal but also bars the jurisdiction of all courts
except the Supreme Court and the High Courts in
relation to the matters specified in Section 17. The
Tribunals   and   the   Appellate   Tribunals   have   also
been freed from the shackles of procedure contained
in the Code of Civil Procedure. To put it differently,
the DRT Act has not only brought into existence
special procedural mechanism for speedy recovery of
the dues of banks and financial institutions, but
also   made   provision   for   ensuring   that   defaulting
borrowers are not able to invoke the jurisdiction of
civil courts for frustrating the proceedings initiated
by the banks and financial institutions.
93. The enactment of the Securitisation Act can be
treated   as   one   of   the   most   radical   legislative
measures   taken   by   the   Government   for   ensuring
that   dues   of   secured   creditors   including   banks,
financial   institutions   are   recovered   from   the
defaulting borrowers without any obstruction. For
the   first   time,   the   secured   creditors   have   been
empowered to take measures for recovery of their
dues   without   the   intervention   of   the   courts   or
tribunals.
110. The DRT Act facilitated establishment of twotier system of tribunals. The tribunals established at
the first level have been vested with the jurisdiction,
powers and authority to summarily adjudicate the
claims   of   banks   and   financial   institutions   in  the
matter   of   recovery   of   their   dues   without   being
bogged down by the technicalities of the Code of
Civil Procedure. The Securitisation Act drastically
changed the scenario inasmuch as it enabled banks,
financial institutions and other secured creditors to
recover their dues without intervention of the courts
or   tribunals.   The   Securitisation   Act   also   made
provision   for   registration   and   regulation   of
securitisation/reconstruction   companies,
securitisation   of   financial   assets   of   banks   and
financial institutions and other related provisions.
116. The non obstante clauses contained in Section
34(1)   of   the   DRT   Act   and   Section   35   of   the
Securitisation   Act   give   overriding   effect   to   the
provisions of those Acts only if there is anything
inconsistent   contained   in   any   other   law   or
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instrument having effect by virtue of any other law.
In other words, if there is no provision in the other
enactments which are inconsistent with the DRT Act
or the Securitisation Act, the provisions contained
in   those   Acts   cannot   override   other   legislations.
Section 38­C of the Bombay Act and Section 26­B of
the Kerala Act also contain non obstante clauses
and give statutory recognition to the priority of the
State’s   charge   over   other   debts,   which   was
recognised by Indian High Courts even before 1950.
In   other   words,   these   sections   and   similar
provisions contained in other State legislations not
only create first charge on the property of the dealer
or any other person liable to pay sales tax, etc. but
also give them overriding effect over other laws.”
This Court found no conflict in the provisions of the Central Act
and that of the State.
54. Learned counsel on behalf of appellants relying on the decisions
in  S.S. Dhanoa, Daman Singh,  and  Dalco Engineering Private Limited
(supra),  argued that the Parliament was conscious of the distinction
between a corporation falling under Entries 43 and 44 of List I and a
co­operative society falling under Entry 32 of List II.  In S.S. Dhanoa
(supra),   this   Court   considered   the   distinction   between   corporation
created by law and a body or society created by an act of individual in
accordance with provisions of the statute and observed:
“8. A corporation is an artificial being created by law
having a legal entity entirely separate and distinct
from   the   individuals   who   compose   it   with   the
capacity   of   continuous   existence   and   succession,
notwithstanding   changes   in   its   membership.   In
addition,   it   possesses   the   capacity   as   such   legal
entity   of   taking,   holding   and   conveying   property,
entering into contracts, suing and being sued, and
exercising such other powers and privileges as may
be conferred on it by the law of its creation just as a
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natural   person   may.   The   following   definition   of
corporation was given by Chief Justice Marshall in
the celebrated Dartmouth College case, 4 Wheat 518,
636: 4 L Ed 629 (1819):
“A corporation is an artificial being, invisible,
intangible, and existing only in contemplation of
law. Being the mere creature of law, it possesses
only   those   properties   which   the   charter   of   its
creation confers upon it, either expressly or as
incidental to its very existence. These are such as
are supposed best calculated to effect the object
for   which   it   was   created.   Among   the   most
important are immortality, and, if the expression
may   be   allowed,   individuality;   properties,   by
which a perpetual succession of many persons
are considered as the same, and may act as a
single   individual.   They   enable   a   corporation   to
manage   its   own   affairs,   and   to   hold   property,
without the perplexing intricacies, the hazardous
and endless necessity, of perpetual conveyances
for the purpose of transmitting it from hand to
hand.   It   is   chiefly   for   the   purpose   of   clothing
bodies of men, in succession, with these qualities
and capacities, that corporations were invented,
and   are   in   use.   By   these   means,   a   perpetual
succession of individuals are capable of acting for
the promotion of the particular object, like one
immortal being.”
The term ‘corporation' is, therefore, wide enough to
include private corporations. But, in the context of
clause  Twelfth  of  Section 21  of  the  Indian  Penal
Code, the expression ‘corporation’ must be given a
narrow legal connotation.
9. Corporation, in its widest sense, may mean any
association   of   individuals   entitled   to   act   as   an
individual. But that certainly is not the sense in
which it is used here. Corporation established by or
under an Act of Legislature can only mean a body
corporate which owes its existence, and not merely
its   corporate   status,   to   the   Act.   For   example,   a
Municipality, a Zilla Parishad or a Gram Panchayat
owes   its   existence   and   status   to   an   Act   of
Legislature. On the other hand, an association of
persons   constituting   themselves   into   a   company
under the Companies Act or a society under the
Societies Registration Act owes its existence not to
the Act of Legislature but to acts of parties though,
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it may owe its status as a body corporate to an Act
of Legislature.”
In  Daman   Singh  (supra),  a Constitution  Bench  of  this  Court
considered Entry 43 of List I and Entry 32 of List II of the Seventh
Schedule of the Constitution of India and observed:
“5.  What   is   a   corporation?   In  Halsbury’s   Laws   of
England, Fourth Edition, Volume 9, Paragraph 1201, it is
said,
A corporation may be defined as a body of persons
(in the case of a corporation aggregate) or an office (in
the case of a corporation sole) which is recognised by
the law as having a personality which is distinct from
the separate personalities of the members of the body
or the personality of the individual holder for the time
being of the office in question.
A corporation aggregate has been defined in paragraph
1204 as,
[A] collection of individuals united into one body
under   a   special   denomination,   having   perpetual
succession under an artificial form, and vested by the
policy of the law with the capacity of acting in several
respects as an individual, particularly of taking and
granting  property,   of  contracting  obligations  and  of
suing   and   being   sued,   of   enjoying   privileges   and
immunities in common and of exercising a variety of
political rights, more or less extensive, according to
the design of its institution, or the powers conferred
upon it, either at the time of its creation or at any
subsequent period of its existence.
This Court in  Board of Trustees, Ayurvedic and Unani
Tibia College, Delhi  v.  State of Delhi, 1962 Supp 1 SCR
156 was required to answer the question whether the
Board of trustees which was originally registered under
the Societies Registration Act, 1860 and a new Board of
trustees   which   was   incorporated   by   an   Act   of   the
legislature called the Tibbia College Act, 1952 by which
the old Board was dissolved and a new Board constituted
were corporations. The Court held that the old Board
was not but the new Board was. Posing the question
what is a corporation, the Court answered it with the
statements   contained   in  Halsbury’s   Laws   of   England
already extracted by us and added,
A   corporation   aggregate   has   therefore   only   one
capacity, namely, its corporate capacity. A corporation
aggregate   may   be   a   trading   corporation   or   a   nontrading corporation. The usual examples of a trading
corporation are (1) charter companies, (2) companies
98
incorporated   by   special   Acts   of   Parliament,   (3)
companies registered under the Companies Act, etc.
Non­trading   corporations   are   illustrated   by   (1)
municipal   corporations,   (2)   district   boards,   (3)
benevolent   institutions,   (4)   universities   etc.   An
essential   element   in   the   legal   conception   of   a
corporation is that its identity is continuous, that is,
that the original member or members and his or their
successors are one. In law the individual corporators,
or members, of which it is composed are something
wholly   different   from   the   corporation   itself;   for   a
corporation is a legal persona just as much as an
individual.   Thus,   it   has   been   held   that   a   name   is
essential to a corporation; that a corporation aggregate
can, as a general rule, only act or express its will by
deed under its common seal; that at the present day
in England a corporation is created by one or other of
two   methods,   namely,   by   Royal   Charter   of
incorporation from the Crown or by the authority of
Parliament that is to say, by or by virtue of statute.
There is authority of long standing for saying that the
essence   of   a   corporation   consists   in   (1)   lawful
authority   of   incorporation,   (2)   the   persons   to   be
incorporated, (3) a name by which the persons are
incorporated, (4) a place, and (5) words sufficient in
law to show incorporation. No particular words are
necessary   for   the   creation   of   a   corporation;   any
expression showing an intention to incorporate will be
sufficient.
The   Court   then   noticed   the   various   provisions   of   the
Societies Registration Act, 1860 which according to them
contained no sufficient words to indicate an intention to
incorporate   but   on   the   contrary   contained   provisions
showing that there was an absence of such intention.
Therefore, they observed, “We have, therefore, come to
the   conclusion   that   the   provisions   aforesaid   do   not
establish   the   main   essential   characteristic   of   a
corporation aggregate, namely, that of an intention to
incorporate the society”. Considering next the question
whether the new Board was a corporation, the Court had
no difficulty in answering the question with reference to
sub­section (2) of Section 3 which stated that the Board
shall be a body corporate having perpetual succession
and common seal and shall by the said name sue and be
sued. The Court observed, “Sub­section (2) of Section 3
says in express terms that the new Board constituted
under the impugned Act is given a corporate status; in
other words, the new Board is a corporation in the full
sense of the term”.
6.  We have already extracted Section 30 of the Punjab
Act which confers on every registered cooperative society
the   status   of   a   body   corporate   having   perpetual
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succession   and   a   common   seal,   with   power   to   hold
property, enter into contracts, institute and defend suits
and   other   legal   proceedings   and   to   do   all   things
necessary for the purposes for which it is constituted.
There cannot, therefore, be the slightest doubt that a
cooperative   society   is   a   corporation   as   commonly
understood. Does the scheme of the Constitution make
any difference? We apprehend not.
7. … According to Mr Ramamurthi the express exclusion
of cooperative societies in Entry 43 of List I and the
express inclusion of cooperative societies in Entry 32 of
List   II   separately   and   apart   from   but   along   with
corporations   other   than   those   specified   in   List   I   and
universities,   clearly   indicated   that   the   constitutional
scheme was designed to treat cooperative societies as
institutions   distinct   from   corporations.   On   the   other
hand   one   would   think   that   the   very   mention   of
cooperative societies both in Entry 43 of List I and Entry
32   of   List   II   along   with   other   corporations   gave   an
indication that the Constitution makers were of the view
that   cooperative   societies   were   of   the   same   genus   as
other corporations and all were corporations. In fact the
very express exclusion of cooperative societies from Entry
43 of List I is indicative of the view that but for such
exclusion, cooperative societies would be comprehended
within the meaning of expression “corporations”.”
In Dalco Engineering Private Limited  (supra), the Court followed
the   decision   in  S.S.   Dhanoa  (supra)   and   opined   that   there   is   a
difference between a corporation established by law and established
under the law. However, the question involved in the instant case is
different. 
55. In  Hindustan Lever  (supra), question was considered, whether
there was an encroachment on the field of the Parliament reserved
under Entry 43 of List I of the Seventh Schedule of the Constitution of
India, which empowers the Union Government to make law relating to
'incorporation,   regulation   and   winding   up   of   trading   corporations
100
including banks, insurance, and finance corporations'.   It was held
that the levy of stamp duty and prescribing rate of stamp duty on
such documents is a different aspect.  The Bombay Stamp Act does
not   provide   for   ‘incorporation,   regulation   and   winding   up   of
corporations’.  The Court held:
“42.  It   was   next   contended   that   provisions   of
Section 2(g)(iv) read with Section 34 of the Bombay
Stamp Act which provide that an instrument not
duly stamped would be inadmissible in evidence are
repugnant to Section 394 of the Companies Act and
that   the   State   legislation   cannot   prevail  over  the
provisions   of   the   Companies   Act.   It   was   also
contended that in the guise of stamp duty the State
Legislature   is   in   reality   imposing   a   tax   on   the
amalgamation   of   companies   and   has   therefore
encroached on the field of Parliament under Entry
43 List I of the Constitution. We do not find any
substance in this submission as well. Stamp duty is
levied on the instrument and the measure is the
valuation of the property transferred. There is no
question of encroachment on the field of Parliament
under   Entry   43   List   I   of   the   Constitution   which
empowers the Union to make laws re: incorporation,
regulation and winding up of trading corporations
including   banks,   insurance   and   finance
corporations but not including cooperative societies.
The follow­up legislation under Entry 43 List I is
totally different from the levy of stamp duty and of
prescribing rate of stamp duty on such documents.
The Bombay Stamp Act does not provide for any
legislation with regard to incorporation, regulation
and winding up of corporations. It only levies the
stamp duty and prescribes the rate of stamp duty in
respect   of   documents   by   compromise   or
arrangement.”
56. In  Kerala State Electricity Board  (supra), a Constitution Bench,
while considering the Doctrine of Pith and Substance and dominant
purpose, opined:
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“5.  In   view   of   the   provisions   of   Article   254,   the
power of Parliament to legislate in regard to matters
in List III, which are dealt with by clause (2), is
supreme   the   Parliament   has   exclusive   power   to
legislate with respect to matters in List 1. The State
Legislature   has   exclusive   power   to   legislate   with
respect to matters in List II. But this is subject to
the   provisions   of   clause   (1)   [leaving   out   for   the
moment the reference to clause (2)]. The power of
Parliament   to   legislate   with   respect   to   matters
included   in   List   I   is   supreme   notwithstanding
anything contained in clause (3) [again leaving out
of   consideration   the   provisions   of   clause   (2)].   No
what is the meaning of the words “notwithstanding”
in clause (1) and “subject to” in clause (3)? They
mean that where an entry is in general terms in List
II and part of that entry is in specific, terms in List I,
the entry in List I takes effect notwithstanding the
entry in List II. This is also on the principle that the
“special”   excludes   the   “general”   and   the   general
entry in List II is subject to the special entry in List
1. For instance, though house accommodation and
rent control might fall within either the State list or
the  concurrent   list,  Entry  3  in  List   I  of   Seventh
Schedule carves out the subject of rent control and
house   accommodation   in   Cantonments   from   the
general subject of house accommodation and rent
control (see  Indu Bhusan  v.  Sundari Devi,  (1970) 1
SCR 443). Furthermore, the word “notwithstanding”
in clause (1) also means that if it is not possible to
reconcile   the   two   entries   the   entry   in   List   I   will
prevail. But before that happens attempt should be
made to decide in which list a particular legislation
falls. For deciding under which entry a particular
legislation falls the theory of “pith and substance”
has   been   evolved   by   the   courts.   If   in   pith   and
substance a legislation falls within one list or the
other but some portion of the subject­matter of that
legislation   incidentally   trenches   upon   and   might
come to fall under another list, the Act as a whole
would   be   valid   notwithstanding   such   incidental
trenching. These principles have been laid down in a
number of decisions.
16. It would be obvious that one part of the Act does
deal   with   the   constitution   of   the   Board,   the
incorporation of the Board and the regulation of its
activities. But the main purpose of the Act is for
rationalising   the   production   and   supply   of
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electricity. The regulation contemplated in Entries
43   and   44   is   not   regulation   of   the   business   of
production, distribution and supply of electricity of
the corporation. As the 1910 and 1948 Acts together
form a complete code, with respect to Entry 38 in
List 111 the Board is only an instrument fashioned
for carrying out this object. The provision regarding
the incorporation and regulation of the Electricity
Board should be taken to be only incidental to the
provision   regarding   production,   supply   and
distribution of electricity.
18.  In  Ramtanu   Housing   Society  v.  Maharashtra,
(1970) 1 SCC 248, this Court had dealt with the
Maharashtra Industrial Development Act, 1961 and
the question whether the Maharashtra Development
Corporation  formed   under   the  Act   was  a   trading
corporation. In holding that the legislation fell under
Entry 24 of the State list and not under Entry 43 of
the Union list this Court observed: [SCC pp. 324,
325, 326, 327­328, paras 3, 4, 8, 11 & 15]
The Act is one to make a special provision for
securing the orderly establishment in industrial
areas and industrial estates of industries in the
State of Maharashtra, and to assist generally in
the organisation thereof, and for that purpose to
establish an Industrial Development Corporation,
and   for   purposes   connected   with   the   matters
aforesaid.
The corporation is established for the purpose
of securing and assisting the rapid and orderly
establishment and organisation of industries in
industrial   areas   and   industrial   estates   in   the
State of Maharashtra.
Broadly stated the functions and powers of the
corporation are to develop industrial areas and
industrial estates by providing amenities of road,
supply   of   water   or   electricity,   street   lighting,
drainage   …   or   otherwise   transfer   any   property
held by the corporation  on such conditions  as
may be deemed proper by the corporation ....
The principal functions of the corporation in
regard   to   the   establishment,   growth   and
development of industries in the State are first to
establish   and   manage   industrial   estates   at
selected places and secondly to develop industrial
areas selected by the State Government. When
industrial   areas   are   selected   the   necessity   of
acquisition of land in those areas is apparent. The
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Act,   therefore,   contemplates   that   the   State
Government   may  acquire   land   by  publishing   a
notice specifying the particular purpose for which
such land is required .... Where the land has been
acquired   for   the   corporation   or   any   local
authority, the State Government shall, after it has
taken possession of the land, transfer the land to
the corporation or that local authority ....
* * * *
It is in the background of the purposes of the
Act and powers and functions of the corporation
that the real and true character of the legislation
will   be   determined   ....   Industries   come   within
Entry   24   of   the   State   list.   The   establishment,
growth and development of industries in the State
of Maharashtra does not fall within Entry 7 and
Entry 52 of the Union list. Establishment, growth
and   development   of   industries   in   the   State   is
within the State list of industries .... Acquisition
or requisition of land falls under Entry 42 of the
concurrent   list.   In   order   to   achieve   growth   of
industries it is necessary not only to acquire land
but also to implement the purposes of the Act.
The   corporation   is   therefore   established   for
carrying out the purposes of the Act, The pith and
substance of the Act is establishment, growth and
organisation of industries, acquisition of land in
that behalf and carrying out the purposes of the
Act by setting up the corporation as one of the
limbs or agencies of the Government. The powers
and   functions   of   the   corporation   show   in   no
uncertain terms that these are all in aid of the
principal   and   predominant   purpose   of
establishment,   growth   and   establishment   of
industries. The corporation is established for that
purpose .... We, therefore, hold that the Act is a
valid piece of legislation.
19.  In   the   present   case   the   incorporation   of   the
State   Electricity   Boards   is   merely   for   the
rationalisation   of   the   production   and   supply   of
electricity,   for   taking   measures   conducive   to
electrical development and for all matters incidental
thereto. The incorporation of the Electricity Boards
being   incidental   to   the   rationalisation   of   the
production and supply of electricity and for being
conducive to electrical development, the 1948 Act in
pith and substance should be deemed to be one
falling   under   Entry   38   of   List   III.   Furthermore,
104
Electricity Boards are not trading corporations. They
are   public   service   corporations.   They   have   to
function without any profit motive. Their duty is to
promote coordinated development of the generation,
supply and distribution of electricity in the most
efficient   and   economical   manner   with   particular
reference to such development in areas not for the
time   being   served   or   adequately   served   by   any
licensee (Section 18). The only injunction is that as
far   as   practicable   they   shall   not   carry   on   their
operations   at   a   loss   (Section   59).   They   get
subventions from the State Governments (Section
63).   In   the   discharge   of   their   functions   they   are
guided by directions on questions of policy given by
State   Governments   (Section   78­A).   There   are   no
shareholders and there is no distribution of profits.
This is another reason why the 1948 Act cannot be
said to fall under Entry 43 of List I.
20.  The   question,   therefore,   is   whether   the
impugned legislation falls under Entry 38 of List III
or Entries 26 and 27 of List II and if the former,
whether it is repugnant to the existing law on the
subject, that is, the 1910 and 1948 Acts and if that
were so, whether that repugnancy has been cured
by Presidential assent?
21.  Even assuming that part of the 1948 Act is
legislation   with   respect   to   incorporation   and
regulation   of   a   trading   corporation,   falling   under
Entry 43 of List I of Schedule VII, the rest of it will
fall under Entry 38 of List III. That part of the Act
relating to the regulation of the activities regarding
production and distribution of electricity would, as
we have shown, fall under the entry “Electricity”.
The   Kerala   Act   has   nothing   to   do   with   the
incorporation and regulation of the Electricity Board
and, therefore, it can only relate to Entry 38 of List
III, if at all.”
It   was   held   that   repugnancy   could   only   arise   if   both   the
legislations of Parliament and State fell within List III.
57. In  Sita Ram Sharma and Ors.  (supra) the question concerning
105
Entry 43 of List I and Entries 35 and 42 of List III was considered.  It
was held:
“9. The main argument is that the subject­matter of
Section 4 falls within Item 43 of List I of the Seventh
Schedule   to   the   Constitution.   So   the   State
Legislature   could   not   enact   Section   4.   The   rival
contention of Dr L.M. Singhvi, Advocate­General of
Rajasthan, is that the subject­matter of Section 4 in
its true nature and character falls within Items 35
and 42 of List III of the Seventh Schedule to the
Constitution.
10.  Item   43   of   List   I   reads:   “Incorporation,
regulation and winding up of trading corporation,
including   banking,   insurance   and   financial
corporation but not including cooperative societies.”
Item 35 of List III reads: “Mechanically propelled
vehicles including the principles on which taxes on
such vehicles are to be levied.” Item 42 of List III
reads: “Acquisition and requisitioning of property.”
15.  It   is   not   disputed   by   the   appellant   that   the
subject­matter of Chapter IV­A falls within Items 35
and 42 of List III. It would accordingly follow that
Section 68­A the definition clause, also is a law with
respect   to   those   very   items.   Section   4   of   the
Ordinance declares that any scheme prepared and
published   under   Section   68­C   by   the   General
Manager of State Transport Undertaking shall be
deemed to have been prepared or published by the
State Transport Undertaking. It also provides that
the scheme shall not be questioned in any court or
before any authority merely on the ground that the
same   has   been   prepared   or   published   by   the
General Manager. It may be observed that Section 4
makes   no   amendment   in   the   Road   Transport
Corporation Act. It does not directly affect the power
of the Road Transport Corporation under Section
19(2)(c) of the said Act. It has attempted to insert a
new Section 68­CC in Chapter IV­A of the Motor
Vehicles Act. By this new section it has validated the
scheme   prepared   and   published   by   the   General
Manager   of   a   State   Transport   Undertaking   as
defined in Section 68­C.
106
16.  We   have   little   doubt   in   our   mind   that   the
subject­matter of Section 4 clearly falls within Items
35 and 42 of List III and not within Item 43 of List I.
The subject­matter is the conferment of power of
acquisition of a road transport undertaking by the
General   Manager   of   the   State   Transport
Undertaking. It has direct concern with acquisition.
It has no concern with incorporation, regulation and
winding   up   of   trading   corporations.   The
constitutionality of the law is to be determined by its
real subject­matter and not by the incidental effect
which it may have on any topic of legislation in List
I.  (See  Prafulla   Kumar   Mukherjee  v.  Bank   of
Commerce Ltd., 1947 FCR 28: AIR 1947 PC 60: 74
IA and Kannan Devan Hills Produce Company Ltd. v.
State of Kerala, (1973) 1 SCR 356).”
(emphasis supplied)
It is apparent that 'incorporation, regulation and winding up' of
the co­operative societies are covered under Entry 32 of List II of the
Seventh Schedule of the Constitution of India, whereas 'banking' is
covered   by   Entry   45   of   List   I.     Thus,   aspect   of   'incorporation,
regulation and winding up' would be covered under Entry 32 of List II.
However, banking activity of such co­operative societies/banks shall
be governed by Entry 45 of List I.  The said banks are governed and
regulated by legislation related to Entry 45 of List I, the BR Act, 1949
as well as the Reserve Bank of India Act under Entry 38 of List I.  In
the matter of licencing and doing business, a deep and pervasive
control is carved out under the provisions of the BR Act, 1949 and
banking activity done by any entity, primary credit societies, is a bank
and is required to submit the accounts to the Reserve Bank of India,
and there is complete control under the aforesaid Act.  For activity of
banking, these banks are governed by the legislation under Entry 45
107
of List I.   Thus, recovery being an essential part of the banking, no
conflict has been created by providing additional procedures under
Section 13 of the  SARFAESI Act.  It is open to the bank to adopt a
procedure   which   it   may   so   choose.     When   banking   in   pith   and
substance   is   covered   under   Entry   45   of   List   I,   even   incidental
trenching upon the field reserved for State under Entry 32 List II is
permissible. 
58. There can be various aspects of an activity.   The co­operative
societies may be formed under the provisions of the State Co­operative
Acts.     The   State   law   provides   for   'incorporation,   regulation   and
winding up' under Entry 32 of List II, a membership registration, and
other matters can be governed by Entry 32 of List II, and, at the same
time, the aspects relating to the banking, licensing, accounts, etc. can
be covered under Entry 45 List I.
59. In  State   of   W.B.   v.   Kesoram   Industries   Ltd.   and   Ors.36
,  a
Constitution Bench considered the aspects' theory and considered the
field of taxation under Lists I and II and opined that there might be
overlapping in fact, but there would be no overlapping in law.  Simply
because the methodology or mechanism adopted for assessment and
quantification   is   similar,   the   two   taxes   cannot   be   said   to   be
overlapping.  It was held that Entries 52, 53, and 54 are not heads of
taxation.  The field of taxation is covered by Entries 49 and 50 of List
36 (2004) 10 SCC 201
108
II. It was held that the same transaction might involve two or more
taxable events in its different aspects. Merely because the aspects
overlap, such overlapping does not detract from the distinctiveness of
the aspects.  There was no question of conflict solely on account of two
aspects of the same transaction being utilized by two legislatures for
two levies.  The Court held:
“141.  As held in  Goodricke Group Ltd., 1995 Supp
(1)   SCC   707   which   we   have   held   as   correctly
decided, this Court has noted the principle of law
well   established   by   several   decisions   that   the
measure of tax is not determinative of its essential
character. The same transaction may involve two or
more taxable events in its different aspects. Merely
because the aspects overlap, such overlapping does
not detract from the distinctiveness of the aspects.
In our opinion, there is no question of conflict solely
on account of two aspects of the same transaction
being utilised by two legislatures for two levies both
of which may be taxes or fees or one of which may
be a tax and the other a fee falling within two fields
of legislation respectively available to the two.”
The  legislation and  entries are to  be considered  in pith  and
substance is the settled principles of law, and incidental trenching is
permissible.  Thus, we are of the opinion that section 2(c)(iv)(a) of the
SARFAESI Act and the notification dated 28.2.2003 cannot be said to
be ultra vires. They are within the ken of Entry 45 List I of the Seventh
Schedule to the Constitution of India.
EFFECT OF CONSTITUTIONAL PROVISIONS
60. Our aforesaid conclusion finds support by the Constitutional
provisions   inserted   by   way   of   the   Constitution   (Ninety   Seventh
109
Amendment) Act, 2011.  Article 43B has been added concerning the
management   of   co­operative   societies.     Article   43B   is   extracted
hereunder:
“43B.   Promotion   of   co­operative   societies.—   The
State   shall   endeavour   to   promote   voluntary
formation,   autonomous   functioning,   democratic
control   and   professional   management   of   cooperative societies.”
61. Article 243ZI provides that the legislature of a State may, by law,
make provisions with respect to ‘incorporation, regulation and winding
up’ of co­operative societies.  Article 243ZI is extracted hereunder:
“243ZI.   Incorporation   of   co­operative   societies.   —
Subject to the provisions of this Part, the Legislature
of a State may, by law, make provisions with respect
to the incorporation, regulation and winding up of
co­operative   societies   based   on   the  principles  of
voluntary   formation,   democratic   member­control,
member­economic   participation   and   autonomous
functioning.”
62. The Ninety Seventh Amendment also incorporated Article 243ZL
dealing with supersession and suspension of the board and interim
management.  Article 243ZL is extracted hereunder:
“243ZL.—Supersession   and   suspension   of   board
and   interim   management.—   (1)   Notwithstanding
anything contained in any law for the time being in
force, no board shall be superseded or kept under
suspension for a period exceeding six months:
Provided that the board may be superseded or
kept under suspension in case—
(i) of its persistent default; or
(ii) of negligence in the performance of its duties;
or
(iii) the board has committed any act prejudicial
to the interests of the co­operative society or its
members; or
110
(iv)   there   is   stalemate   in   the   constitution   or
functions of the board; or
(v)   the   authority   or   body   as   provided   by   the
Legislature of a State, by law, under clause (2) of
article 243ZK, has failed to conduct elections in
accordance with the provisions of the State Act:
Provided further that the board of any such cooperative society shall not be superseded or kept
under   suspension   where  there  is   no  Government
shareholding or loan or financial assistance or any
guarantee by the Government:
Provided also that in case of a co­operative society
carrying on the business of banking, the provisions
of   the   Banking   Regulation   Act,   1949   shall   also
apply:
Provided   also   that   in   case   of   a   co­operative
society,   other   than   a   multi­State   co­operative
society, carrying on the business of banking, the
provisions of this clause shall have the effect as if
for the words “six months”, the words “one year”
had been substituted.
(2)   In   case   of   supersession   of   a   board,   the
administrator   appointed   to   manage   the   affairs   of
such co­operative society shall arrange for conduct
of elections within the period specified in clause (1)
and handover the management to be elected board.
(3) The Legislature of a State may, by law, make
provisions   for   the   conditions   of   service   of   the
administrator.”
(emphasis supplied)
The third proviso to Article 243ZL(1) clarifies that in case of a cooperative society carrying on the business of banking, the provisions
of the BR Act, 1949 shall also apply besides the State Act.  The fourth
proviso to clause (1) of Article 243ZL also contains an exception with
respect to multi­State co­operative society carrying on the business of
banking, the provisions of this clause shall have the effect as if for the
111
words 'six months', had been substituted by words 'one year.'  Thus,
the constitutional provision itself makes a distinction between a cooperative   bank   and   other   co­operative   societies   and   applied   law
enacted under Entry 45 of List I of the Seventh Schedule. It set at rest
any controversy concerning the applicability of the BR Act, 1949 to
banks run by co­operative societies.  It also makes it clear that such
banks are governed by Entry 45 of List I of the Seventh Schedule.
63. A three­Judge Bench decision in  Greater Bombay Coop. Bank
Ltd.  (supra)   is   heavily  relied   upon   by   the   appellants,   and   due   to
conflict noted by a three­Judge Bench, the matter has been referred.
In Greater Bombay Coop. Bank Ltd. (supra) the question arose whether
co­operative banks constituted under the Co­operative Societies Act
would have the right to recover the amount from debtors under the
Co­operative Societies Act, or they could proceed under the RDB Act,
1993, and whether pending proceedings were to be transferred to the
Debt Relief Tribunal.  In other words, whether the tribunals and the
authorities constituted under the Maharashtra Co­operative Societies
Act,   1960   and   the   Multi­State   Co­operative   Societies   Act,   2002,
continue   to   have   jurisdiction   to   entertain   applications/disputes
submitted before them by the co­operative banks incorporated under
the   1960   Act   and   2002   Act   for   recovery   of   debts   after   the
establishment of a Debts Recovery Tribunal under the RDB Act, 1993.
112
The High Court opined that after the establishment of Debts Recovery
Tribunal under the 1993 Act, the courts and authorities under the
1960 Act as well as the 2002 Act would cease to have jurisdiction to
entertain the applications submitted by the co­operative banks for
recovery of their dues.   However, at the same time, the High Court
upheld   the   competence   of   the   State   legislature   to   enact   the
Maharashtra Co­operative Societies Act, 1960.
64. In another matter, namely  A.P. State Coop. Bank v. Samudra
Shrimp   (P)   Ltd.,  the   High   Court   of   Andhra   Pradesh,   struck   down
Sections   61   and   71   of   the   APCS   Act,   1964   on   the   ground   of
constitutional   incompetence.   It   was   held   that   subject   matter   was
excluded from the State legislative field in Entry 32 of List II of the
Seventh Schedule, and the recovery of monies fell within the core and
substantive  area  of  banking in   Entry  45  of  List  I  of   the  Seventh
Schedule of the Constitution.   A co­operative bank, as defined in
Section 56(cci) of the BR Act, 1949, is a bank and a banking company
within the meaning of Section 2 (d) & (e) of the RDB Act, 1993.  The
Debts   Recovery   Tribunal   constituted   under   the   Act   of   1993   had
exclusive jurisdiction.
65. In  Greater Bombay Coop. Bank Ltd.  (supra) as to the scope of
Entries 43, 44 and 45 of List I and Entry 32 of List II of the Seventh
Schedule of the Constitution of India, it was observed:
113
“88. Entry 43 of List I speaks of banking, insurance
and   financial   corporations,   etc.   but   expressly
excludes cooperative societies from its ambit. The
constitutional   intendment   seems   to   be   that   the
cooperative movement was to be left to the States to
promote   and   legislate   upon   and   the   banking
activities of cooperative societies were also not to be
touched unless Parliament considered it imperative.
The BR Act deals with the regulation of the banking
business. There is no provision whatsoever relating
to proceedings for recovery by any bank of its dues.
Recovery was initially governed by the Code of Civil
Procedure by way of civil suits and after the RDB
Act came into force, the recovery of the dues of the
banks   and   financial   institutions   was   by   filing
applications to the Tribunal. The Tribunal has been
established with the sole object to provide speedy
remedy   for   recovery   of   debts   of   the   banks   and
financial   institutions   since   there   has   been
considerable   difficulties   experienced   therefor   from
normal remedy of civil court.
89. In R.C. Cooper v. Union of India,  (1970) 1 SCC
248, this Court observed that power to legislate for
setting   up   corporations   to  carry  on   banking   and
other business and to acquire, hold and dispose of
property and to provide for administration of the
corporations   is   conferred   upon   Parliament   by
Entries 43, 44 and 45 of the Constitution. Therefore,
the   express   exclusion   of   cooperative   societies   in
Entry   43   of   List   I   and   the   express   inclusion   of
cooperative societies in Entry 32 of List II separately
and apart from but along with corporations other
than   those   specified   in   List   I   and   universities,
clearly indicated that the constitutional scheme was
designed   to   treat   cooperative   societies   as
institutions distinct from corporations. Cooperative
societies, incorporation, regulation and winding up
are State subjects in the ambit of Entry 32 of List II
of the Seventh Schedule to the Constitution of India.
Cooperatives form a specie of genus “corporation”
and as such cooperative societies with objects not
confined to one State are read in with the Union List
as provided in Entry 44 of List I of the Seventh
Schedule of the Constitution; the MSCS Act, 2002
governs such multi­State cooperatives. Hence, the
cooperative   banks   performing   functions   for   the
public   with   a   limited   commercial   function   as
opposed to corporate banks cannot be covered by
114
Entry   45   of   List   I   dealing   with   “banking”.   The
subject of cooperative societies is not included in the
Union List rather it is covered under Entry 32 of List
II   of   the   Seventh   Schedule   appended   to   the
Constitution.”
The Court distinguished the decision in  Delhi High Court Bar
Association (supra) thus:
“95. Union of India  v.  Delhi High Court Bar Assn.,
(2002)   4   SCC   275,   relied   upon   on   behalf   of   the
respondents in support of the judgments and orders
of the High Court of Bombay and the High Court of
Andhra   Pradesh,   does   not   consider   the   issue   of
cooperative   banks’   adjudication   and   recovery
provisions under Entry 32 of List II. The Court was
only considering Entry 45, List I vis­à­vis Entry II­A,
List   III   “administration   of   justice”.   As   such,   the
decision of this case is of no assistance or of help to
the proposition of law involved in the present cases.”
66. In  Greater  Bombay Coop. Bank Ltd.  (supra), the Court relied
upon the decisions in  Sant  Sadhu Singh v.  State  of  Punjab37
,  and
Nagpur   District  Central  Cooperative   Bank   Ltd.   v.   Divisional   Joint
Registrar, Cooperative Societies38.   In  Sant Sadhu Singh  (supra), the
amendment  made   to   the   Punjab  Co­operative  Societies  Act,   1961,
which curtailed the rights and powers of the shareholders in managing
the co­operative society, was under challenge.   Thus, the question
involved was related to the management aspect of the bank governed
by the Co­operative Societies Act for which State had the exclusive
legislative competence under Entry 32 of List II.  Whereas in Nagpur
District   Central   Cooperative   Bank   Ltd.  (supra),   the   question   arose
37 AIR 1970 P&H 528
38 AIR 1971 Bom 365
115
whether Registrar had the power under Section 78 of the Maharashtra
Co­operative   Societies   Act   to   issue   show   cause   notice   to   any
committee of the society or any member of such committee including
the   Directors   in   respect   of   any   default   or   negligence   in   the
performance of the duties imposed on it or him by the Act or the rule
or the bye­laws and power of the Registrar to remove the Committee or
the members thereof if any such action is called for.  The argument
was rejected that the co­operative societies indulged in the banking
business, hence, the State did not have the legislative competence
under Entry 32 of List II, and only the Parliament had the legislative
competence under Entry 45 of List I. The question involved as to
management was clearly covered under Entry 32 of List II. It was with
respect to incorporation, management, and winding up of a society.
Thus, both the abovementioned decisions could not be said to be
applicable with regard to the aspect of banking and were wrongly
relied upon while forming an opinion in Greater Bombay Coop. Bank
Ltd. (supra).
67. At the same time, we are unable to accept the argument raised
on behalf of the respondents. The SARFAESI Act is relatable to Entry 6
of List III considering the provisions contained in Sections 69 and 69A
of the Transfer of Property Act, 1882.  We are of the opinion that it
relates   to   Entry   45   of   List   I   of   the   Seventh   Schedule   of   the
Constitution of India.
116
68. Learned Counsel for the appellants has also placed reliance on
Virendra Pal Singh  (supra), in which the provisions relating to the
recruitment, emoluments, terms, and conditions of service, including
disciplinary control of employees working in the co­operative societies
involved   in   the   banking   were   considered.   Thus,   the   question   of
management/regulation of the co­operative societies was involved. The
aspect of the banking business of the co­operative banks was not
involved.  A question was raised as to the legislative competence of the
State to enact.   In that context, the Court held that, in pith and
substance,   the   U.P.   Co­operative   Societies   Act   dealt   with
incorporation, management and winding up and that if it incidentally
trenches upon banking, would not take the legislation beyond the
competence of the State Legislature.   For the proper financing and
effective functioning of co­operative societies, there must also be cooperative societies that do banking business to facilitate the working
of   other   co­operative   societies   merely   because   they   do   banking
business, they do not cease to be co­operative societies.  It was opined:
“10.  We do not think it necessary to refer to the
abundance of authority on the question as to how to
determine whether a legislation falls under an entry
in one list or another entry in another list. Long ago
in  Prafulla Kumar Mukherjee  v.  Bank of Commerce
Ltd., 74 IA 23, the Privy Council was confronted
with   the   question   whether   the   Bengal   MoneyLenders Act fell within Entry 27 in List II of the
Seventh Schedule to the Government of India Act,
1935,   which   was   “money­lending”,   in   respect   of
which the provincial legislature was competent to
117
legislate, or whether it fell within Entries 28 and 38
in   List   I   which   were   “promissory   notes”   and
“banking” which were within the competence of the
Central   Legislature.   The   argument   was   that   the
Bengal   Money­Lenders   Act   was   beyond   the
competence of the provincial legislature insofar as it
dealt   with   promissory   notes   and   the   business   of
banking. The Privy Council upheld the vires of the
whole   of   the   Act   because   it   dealt,   in   pith   and
substance, with money­lending. They observed:
Subjects must still overlap, and where they do
the   question   must   be   asked   what   in   pith  and
substance is the effect of the enactment of which
complaint is made, and in what list is its true
nature   and   character   to   be   found.   If   these
questions could not be asked, much beneficent
legislation would be stifled at birth, and many of
the   subjects   entrusted   to   provincial   legislation
could never effectively be dealt with.
Examining the provisions of the U.P. Cooperative
Societies Act in the light of the observations of the
Privy Council we do not have the slightest doubt
that   in   pith   and   substance   the   Act   deals   with
“cooperative   societies”.   That   it   trenches   upon
banking incidentally does  not  take  it   beyond  the
competence of the State Legislature. It is obvious
that   for   the   proper   financing   and   effective
functioning of cooperative societies there must also
be cooperative societies which do banking business
to   facilitate   the   working   of   other   cooperative
societies. Merely because they do banking business
such   cooperative   societies   do   not   cease   to   be
cooperative   societies,   when   otherwise   they   are
registered under the Cooperative Societies Act and
are subject to the duties, liabilities and control of
the provisions of the Cooperative Societies Act. We
do not think that the question deserves any more
consideration and, we, therefore, hold that the U.P.
Cooperative Societies Act was within the competence
of   the   State   Legislature.   This   was   also   the   view
taken in  Nagpur District Central Cooperative Bank
Ltd.  v.  Divisional   Joint   Registrar,   Cooperative
Societies, AIR 1971 Bom 365 and Sant Sadhu Singh
v. State of Punjab, AIR 1970 P & H 528.”
In the aforesaid decision, it was held that under the U.P. Cooperative Societies Act, the State was competent under Entry 32 of
118
List II to deal with incorporation, regulation and winding up of cooperative banks.   However, the main aspect of the activity of the cooperative bank relating to banking was covered by the BR Act, 1949,
and the Reserve Bank of India Act, which legislations are related to
Entries 45 and 38 of List I of the Seventh Schedule.  The aspects of
'incorporation, regulation and winding up' are covered under Entry 32
of List II of the Seventh Schedule.   In our opinion, the activity of
banking by such bankers is covered by Entry 45 of List I considering
the   Doctrine   of   Pith   and   Substance,   and   also   considering   the
incidental encroachment on the field reserved for State is permissible.
69.   The concept of regulating non­banking affairs of society and
regulating the banking business of society are two different aspects
and are covered under different Entries, i.e., Entry 32 of List II and
Entry 45 of List I, respectively.   The law dealing with regulation of
banking is traceable to Entry 45 of List I and only the Parliament is
competent to legislate.   The Parliament has enacted the SARFAESI
Act.   It does not intend to regulate the incorporation, regulation, or
winding   up   of   a   corporation,   company,   or   co­operative   bank/cooperative society.  It provides for recovery of dues to banks, including
co­operative banks, which is an essential part of banking activity. The
Act in no way trenches on the field reserved under Entry 32 of List II
and is a piece of legislation traceable to Entry 45 of List I.   The
119
decision in  Virendra Pal Singh  (supra) has been rendered regarding
service regulations.  It does not apply to the instant case concerning
the regulation of 'banking' covered under Entry 45 of List I.  The Court
did not deal with the aspect of the regulation of banking in the said
decision as it was not required to be decided.  Thus, the ratio of the
decision operates in a different field. Moreover, the U.P. Co­operative
Services Act was saved on the ground of incidental trenching on the
subject of another list, i.e., Entry 45 List I, which is permissible.
IN REFERENCE QUESTION NO.2:
70. The   next   question   is   of   the   effect   of   Section   56(a)   on   the
definition of 'banking company' as defined in Section 5(1)(b) of the BR
Act, 1949. It is necessary to consider the definition of 'banking' as
contained in the SARFAESI Act.  The term 'bank' has been defined in
Section 2(1)(c) to mean 'banking company', a corresponding new bank,
a subsidiary bank or a multi­State co­operative bank or such other
bank which the Central Government may by notification specify for
the Act.   The term 'banking company' under Section 2(d) shall have
the meaning assigned to it in Section 5(c) of the BR Act, 1949.  Thus,
the definition of 'banking company' stands incorporated in Section 2(1)
(d) of the SARFAESI Act, which came into force on 21.6.2002.  Section
56(a) was incorporated in the BR Act, 1949 by Act No.23 of 1965,
w.e.f.   1.3.1966.     On   that   date,   Section   56(a)   became   part   of   the
statute.  Section 5(c) of the BR Act, 1949 defines 'banking company'
120
means any company which transacts the business of banking.   By
virtue of Section 56(a), a reference to a 'banking company' or 'the
company' or 'such company' shall be construed as references to a cooperative bank for the application of the Act to the co­operative banks.
Section 5(c) was not amended, and other provisions were also not
amended   where   they   were   placed.   However,   amendments   were
incorporated by a different Chapter V by way of various provisions
incorporated   in   Section   56   as   it   was   necessary   to   retain   certain
provisions in the existing form as they applied to other banks and
companies   considering   that   the   amendments   and   certain
modifications which were necessary and were extensively required.
The   provisions   in   amended   form   in   their   application   to   the   cooperative banks were separately provided.   When the BR Act, 1949
was applied to the co­operative bank, all the provisions under the Act
concerning 'incorporation, regulation and winding up' were omitted
insofar as the Act of 1949 is applied to co­operative banks, though
they continue to exist in the Act for other entities but not concerning
co­operative  banks.    It  was  mentioned   in  the   advice   given   to   the
President under Article 117 that these matters were specifically not
covered under Entry 45 of List I of the Seventh Schedule and formed
the subject­matter of Entry 32 of List II.   Thus, when we apply the
provisions of the Act of 1949 to a co­operative bank, the definition of
'banking company' has to be read to include a co­operative bank.
121
Section 56(a) becomes part of Section 5(c), although it is located in a
separate place.  As only Part V of the Act applies to the co­operative
banks, Section 56(a) amends the definition of the 'banking company,'
and it becomes an integral part of Section 5(c), as the full effect is
required to be given.
71. The aspect of incorporation by reference of earlier Act into later
has been dealt with in the ‘Principles of Statutory Interpretation’, 12th
Edition 2010 by Justice G.P. Singh at pages 318­320 thus:
“Incorporation of an earlier Act into a later Act is a
legislative   device   adopted   for   the   sake   of
convenience in order to avoid verbatim reproduction
    of the provisions of the earlier Act into the later.39
When an earlier Act or certain of its provisions are
incorporated   by   reference   into   a   later   Act,   the
provisions so incorporated become part and parcel
of   the   later   Act   as   if   they   had   been   “bodily
    transposed into it”.40   The effect of incorporation is
admirably   stated   by   LORD   ESHER,   M.R.:   “If   a
subsequent Act brings into itself by reference some
of the clauses of a former Act, the legal effect of that,
as has often been held, is to write those sections
into the new Act as if they had been actually written
in it with the pen, or printed in it.”
41  The result is to
constitute the later Act along with the incorporated
39 Mary Roy v. State of Kerala, (1986) 2 SCC 209, p. 216 : AIR 1986 SC 1011;
Nagpur Improvement Trust v. Amrik Singh, AIR 2002 SC 3499, p. 3512 : (2002) 7
SCC 657.
40 Ramsarup v. Munshi, AIR 1963 SC 553, p. 558 : 1963 (3) SCR 858 ; Nagpur
Improvement Trust v. Amrik Singh, AIR 2002 SC 3499, p. 3512 : (2002) 7 SCC 657.
41 Re, Wood's Estate, Ex parte, Works and Buildings Commrs., (1886) 31 Ch D
607, p. 615; Ram Kripal Bhagat v. State of Bihar, AIR 1970 SC 951, p. 957 : (1969)
3 SCC 471; Bolani Ores Ltd. v. State of Orissa, AIR 1975 SC 17, p. 29 : 1975 (2)
SCR 138 : (1974) 2 SCC 777 ; Mahindra and Mahindra Ltd. v. Union of India, AIR
1979 SC 798, pp. 810, 811 : (1979) 2 SCC 529 ; Onkarlal Nandlal v. State of
Rajasthan, (1985) 4 SCC 404, p. 415 : AIR 1986 SC 2146; Surana Steels Pvt. Ltd.
v. Dy. Commissioner of Income­tax, AIR 1999 SC 1455, p. 1459 : (1999) 4 SCC 306
(p. 233 of 7th edition of this book is approvingly quoted).
122
provisions   of   the   earlier   Act,   an   independent
legislation which is not modified or repealed by a
modification   or   repeal   of   the   earlier   Act.42  As
observed   by   BRETT,   J.:   “Where   a   statute   is
incorporated, by reference, into a second statute,
the repeal of the first statute by a third does not
affect   the   second.”43    To   the   same   effect   is   the
statement by SIR GEORGE LOWNDES: “It seems to
be   no   less   logical   to   hold   that   where   certain
provisions   from   an   existing   Act   have   been
incorporated into subsequent Act, no addition to the
former Act, which is not expressly made applicable
to   the   subsequent   Act,   can   be   deemed   to   be
incorporated in it, at all events if it is possible for
the subsequent Act to function, effectually without
the addition.44 Ordinarily if an Act is incorporated in
a later Act, the intention is to incorporate the earlier
Act, with all the amendments made in it up to the
date of incorporation.45   The rule that the repeal or
amendment   of   the   Act   which   is   incorporated   by
reference   in   a   later   Act   is   not   applicable   for
purposes of the later Act is subject to qualifications
and exceptions.46   A distinction is in this context
drawn between incorporation and mere reference of
an   earlier   Act   into   a   later   Act.47    Further,   a
42 Narottamdas v. State of M.P., AIR 1964 SC 1667, p. 1670 : (1964) 7 SCR 820;
Bolani Ores Ltd. v. State of Orissa, supra; Mahindra and Mahindra Ltd. v. Union of
India, supra; Nagpur Improvement Trust v. Amrik Singh, supra ; Sneh Enterprises
v. Commr. of Customs, (2006) 7 SCC 714 (para 13) : (2006) 8 JT 587 : (2006) 7 SLT
615 (passage from 10th edition of this book is approvingly quoted).
43 Clarke v. Bradlaugh, (1881) 8 QBD 63, p. 69; referred to in Ramsarup v.
Munshi, AIR 1963 SC 553, p. 558 : (1963) 3 SCR 858; Collector of Customs,
Madras v. Nathelal Sampathu Chetty, AIR 1962 SC 316, p. 334 : (1962) 3 SCR 786.
See further Jethanand Betab v. State of Delhi, AIR 1960 SC 89, pp. 91, 92 : (1960)
1 SCR 755; Bolani Ores Ltd. v. State of Orissa, supra; Mahindra and Mahindra Ltd.
v. Union of India, supra; Nagpur Improvement Trust v. Amrik Singh, supra .
44 Secretary of State v. Hindustan Co­operative Insurance Society Ltd., AIR 1931
PC 149, p. 152. Referred to in Chairman of the Municipal Commrs. of Howrah v.
Shalimar Wood Products (Private) Ltd., AIR 1962 SC 1691, p. 1694 : 1963 (1) SCR
47; Bolani Ores Ltd. v. State of Orissa, AIR 1975 SC 17, p. 29 : 1974 (2) SCC 777 ;
Mahindra and Mahindra Ltd. v. Union of India, AIR 1979 SC 798, pp. 810, 811 :
(1979) 2 SCC 529.
45 State of Maharashtra v. Madhavrao Damodar Patil, AIR 1968 SC 1395, p. 1400 :
1968 (3) SCR 712.
46 See text and notes 9­41, pp. 324­332.
47 See text and notes 14­21, pp. 326­328.
123
distinction is also drawn when what is referred to is
not an earlier Act or any provision from it but law on
a   subject   in   general.48    There   is,   however,   no
controversy on the point that when any Act or rules
are adopted in any later Act or rules, such adoption
normally   whether   by   incorporation   or   mere
reference takes in all the amendments in the earlier
Act or rules till the date of adoption.49
”
The present one is a case of incorporation by reference in the
same   Act   by   a   subsequent   amendment   in   the   application   to   cooperative banks.  When we apply the provisions of Section 5(c) to the
co­operative banks, we have to read the co­operative banks as part
and   parcel   of   said   definition   as   mandated   statutorily.     In   case   a
company   is   not   taken   as   a   reference   to   the   co­operative
societies/banks   in   Section   5(c),   several   problems   as   to   the
interpretation   of   Section   56   would   arise.   It   would   have   become
necessary   to   amend   all   the   provisions   wherever   words   'banking
company' occur in the BR Act, 1949 in the application to co­operative
banks.
72. With respect to legislative device of incorporation by reference in
Mary Roy, etc. v. State of Kerala and Ors.50
, the Court held:
“7.  …   The   legislative   device   of   incorporation   by
reference   is   a   well­known   device   where   the
legislature instead of repeating the provisions of a
particular   statute   in  another   statute   incorporates
48 See text and notes 10­13, pp. 325, 326.
49 Rajasthan State Road Transport Corporation Jaipur v. Poonam Pahwa, AIR 1997
SC 2951, p. 2957 : 1997 (6) SCC 100. Also see text and note 80, supra.
[For convenience, citations have been renumbered.]
50 AIR 1986 SC 1011: (1986) 2 SCC 209
124
such provisions in the latter statute by reference to
the earlier statute. It is a legislative device adopted
for   the   sake   of   convenience   in   order   to   avoid
verbatim reproduction of the provisions of an earlier
statute in a later statute. But when the legislature
intends to adopt this legislative device the language
used by it is entirely distinct and different from the
one   employed   in   S.29   sub­sec.(2)   of   the   Indian
Succession Act, 1925. The opening part of S.29 subsec. (2) is intended to be a qualificatory or excepting
provision and not a provision for incorporation by
reference. We have no hesitation in rejecting this
contention urged on behalf of the respondents.”
73. In U.P. Avas Evam Vikas Parishad v. Jainul Islam and Anr.51
, it
was observed:
“The determination if a legislation was by way of
incorporation   or   reference   is   more   a   matter   of
construction   by   the   Courts   keeping   in   view   the
language   employed   by   the   Act,   the   purpose   of
referring or incorporating provision of an existing
Act and the effect of it on the day­to­day working.
Reason for it is the Courts prime duty to assume
that any law made by the Legislature is enacted to
serve public interest.”
74. In Portsmouth Corporation v. Smith52
, it was opined:
“Where a single section of an Act of Parliament is
introduced into another Act, I think, it must be read
in the sense which it bore in the original Act from
which   it   is   taken,   and   that   consequently   it   is
perfectly legitimate to refer to all the rest of that Act
in   order   to   ascertain   what   the   section   meant,
though those other sections are not incorporated in
the new Act.”
Lord Blackburn further observed thus:
“I do not mean that if there was in the original Act a
section not incorporated, which came by way of a
proviso or exception on that which is incorporated,
that should be referred to, but all others, including
the interpretation clause, if there be one, may be
51 AIR 1998 SC 1028
52 (1885) 10 AC 364
125
referred to. It is dangerous mode of draftsmanship
to   incorporate   a   section   from   a   former   Act,   for
unless   the   draftsman   has   a   much   clearer
recollection of the whole of the former Act than can
always   be   excepted,   there   is   great   risk   that
something   may   be   expressed   which   was   not
intended.””
75. In Surana Steels Pvt. Ltd. v. Dy. Commissioner of Income Tax and
Ors.53
,  it   was   held   that   provision   is   bodily   listed   and   stands
incorporated and plain rule of interpretation to be applied:
“12. Once we have ascertained the object behind the
legislation and held that the provisions of Section
205   quoted   hereinabove   stand   bodily   lifted   and
incorporated into the body of Section 115J of the
Income Tax Act, all that we have to do is to read the
provisions plainly and apply rules of interpretation if
any ambiguity survives. Section 205(1) first proviso
Clause   (b),   of   the   Companies   Act   brings   out   the
unabsorbed portion of the amount of depreciation
already provided for computing the loss for the year.
The words "the amount provided for depreciation"
and   "arrived   at   in   both   cases   after   providing   for
depreciation" make it abundantly clear that in this
clause "loss" refers to the amount of loss arrived at
after taking into account the amount of depreciation
provided in the profit and loss account.”
(emphasis supplied)
76. In Secretary of State v. Hindustan Cooperative Insurance Society
Ltd.54
, the Privy Council held:
“..........In this country it is accepted that where a
statute is incorporated by reference into a second
statute, the repeal of the first statute does not affect
the second: see the cases collected in “Craies on
Statute Law”. This doctrine finds expression in a
common form section which regularly appears in the
Amending   and   Repealing   Acts   which   are   passed
53 (1999) 4 SCC 306
54 AIR 1931 PC 149
126
from time to time in India. The section runs.
“The repeal by this Act of any enactment shall not
affect any Act in which such enactment has been
applied, incorporated or referred to;”
The   independent   existence   of   the   two   Acts   is
therefore recognized, despite the death of the parent
Act, its offspring survives in the incorporating Act.
Though   no   such   saving   clause   appears   in   the
General Clauses Act, their lordships think that the
principle involved is as applicable in India as it is in
this country.
It seems to be no less logical to hold that where
certain provisions from an existing Act have been
incorporated   into   a   subsequent   Act   which   is   not
expressly made applicable to the subsequent Act,
can be deemed to be incorporated in it, at all events
if it is possible for the subsequent Act to function
effectually without the addition.”
77. In Ram Sarup and Ors. v. Munshi and Ors.55
, it was opined:
“(11) The problem here raised is dependent upon
the   construction   which   the   several   provisions
which we have set out earlier would bear after the
repeal of the Punjab Alienation of Land Act, 1900.
One thing is clear and that is that the authority
which enacted the repeal of the Punjab Alienation
of Land Act did not consider that Punjab Act 1 of
1913   had   itself   to   be   repealed.   We   shall   now
consider   the   effect   of   the   repeal   of   the   Punjab
Alienation of Land Act with reference to each of the
provisions:—
(1) Definition of ‘agricultural land’ under S. 3(1):
Where the provisions of an Act are incorporated
by reference in a later Act the repeal of the earlier
Act has, in general, no effect upon the construction
or effect of the Act in which its provisions have
been incorporated. The effect of incorporation is
stated by Brett, L.J. in Clarke v Bradlugh, (1881) 8
QBD 63:
“Where   a   statute   is   incorporated,   by
reference, into a second statute the repeal of the
55 AIR 1963 SC 553
127
first   statute   by   a   third   does   not   affect   the
second.”
In the circumstances, therefore, the repeal of the
Punjab Alienation of Land Act of 1900 has no effect
on the continued operation of the Pre­emption Act
and the expression ‘agricultural land’ in the later
Act   has   to   be   read   as   if   the   definition   in   the
Alienation of Land Act had been bodily transposed
into it. Section 2 of the Punjab Alienation of Land
Act, 1900, as amended by Act 1 of 1907 defined
‘land’ as follows:
“The expression ‘land’ means land which is
not occupied as the site of any building in a
town   or   village   and   is   occupied   or   let   for
agricultural   purposes   or   for   purposes
subservient  to  agriculture  or for  pasture,  and
includes..................................................
………………………..”
It is not in dispute that the land concerned in
the   claim   for   pre­emption   made   in   the   appeal
satisfies this definition.”
78. It is apparent that in order to avoid verbatim reproduction of the
earlier provisions, which did not apply to a co­operative bank, a device
was   carved   out   in   Section   56(a)   to   read   'company'   as   'banking
company' or 'the company' or 'such company' as references to a cooperative bank.   If the definition in Section 5(c) and interpretation
clause are not read as incorporated and having been amended, the
interpretation clause and the entire amendment of Part V will become
unworkable.  It was not practical to amend the entire Act of 1949 as it
dealt with ‘incorporation, regulation and winding up’ of other entities
relatable to List I, as such the provisions were required to be retained,
and such matters  concerning co­operative societies/banks, relatable
128
subject­matter under Entry 32 of List I of the Seventh Schedule of the
Constitution of India, were to be excluded.  As various provisions were
to be omitted in their application to the co­operative societies and
other provisions were to apply in a modified form, the amendments
were made in the provisions in their application to the co­operative
banks by providing a separate Chapter. Thus, it was not considered
necessary nor would have been appropriate to amend the definition of
Section 5(c) where it existed, in fact it was so amended in Section
56(a).  Entire Chapter V was enacted concerning the application of the
Act to the co­operative banks and has to be given full effect.  Merely
because the procedure for recovery of dues is provided in the Cooperative   Societies   Act,   could   not   have   come   in   the   way   of
interpretation   of   that   expression   'co­operative   bank'   which   was
included in the definition and interpretation clause of Section 5 of the
BR Act, 1949.  It was open to the Parliament to deal with the subject
of 'banking' in Entry 45 of List I and this Court in  Greater Bombay
Coop. Bank Ltd. (supra) itself opined that the BR Act, 1949 applies to
co­operative banks which is the enactment related to Entry 45 of List I
and third proviso to Article 243­ZL(1) of the Constitution of India also
provides  that the  BR  Act  shall   also   apply.    Thus,  the  Parliament
considered   it   appropriate   to   provide   additional   remedy   for   speedy
recovery   which   is   an   alternative   even   if   there   is   an   incidental
encroachment on the field reserved for the State under Entry 32 of
129
List II, as in pith and substance, the 'banking' is part of Entry 45 of
List I and recovery procedure is covered within the ken of Entry 45 of
List I. Thus,  considering  the  Doctrine  of  Pith and  Substance  and
incorporation by amendment made, we are of the considered opinion
that co­operative banks are included in the definition of 'bank' and
'banking company' under Section 2(1)(c) and 2(1)(d) of the SARFAESI
Act.
79. In  Greater Bombay Coop. Bank Ltd.  (supra) concerning the BR
Act, 1949, it was held:
“39. Chapter V of the BR Act was inserted by Act 23
of   1965   w.e.f.   1­3­1966.   Section   56   of   the   Act
provides that the provisions of this Act, as in force
for the time being, shall apply to, or in relation to,
banking   companies   subject   to   the   following
modifications, namely:
“56.   (a)   throughout   this   Act,   unless   the   context
otherwise, requires,—
(i)   references   to   a   ‘banking   company’   or   ‘the
company’ or ‘such company’ shall be construed as
references to a cooperative bank;
(ii)* * *”
The   purpose   and   object   of   modifications   were   to
regulate the functioning of the cooperative banks in
the   matter   of   their   business   in   banking.   The
provisions of Section 56 itself start with the usual
phrase “unless the context otherwise requires” is to
make the regulatory machinery provided by the BR
Act to apply to cooperative banks also. The object
was not to define a cooperative bank to mean a
banking company, in terms of Section 5(c) of the BR
Act. This is apparent from the fact that instead of
amending   the   original   clause   (c)   of   Section   5
separate   clause   (cci)   was   added   to   cover   the
“cooperative   bank”   to   mean   “a   State   cooperative
bank,  a   Central  cooperative  bank   and  a  primary
cooperative   bank”.   In   clause   (ccv)   “primary
130
cooperative   bank”   means   “a   cooperative   society,
other   than   a   primary   agricultural   credit   society”.
The   primary   object   or   principal   business   of   the
“cooperative   bank”   should   be   the   transaction   of
banking business.
40. The modifications given in clause (a) of Section
56 are apparently suitable to make the regulatory
machinery   provided   by   the   BR   Act   to   apply   to
cooperative banks also in the process of bringing the
cooperative banks under the discipline of Reserve
Bank of India and other authorities. A cooperative
bank shall be construed as a banking company in
terms of Section 56 of the Act. This is because the
various   provisions   for   regulating   the   banking
companies   were   to   be   made   applicable   to
cooperative   banks   also.   Accordingly,   Section   56
brought cooperative banks within the machinery of
the   BR   Act   but   did   not   amend   or   expand   the
meaning of “banking company” under Section 5(c).
On a plain reading of every clause of Section 56 of
the BR Act, it becomes clear that what is contained
therein   is   only   for   the   purpose   of   application   of
provisions   that   regulate   banking   companies   to
cooperative   societies.   According   to   the   expression
“cooperative societies” used in Section 56 means a
“cooperative society”, the primary object or principal
business   of   which   is   the   transaction   of   banking
business. In other words, first it is a cooperative
society, but carrying on banking business having
the specified paid­up share capital. Other definitions
also   make   it   clear   that   the   entities   are   basically
cooperative societies.”
(a) Concerning   the   SARFAESI   Act,   following   observations   were
made:
“41. Parliament had enacted the Securitisation and
Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (“the Securitisation
Act”) which shall be deemed to have come into force
on 21­6­2002. In Section 2(d) of the Securitisation
Act same meaning is given to the words “banking
company” as is assigned to it in clause (e) of Section
5 of the BR Act. Again the definition of “banking
company”   was   lifted   from   the   BR   Act   but   while
defining “bank”, Parliament gave five meanings to it
131
under Section 2(c) and one of which is “banking
company”. The Central Government is authorised by
Section 2(c)(v) of the Act to specify any other bank
for the purpose of the Act. In exercise of this power,
the Central Government by notification dated 28­1­
2003, has specified “cooperative bank” as defined in
Section 5(cci) of the BR Act as a “bank” by lifting the
definition   of   “cooperative   bank”   and   “primary
cooperative   bank”   respectively   from   Section   56,
clauses 5(cci) and (ccv) of Part V. Parliament has
thus   consistently   made   the   meaning   of   “banking
company” clear beyond doubt to mean “a company
engaged in banking, and not a cooperative society
engaged in banking” and in Act 23 of 1965, while
amending   the   BR   Act,   it   did   not   change   the
definition in Section 5(c) or even in Section 5(d) to
include  cooperative   banks;   on  the  other  hand,  it
added a separate definition of “cooperative bank” in
Section   5(cci)   and   “primary   cooperative   bank”   in
Section 5(ccv) of Section 56 of Part V of the BR Act.
Parliament   while   enacting   the   Securitisation   Act
created   a   residuary   power   in   Section   2(c)(v)   to
specify any other bank as a bank for the purpose of
that Act and in fact did specify “cooperative banks”
by notification dated 28­1­2003.
42. The context of the interpretation clause plainly
excludes   the   effect   of   a   reference   to   banking
company   being   construed   as   reference   to   a
cooperative bank for three reasons: firstly, Section 5
is an interpretation clause; secondly, substitution of
“cooperative   bank”   for   “banking   company”   in   the
definition   in   Section   5(c)   would   result   in   an
absurdity   because   then   Section   5(c)   would   read
thus:   “cooperative   bank”   means   any   company,
which transacts the business of banking in India;
thirdly, Section 56(c) does define “cooperative bank”
separately   by   expressly   deleting/inserting   clause
(cci) in Section 5. Parliament in its wisdom had not
altered   or   modified   the   definition   of   “banking
company” in Section 5(c) of the BR Act by Act 23 of
1965.
43.  As   noticed   above,   “cooperative   bank”   was
separately defined by the newly inserted clause (cci)
and   “primary   cooperative   bank”   was   similarly
separately defined by clause (ccv). The meaning of
“banking company” must, therefore, necessarily be
132
strictly confined to the words used in Section 5(c) of
the BR Act. If the intention of Parliament was to
define   the   “cooperative   bank”   as   “banking
company”, it would have been the easiest way for
Parliament   to   say   that   “banking   company”   shall
mean “banking company” as defined in Section 5(c)
and shall include “cooperative bank” and “primary
cooperative bank” as inserted in clauses (cci) and
(ccv) in Section 5 of Act 23 of 1965.”
(b) Concerning incorporation by reference to Section 56 (a) of the BR
Act, 1949, it was opined:
“70.  The   dues   of   cooperatives   and   recovery
proceedings in connection therewith are covered by
specific Acts, such as the MCS Act, 1960 and the
APCS Act, 1964, which are comprehensive and selfcontained   legislations.   Similarly,   for   multi­State
cooperatives   there   is   a   specific   enactment   in  the
form   of   the   MSCS   Act,   2002   comprehensively
providing the legal framework in respect to issues
pertaining   to   such   cooperatives.   Therefore,   when
there   is   an   admittedly   existing   legal   framework
specifically   dealing   with   issues   pertaining   to
cooperatives   and   especially   when   the   cooperative
banks   are,   in   any   case,   not   covered   by   the
provisions of the RDB Act specifically, there is no
justification of covering the cooperative banks under
the   provisions   of   the   RDB   Act   by   invoking   the
doctrine of incorporation.”
(c) Regarding the definition of ‘banking company’ in the BR Act,
1949, it was observed:
“73.  The   RDB   Act   was   passed   in   1993   when
Parliament had before it the provisions of the BR Act
as amended by Act 23 of 1965 by addition of some
more clauses in Section 56 of the Act. Parliament
was fully aware that the provisions of the BR Act
apply   to   cooperative   societies   as   they   apply   to
banking companies. Parliament was also aware that
the definition of “banking company” in Section 5(c)
had not been altered by Act 23 of 1965 and it was
kept intact, and in fact additional definitions were
133
added   by   Section   56(c).   “Cooperative   bank”   was
separately defined by the newly inserted clause (cci)
and   “primary   cooperative   bank”   was   similarly
separately defined by clause (ccv). Parliament was
simply assigning a meaning to words; it was not
incorporating or even referring to the substantive
provisions of the BR Act. The meaning of “banking
company”   must,   therefore,   necessarily   be   strictly
confined to the words used in Section 5(c) of the BR
Act.   It   would   have   been   the   easiest   thing   for
Parliament   to   say   that   “banking   company”   shall
mean “banking company” as defined in Section 5(c)
and shall include “cooperative bank” as defined in
Section 5 (cci) and “primary cooperative bank” as
defined in Section 5(ccv). However, Parliament did
not do so. There was thus a conscious exclusion
and deliberate omission of cooperative banks from
the   purview   of   the   RDB   Act.   The   reason   for
excluding   cooperative   banks   seems   to   be   that
cooperative   banks   have   comprehensive,   selfcontained and less expensive remedies available to
them under the State Cooperative Societies Acts of
the   States   concerned,   while   other   banks   and
financial   institutions   did   not   have   such   speedy
remedies and they had to file suits in civil courts.
80.  As   already   pointed   out,   the   RDB   Act   is
consistent   with   the   general   banks   and   their
creditors/loanees   while   the   MCS   Act,   1960,   the
APCS   Act,   1964   and   the   MSCS   Act,   2002   are
concerned with the regulation of societies only. The
language   of   the   sections   in   these   enactments
defining   “banking   company”   is   plain,   clear   and
explicit.   It   does   not   admit   any   doubtful
interpretation as the intention of the legislature is
clear as aforesaid. It is well settled that the language
of the statutes is to be properly understood. The
usual presumption is that the legislature does not
waste its words and it does not commit a mistake. It
is presumed to know the law, judicial decisions and
general  principles   of   law.   The   elementary   rule   of
interpretation of the statute is that the words used
in the section must be given their plain grammatical
meaning. Therefore, we cannot afford to add any
words to read something into the section, which the
legislature had not intended.
134
81. Finally, it could not be said that amendments in
Chapter V, Section 56 of the BR Act by Act 23 of
1965 inserting “cooperative bank” in clause (cci) and
“primary   cooperative   bank”   in   clause   (ccv)   either
expressly or by necessary intendment (sic make the
RDB Act) apply to the cooperative banks transacting
business of banking.”
(d) The questions were answered thus:
“97.  For   the   reasons   stated   above   and   adopting
pervasive   and   meaningful   interpretation   of   the
provisions of the relevant statutes and Entries 43,
44 and 45 of List I and Entry 32 of List II of the
Seventh Schedule of the Constitution, we answer
the reference as under:
“Cooperative   banks”   established   under   the
Maharashtra Cooperative Societies Act, 1960 (the
MCS Act, 1960), the Andhra Pradesh Cooperative
Societies Act, 1964 (the APCS Act, 1964), and the
Multi­State Cooperative Societies Act, 2002 (the
MSCS   Act,   2002)   transacting   the   business   of
banking,   do   not   fall   within   the   meaning   of
“banking company” as defined in Section 5(c) of
the Banking Regulation Act, 1949 (the BR Act).
Therefore, the provisions of the Recovery of Debts
Due   to   Banks   and   Financial   Institutions   Act,
1993 (the RDB Act) by invoking the  doctrine of
incorporation are not applicable to the recovery of
dues by the cooperatives from their members.”
No   doubt   about   it   that   certain   observations   made   in   the
aforesaid decision support the case set up by the appellants. 
80. Before we deal with the decision, in Greater Bombay Coop. Bank
Ltd.  (supra),   it   was   noted   that   'co­operative   bank'   was   defined   in
Section 56(cci) of the BR Act, 1949; thus, the object was not to define
co­operative bank to mean banking company; that is why the original
Section 5(c) was not amended.  Another ground employed concerning
the definition of the 'co­operative bank' was that the modifications
135
made by way of Section 56 were apparently suitable to make the
regulatory machinery provided by the BR Act, 1949, to apply to cooperative banks also.   It was opined that a co­operative bank to be
construed as a banking company in terms of Section 56 of the BR Act,
1949, because various provisions were made applicable to co­operative
banks also.  At the same time, it was held that Section 56 brought cooperative banks within the machinery of the BR Act, 1949, but it did
not amend or expand the meaning of 'banking company' under Section
5(c).     It was further observed that the entities doing banking are
basically co­operative societies.  Regarding the SARFAESI Act, it was
observed in paragraph 41 of the decision quoted above that meaning
of 'banking company' is a company engaged in banking and not a 'cooperative society' engaged in banking.  The Parliament did not alter or
modify the meaning of 'banking company' under Section 5(c) of the BR
Act, 1949 by Act No.23 of 1965.  The meaning of 'banking company'
has to be confined to the words used in Section 5(c) of the BR Act,
1949.   It   was     emphasised   that   there   was   already   a   procedure
prescribed   for   recovery   of   dues   by   banks   under   the   Co­operative
Societies Act.  The RDB Act, 1993, refers to the transfer of 'every suit
or other proceeding pending before any court.' The word 'court' in the
context of the RDB Act, 1993, signifies 'civil court.' It is clear that the
Registrar   or   an   officer   designated   by   him   or   an   arbitrator   under
Sections   61,   62,   70,   and   71   of   the   Andhra   Pradesh   Co­operative
136
Societies Act, 1964 and under Section 91 and other provisions of
Maharashtra Co­operative Societies Act, 1960 are not 'civil courts.'
Thus, it was opined that the RDB Act, 1993 is consistent with the
general banks and their creditors/loaners where the Maharashtra Cooperative   Societies   Act,   1960;   the   Andhra   Pradesh   Co­operative
Societies   Act,   1964   and   the   MSCS   Act   are   concerned   with   the
regulation of co­operative societies only.  Due to the amendments in
Chapter V of the BR Act, 1949 inserting 'co­operative bank' in clause
(cci) to Section 56 and 'primary co­operative bank' in clause (ccv) to
Section 56 it could not be said that RDB Act, 1993 applies to the cooperative banks transacting the business of banking.
81. In Greater Bombay Coop. Bank Ltd. (supra), the provisions of the
BR Act, 1949 were simply noted; there was no in­depth consideration
of the various provisions and, more particularly of those contained in
Section 56 of the Act.   The main issue was whether the court had
jurisdiction or Debts Recovery Tribunal to recover the amount from
the debtor. In that connection, the question of application of RDB Act,
1993 to the co­operative societies constituted under MSCS Act as well
as State Co­operative Acts arose and also whether the State legislature
was competent to enact legislation concerning co­operative societies
incidentally transacting the business of banking in the light of Entry
32 of List II. The findings were recorded on various aspects with which
we are unable to agree.  The discussion on various issues was not in­
137
depth, could not be said to be binding. We have dealt with the various
questions with the help of various decisions of this Court, and we find
ourselves unable to agree with the conclusions recorded therein.  The
co­operative banks are doing the banking business, it could not be
said to be an incidental activity but main and only activity.  We are
unable to subscribe to the view taken in Greater Bombay Coop. Bank
Ltd. (supra) as the provisions were not correctly appreciated.
 
82. The reason is given in Greater Bombay Coop. Bank Ltd. (supra)
that comprehensive machinery is provided in the State Act, could not
have come in the way of Parliament enacting a law as to recovery
within the purview of 'banking' in Entry 45 of List I as the same is its
essential part.   Even incidental trenching upon other fields cannot
invalidate   legislation.     Equally   futile   is   the   argument   that   the
Parliament did not amend Section 5(c) of the BR Act, 1949; in fact, the
Parliament did so under Section 56(a) concerning its application to cooperative banks.  A large number of provisions added in Chapter V by
way of amending Section 56 cannot be ignored and set at naught.  The
extensive amendments made in Part V of the BR Act, 1949, have to be
given full effect.   In case co­operative banks are kept outside the
purview of the BR Act, 1949, and other legislation under Entry 45 and
RBI Act, no licence can be granted, and they cannot do banking as
that is not permissible without compliance of various provisions as
provided in the BR Act, 1949.   They would have to close down and
138
stop the business forthwith.
83. The   co­operative   banks,   which   are   governed   by   the   BR   Act,
1949, are involved in banking activities within the meaning of Section
5(b)   thereof.     They   accept   money   from   the   public,   repayable   on
demand   or   otherwise   and   withdrawal   by   cheque,   draft,   order   or
otherwise.   Merely by the fact that lending of money is limited to
members, they cannot be said to be out of the purview of banking.
They perform commercial functions.  A society shall receive deposits
and loans from members and other persons.  They give loans also, and
it is their primary function.  Thus, they are covered under 'banking' in
Entry 45 of List I.
IN REFERENCE QUESTION NOS. 3(a) AND 3(b)
84. Learned Counsel appearing on behalf of appellants argued that
securitisation is not a banking business.   The SARFAESI Act is to
regulate   securitisation   and   reconstruction   of   financial   assets.
Emphasis was laid on the financial assets and financial assistance.
The definition of 'debt' in Section 2(1)(ha) of the SARFAESI Act is the
same as defined in Section 2(g) of the RDB Act, 1993, the 'debt' is
defined as any liability which is claimed as due during any business
activity undertaken by the bank or the financial institution.   In our
opinion, the submission ignores and overlooks the purpose of the
SARFAESI   Act,   i.e.,   enforcement   of   security   interest,   and   that   is
139
precisely sought to be achieved by Section 13 without the intervention
of the court.   Since the activity of a co­operative bank is banking
regulated by the law enacted within the relatable Entry 45 of List I, we
find no reason as to why the Parliament lacked the competence to
enact the SARFAESI Act and to provide a procedure for the speedy
recovery   of   dues.     The   SARFAESI   Act   also   covers   the   activities
undertaken by the co­operative banks.   The co­operative banks are
doing banking business under Section 5(b) of the BR Act, 1949, and
the exclusion of the co­operative societies from Entry 43 of List I, does
not have any bearing regarding the interpretation of Entry 45 of List I.
85. Even assuming for the time being that definition of 'bank' in
Section 5(c) of the BR Act, 1949 did not cover the co­operative banks;
the expression 'bank' has been defined in the SARFAESI Act under
Section   2(1)(c),   and   the   provisions   contained   in   Section   2(1)(c)(v)
authorises the Central Government to specify 'such other bank' for
that Act.   Thus, the notification issued on 28.1.2003 notifying 'cooperative bank' as the 'bank' is covered by Entry 45 of List I as they
are regulated by the BR Act, 1949, and the RBI Act.  For the 'banking'
activity under Entry 45 of List I, the Parliament had the power to
enact such a provision defining 'bank' to authorise and prescribe the
recovery procedure for such a bank as provided in Section 13 of the
SARFAESI   Act;   However,   we   are   of   the   view   that   co­operative
societies/banks stand included by incorporation in Section 5(1)(c) of
140
the BR Act and the notification was issued ex abundanti cautela.  By
virtue   of   Section   56(a),   co­operative   banks,   as   defined   in   Section
56(cci) of the BR Act, 1949, are included in Section 5(1)(c).  Similarly,
multi­State co­operative banks were also covered.
86. The   earlier   procedure   for   recovery   of   dues   was   differently
provided for general banks and the co­operative banks through the
Civil Court or Tribunal.  In the SARFAESI Act, a procedure has been
prescribed   under   Section   13   without   the   intervention   of   the
court/tribunal   to   keep   pace   with   the   time.     Thus,   the   malady  of
inordinate delay with which the order of civil court suffered as well as
of the co­operative tribunals or summary procedure under the Cooperative Societies Act, was sought  to be redressed. Apart from that,
it is permissible for the Parliament to enact the law to provide recovery
procedures for bank dues that have been done by providing speedy
recovery of secured interest without intervention of the court/tribunal.
87. In  Soma Suresh Kumar v. Government of Andhra Pradesh and
Ors.56
, it was observed that there were several occasions when the laws
enacted by the State as well as by the banking regulation carved out
by Central Government acted in their field.  This Court considered the
Andhra Pradesh Protection of Depositors of Financial Establishments
Act, 1999, and the effects of the BR Act, 1949.  It was held that ambit
56 (2013) 10 SCC 677
141
of respective Acts and field covered is required to be considered and it
was permissible for the State legislature also to enact the provisions
notwithstanding the BR Act, 1949 with respect to the matters which
were   not   covered   by   the   said   Act   to   protect   the   interest   of   the
investors.  It was held that Andhra Pradesh Protection of Depositors of
Financial Establishments Act, 1999, did not create any repugnancy to
any Central law.  It was observed:
“6. Further, it is also pointed out that the Banking
Regulations   Act,   enacted   by   the   Central
Government, to regulate the operation of banking
companies   or   organisations,   enables   RBI   to   give
licence   to   banking   companies   to   carry   out   the
functions of the Bank. It was pointed out that it
covered different areas which are not common to the
area  covered  by  the  Andhra  Act. Further, it  was
pointed out that both the Acts have applicability to
different aspects of refund to the depositors. The
Banking   Regulations   Act,   it   is   pointed   out,   was
enacted to regulate the functioning of the banking
companies,   including   Vasavi   Cooperative   Urban
Bank Ltd. and that the petitioners have approached
this Court challenging the validity of the Act so as to
wriggle out of the clutches of law.”
88. In  K.K. Baskaran v. State Represented by its Secretary, Tamil
Nadu, and Ors.57
,  the question arose concerning T.N. Protection of
Interests of Depositors (in Financial establishments) Act, 1997.  The
said Act provided for a remedy to evils caused by fraudulent activities
of financial establishments for which no redressal mechanism was
provided in Central enactments.   It was held that T.N. Protection of
Interests of Depositors (in Financial establishments) Act, 1997, did not
57 (2011) 3 SCC 793
142
entrench the field occupied by Section 58­A of Companies Act, 1956
as the object of the 1997 Act was completely different.  The Doctrine of
Pith and Substance and its effect on the overlapping of fields occupied
by Central and State Lists was considered.  The relevant discussion is
extracted hereunder:
“18. It often happens that a legislation overlaps both
List I as well as List II of the Seventh Schedule. In
such   circumstances,   the   doctrine   of   pith   and
substance is applied. We are of the opinion that in
pith   and   substance   the   impugned   State   Act   is
referable to Entries 1, 30 and 31 of List II of the
Seventh Schedule and not Entries 43, 44 and 45 of
List I of the Seventh Schedule.
19.  It is well settled that incidental trenching in
exercise   of   ancillary   powers   into   a   forbidden
legislative   territory   is   permissible   vide   the
Constitution Bench decision of this Court in State of
W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201
[vide SCC paras 31(4), (5) & (6) and 129(5)]. Sharp
and   distinct   lines   of   demarcation   are   not   always
possible   and   it   is   often   impossible   to   prevent   a
certain amount of overlapping vide ITC Ltd. v. State
of Karnataka, 1985 Supp SCC 476 (SCC para 17).
We have to look at the legislation as a whole and
there is a presumption that the legislature does not
exceed its constitutional limits.
21. The doctrine of pith and substance means that
an enactment which substantially falls within the
powers   expressly   conferred   by   the   Constitution
upon a legislature which enacted it cannot be held
to   be   invalid   merely   because   it   incidentally
encroaches   on   matters   assigned   to   another
legislature.   The   Court   must   consider   what
constitutes in pith and substance the true subjectmatter of the legislation. If on such examination it is
found that the legislation is in substance one on a
matter assigned to the legislature then it must be
held to be valid even though it incidentally trenches
on matters beyond its legislative competence, vide
143
Union of India v. Shah Goverdhan L. Kabra Teachers’
College, (2002) 8 SCC 228 (SCC para 7).
22. For applying the doctrine of pith and substance
regard is to be had to the enactment as a whole, its
main   objects   and   the   scope   and   effect   of   its
provisions vide  Special Reference No. 1 of 2001, In
re,   (2004)   4   SCC   489   (SCC   para   15).   For   this
purpose the language of the entries in the Seventh
Schedule should be given the widest scope of which
the meaning is fairly capable, vide State of W.B. v.
Kesoram Industries Ltd., (2004) 10 SCC 201,  [SCC
para 31(4)],  Union of India  v.  Shah Goverdhan L.
Kabra Teachers’ College,  (2002) 8 SCC 228   (SCC
para 6) and  ITC Ltd.  v.  State of Karnataka,  1985
Supp SCC 476 (SCC para 17).”
89. In M/s. Ujagar Prints and Ors. (II) v. Union of India and Ors.58
, it
was laid down that entries in the State legislature should be liberally
construed and the Doctrine of Pith and Substance was considered
thus:
“48.  Entries   to   the   legislative   lists,   it   must   be
recalled, are not sources of the legislative power but
are merely topics or fields of legislation and must
receive a liberal construction inspired by a broad
and generous spirit and not in a narrow pedantic
sense. The expression “with respect to” in Article
246 brings in the doctrine of “Pith and Substance”
in   the   understanding   of   the   exertion   of   the
legislative   power   and   wherever   the   question   of
legislative competence is raised the test is whether
the legislation, looked at as a whole, is substantially
“with respect to” the particular topic of legislation. If
the legislation has a substantial and not merely a
remote connection with the entry, the matter may
well be taken to be legislation on the topic.”
90. In  Keshavlal Khemchand and Sons Private Limited and Ors. v.
58 (1989) 3 SCC 488
144
Union   of   India   and   Ors.59
,  the   object   of   the   SARFAESI   Act   was
explained thus:
“30.  The person advancing the money is generally
called a creditor and the person receiving the money
is generally called a borrower. The most simple form
of a loan transaction is a contract by which the
borrower agrees to repay the amount borrowed on
demand   by   the   creditor   with   such   interest   as
stipulated   under   the   agreement.   Such   a   loan
transaction may be attended by any arrangement of
a security like a mortgage or pledge, etc. depending
upon the agreement of the parties.
31. The Act provides for a mode of speedy recovery
of the monies due from the borrowers to one class of
creditors who are banks and financial institutions
(creditors).   Advances/Loans   made   by   creditors   to
businessmen   and   industrialists   are   generally   not
repayable on demand but repayable in accordance
with   a   fixed   time   schedule   agreed   upon   by   the
parties known as “term loans”:
“Term loans.—A loan may be made for a specified
period (a term loan). In such a case repayment is
due at the end of the specified period and, in the
absence of any express provision or implication to
the contrary, no further demand for repayment is
necessary.”
— Chitty on Contracts, Vol. II, 30th Edn., p. 913.
In   other   words,   such   loans   are   repayable   in
instalments over a period of time the terms of which
are evidenced by a written agreement between the
parties. A default in the repayment (in terms of the
agreed   schedule)   generally   provides   a   cause   of
action for the creditor to initiate legal proceedings
for   the   recovery   of   the   entire   amount   due   and
outstanding from the borrower. Normally such term
loans   are   also   accompanied   by   some   “security
interest” in a “secured asset” of the borrower. Such
a recovery is to be made normally by instituting a
suit for recovery of the amounts by enforcing the
“security interest”. The Recovery of Debts Due to
Banks and Financial Institutions Act, 1993 created
an exclusive forum for a speedy ascertainment of
the   amounts   actually   due   from   the   defaulting
59 (2015) 4 SCC 770
145
borrower   and   also   provided   for   a   mechanism   for
speedy recovery of the amounts so ascertained from
such borrowers.
32.  Since   such   a   system   was   also   found   to   be
inadequate for the speedy recovery of the monies
due from the borrowers to the creditors, Parliament
made   the   Act   under   which   the   process   of
ascertainment of the amounts due from a borrower
by an independent adjudicatory body is dispensed
with. The secured creditor is made the sole judge of
the amount due and outstanding from a borrower
subject to an appeal under Section 17 of the Act. Be
that as it may, such an ascertainment of amount
due and outstanding is not the only criterion on the
basis of which the secured creditor is entitled to
initiate proceedings under Section 13(4) of the Act,
but the secured creditor is also required to classify
the account of the borrower (asset of the creditor) as
an NPA. Dehors the Act, when the borrower of a
term loan defaults in the repayment, the creditor
can   initiate   legal   proceeding   straightaway   for
recovery of the amounts due and outstanding from
the   borrower.   The   Act   places   an   additional   legal
obligation  on the  creditor to examine  and  decide
whether the account of the borrower has become an
NPA before initiating action under the Act.”
91. The   Bombay   High   Court   in  The   Majoor   Sahakari   Bank   Ltd.
(supra) considered the question whether co­operative society carrying
on the banking business, considering its activity, could be termed as
industry   to   which   Bombay   Industrial   Disputes   Act   would   apply.
Though co­operative society was doing the business of banking, it was
submitted that nonetheless, it was a co­operative society to which the
provisions of the Bombay Industrial Disputes Act could not apply.
Considering the activity and definition of the 'company' as defined in
Halsbury's   Laws   of   England   as   an   association   of   a   number   of
146
individuals formed with a common purpose. The High Court opined
that   in   the   wide   and   proper   legal   sense,   the   petitioners   were   a
company although they may choose to call themselves a society or
even   if   Co­Operative   Societies   Act   requires   that   they   should   call
themselves   a   society.   However,   in   the   eye   of   the   law,   they   are   a
company when they were doing the business of banking.   Though
registered as a co­operative society, the provisions of industrial law
were held to be applicable.  The High Court also observed that there
was no special charm or magic in a company registered under the
Companies Act or the Co­operative Societies Act as far as the result of
registration is concerned. The High Court observed:
“(4) Now turning to the language of the notification
what is urged by Mr. Parpia is that the notification
only contemplates the Indian Companies Act and
Acts similar to that Act. In our opinion, there is no
reason why such a limited interpretation should be
put upon the general words used in the notification.
If the intention of the State Government was, that
the notification should only apply to the companies
registered under the Indian Companies Act or Acts
corresponding to Indian Companies Act nothing was
easier than for the Government to have stated so. If
the intention was to exclude the banking companies
registered under the Co­operative Societies Act that
also   could   have   been   set   out   in   the   notification
itself. Neither counsel has been able to draw our
attention to any Indian Legislation under which an
association   doing   banking   business   can   be
registered other than the Indian Companies Act and
the   Co­operative   Societies   Act.   Therefore,   nothing
was simpler or easier than for the State Government
to   have   stated   "doing   business   of   Banking
Companies registered under enactments other than
the   Co­operative   Societies   Act".   When   a   Court   is
called   upon   to   interpret   a   notification   which   is
capable of more than one meaning it is not amiss to
consider  the  reason   and   principle  underlying  the
147
notification. There is no reason or principle why a
co­operative society doing banking business should
be   put   on   a   different   footing   with   regard   to
industrial law from other companies doing identical
business.   There   is   no   reason   why   a   co­operative
banking society should treat its employees otherwise
than as laid down under the industrial law. If we
were   satisfied   that   there   was   some   reason   or
principle   which   would   lead   us   to   put   upon   this
notification   the   interpretation   which   Mr.   Parpia
suggests we might have put such an interpretation
on the notification, but all the considerations are in
favour of the interpretation suggested by Mr. Rane.
There is nothing in the notification which prevents
us   from   giving   the   interpretation   which   we   have
ultimately   decided   to   give   to   this   notification.
Therefore, we are of the opinion that the petitioners
are doing business of Banking and are registered
under an enactment relating to companies, which is
the Co­operative Societies Act. The learned Judge
was right in taking the view that he had jurisdiction
to deal with the matter. The petition fails and is
dismissed with costs.”
92. In  Jayant   Verma   and   Ors.   v.   Union   of   India   and   Ors.60
,  the
question arose concerning the applicability of Section 21A of the B.R.
Act, 1949.  In that context, the provisions of the B.R. Act, 1949, were
considered and it was held that enactment to be relatable to Entry 45
of List I and has to be given a wide meaning.  It was observed:
“16.  There   can   be   no   doubt   that   the  Banking
Regulation   Act   deals   with   the   subject   “banking”
insofar as it licenses banking companies, as defined,
and cooperative banks, and seeks to regulate them.
Section   21­A,   though   by   way   of   amendment,   is
undoubtedly an integral part of the aforesaid Act
relating to the interdict on the reopening of loan
transactions between a banking company and its
debtor,   on   the   ground   that   the   rate   of   interest
charged is excessive. There can be no doubt that a
law relating to indebtedness of a debtor to a banking
company and the interdict against a court reopening
60 (2018) 4 SCC 743
148
any such transaction, on the ground that interest
charged   by   the   banking   company   is   excessive,
would relate to the business of banking.  We must
not forget that the entries in the Lists to the Seventh
Schedule   have   to   be   read  in   the   widest   possible
manner,   and   we   have   seen   from   the   judgments
quoted by us above that the expression “banking”
contained in List I Entry 45 is to be given a wide
meaning. There can be no doubt that the statute as
a whole and the aforesaid section does fall within
List I Entry 45.”
(emphasis supplied)
93. In Federation of Hotel & Restaurant Association of India, etc. v.
Union of India and Ors.61
, the question of overlapping of the law was
considered with respect to a subject which might incidentally affect
another subject in some way or the other and held that that is not the
same   thing   as   the   law   being   on   the   latter   subject.     The   same
transaction may involve two or more taxable events in its different
aspects.
94. In Apex Cooperative Bank of Urban Bank of Maharashtra & Goa
Ltd.  (supra) the question arose concerning licensing of co­operative
societies by the Reserve Bank of India to carry on banking business
under  the   provisions   of   the   BR   Act,   1949.     It   was   held   that   cooperative banks, which are not State co­operative banks or Central cooperative banks or primary co­operative banks as defined in Section
56(cci) of B.R. Act, 1949, were not eligible for licensing.  The grant of
licence by Reserve Bank of India to co­operative banks, which were
61 (1989) 3 SCC 634
149
not registered under the Multi­State Co­operative Societies Act, 1984,
was not justified.   The powers of Reserve Bank of India under the
Multi­State Co­operative Societies Act were exercisable only for cooperative  banks, not to  any other co­operative societies  not doing
business of banking.  It was opined:
“25. Another aspect which must be noticed is that
in the Constitution of India, the subject pertaining
to co­operative societies is in the State List i.e. Entry
32 of List II of Schedule VII. The Union List has
Entry 44 of List I of Schedule VII which deals with
corporations. In this case we are not concerned with
the validity of a Central legislation and thus do not
deal with that aspect. For purpose of the judgment
we   will   take   it   that   a   co­operative   society   with
objects not confined to one State would fall within
the term corporation, and thus a Central legislation
may   be   saved.   However,   from   the   constitutional
provisions it is clear that matters pertaining to cooperative societies are in the State List. Thus many
States   have   enacted   laws   relating   to   co­operative
societies. We have not seen other Acts. However, as
this case concerns a society in Maharashtra, the
Maharashtra Cooperative Societies Act was shown
to us. Significantly, this law does not define a cooperative society. It did not need to, as a society
registered under it would be automatically covered.
The need to define a co­operative society arises only
in a Central legislation which does not cover all cooperative   societies   and  thus   needs   to  indicate   to
which society it applies."
95. In  Bharat Coop. Bank (Mumbai) Ltd. v. Coop. Bank Employees
Union62
,    the question arose concerning the Industrial Disputes Act,
1947 and the B.R. Act, 1949.  There was a reference in Section 2(bb)
of   Industrial   Disputes   Act,   1947,   to   the   definition   of   'banking
company' as defined in Section 5 of the B.R. Act, 1949.  It was held
62 (2007) 4 SCC 685
150
that   same   was   instance   of   legislation   by   incorporation   and   not
legislation by reference.  It was further opined that amendment to BR
Act, 1949 after Section 5 was incorporated in Section 2(bb), would not
have any effect on the expression 'banking company'.   This Court
further held that the I.D. Act was a complete and self­contained code
in itself, and its working was not dependent on the BR Act, 1949.
96. In  Reserve   Bank   of   India   v.   M.   Hanumaiah   and   Ors.63
,  the
question arose of supersession of the Committee of the management of
Co­operative Bank.   There was a written requisition from the Reserve
Bank of India to the Registrar, Co­operative Societies, to supersede the
management   under   Section   30(5)   of   the   Karnataka   Co­operative
Societies Act, 1959.  It was held that principles of natural justice were
not applicable, and the Committee of the management had no right of
hearing.     Thus,   there   are   various   instances   where   the   Central
legislation   has   controlled   co­operative   societies'   aspects   relating   to
banking.
97. In  State   of   Gujarat   and   Anr.   v.   Shri   Ambica   Mills   Ltd.,
Ahmedabad, and Anr.64
, the definition clause in a provision when it is
under inclusion and over­inclusive was considered, thus:
“54.   A   reasonable   classification   is   one   which
includes   all  who  are   similarly  situated   and   none
who are not. The question then is: what does the
63 (2008) 1 SCC 770
64 (1974) 4 SCC 656
151
phrase “similarly situated” mean? The answer to the
question   is   that   we   must   look   beyond   the
classification to the purpose of the law. A reasonable
classification is one which includes all persons who
are similarly situated with respect to the purpose of
the law. The purpose of a law may be either the
elimination of a public mischief or the achievement
of some positive public good.
55. A classification is under­inclusive when all who
are   included   in   the   class   are   tainted   with   the
mischief but there are others also tainted whom the
classification does not include. In other words, a
classification is bad as under­inclusive when a State
benefits   or   burdens   persons   in   a   manner   that
furthers a legitimate purpose but does not confer
the   same   benefit   or   place   the   same   burden   on
others who are similarly situated. A classification is
over­inclusive when it includes not only those who
are similarly situated with respect to the purpose
but others who are not so situated as well. In other
words, this type of classification imposes a burden
upon a wider range of individuals than are included
in the class of those attended with mischief at which
the law aims. Herod ordering the death of all male
children born on a particular day because one of
them   would   some   day   bring   about   his   downfall
employed such a classification.”
98. In  Girnar  Traders  (3)   v.  State  of  Maharashtra  and  Ors.65
,  the
question   of   incorporation   by   reference   and   Doctrine   of   Pith   and
Substance were considered thus:
“87. However, since this aspect was argued by the
learned counsel appearing for the parties at great
length,   we   will   proceed   to   discuss   the   merit   or
otherwise of this contention without prejudice to the
above   findings   and   as   an   alternative   plea.   These
principles  have   been  applied  by  the   courts  for  a
considerable   period   now.   When   there   is   general
reference in the Act in question to some earlier Act
but there is no specific mention of the provisions of
the   former   Act,   then   it   is   clearly   considered   as
legislation by reference. In the case of legislation by
65 (2011) 3 SCC 1
152
reference,   the   amending   laws   of   the   former   Act
would normally become applicable to the later Act;
but, when the provisions of an Act are specifically
referred and incorporated in the later statute, then
those   provisions   alone   are   applicable   and   the
amending provisions of the former Act would not
become   part   of   the   later   Act.   This   principle   is
generally called legislation by incorporation. General
reference, ordinarily, will imply exclusion of specific
reference   and   this   is   precisely   the   fine   line   of
distinction between these two doctrines. Both are
referential   legislations,   one   merely   by   way   of
reference   and   the   other   by   incorporation.   It,
normally, will depend on the language used in the
later law and other relevant considerations. While
the principle of legislation by incorporation has welldefined exceptions, the law enunciated as of now
provides   for   no   exceptions   to   the   principle   of
legislation by reference. Furthermore, despite strict
application of doctrine of incorporation, it may still
not   operate   in   certain   legislations   and   such
legislation   may   fall   within   one   of   the   stated
exceptions.
88.  In this regard, the judgment of this Court in
M.V. Narasimhan, (1975) 2 SCC 377, can be usefully
noticed   where   the   Court   after   analysing   various
judgments, summed up the exceptions to this rule
as follows: (SCC p. 385, para 15)
“(a) where the subsequent Act and the previous
Act are supplemental to each other;
(b) where the two Acts are in pari materia;
(c) where the amendment in the previous Act, if
not   imported   into   the   subsequent   Act   also,
would   render   the   subsequent   Act   wholly
unworkable and ineffectual; and
(d) where the amendment of the previous Act,
either   expressly   or   by   necessary   intendment,
applies the  said  provisions  to the  subsequent
Act.”
148.  Having   perused   and   analysed   the   various
judgments cited at the Bar we are of the considered
view that this rule is bound to have exceptions and
it cannot be stated as an absolute proposition of law
that   wherever   legislation   by   reference   exists,
subsequent   amendments   to   the   earlier   law   shall
stand implanted into the later law without analysing
153
the impact of such incorporation on the object and
effectuality of the later law. The later law being the
principal   law,   its   object,   legislative   intent   and
effective   implementation   shall   always   be   of
paramount   consideration   while   determining   the
compatibility of the amended prior law with the later
law as on relevant date.
173.  The  doctrine  of pith and substance can be
applied to examine the validity or otherwise of a
legislation for want of legislative competence as well
as where two legislations are embodied together for
achieving the purpose of the principal Act. Keeping
in   view   that   we   are   construing   a   federal
Constitution,   distribution   of   legislative   powers
between   the   Centre   and   the   State   is   of   great
significance. Serious attempt was made to convince
the Court that the doctrine of pith and substance
has a very restricted application and it applies only
to   the   cases   where   the   court   is   called   upon   to
examine the enactment to be ultra vires on account
of legislative incompetence.
174. We are unable to persuade ourselves to accept
this proposition. The doctrine of pith and substance
finds its origin from the principle that it is necessary
to examine the true nature and character of the
legislation to know whether it falls in a forbidden
sphere. This doctrine was first applied in India in
Prafulla Kumar Mukherjee v. Bank of Commerce Ltd.,
(1946­47) 74 IA 23 : AIR 1947 PC 60. The principle
has been applied to the cases of alleged repugnancy
and we see no reason why its application cannot be
extended even to the cases of present kind which
ultimately   relates   to   statutory   interpretation
founded on source of legislation.”
99.  We find that 'banking' relating to co­operatives can be included
within the purview of Entry 45 of List I, and it cannot be said to be
over inclusion to cover provisions of recovery by co­operative banks in
the SARFAESI Act. It cannot be said to be over­inclusion on the anvil
of the principles laid down by this Court.
154
100. Learned Counsel on behalf of appellants argued that notification
dated 28.1.2003 is ultra vires and beyond the purview of the parent
statute,  i.e.,   the   SARFAESI   Act.   The   amendment   is   colourable
legislation, and it encroaches upon a field outside its scope and is also
an indirect method of achieving the result of bringing 'co­operative
banks' within the purview of the SARFAESI Act and RDB Act, 1993
and is an attempt to regulate entities expressly excluded by Entry 43
of List I.   Reliance has been placed on  K.C. Gajapati Narayan Deo
(supra), in which it was held:
“(9) It may be made clear at the outset that the
doctrine of colourable legislation does not involve
any question of ‘bona fides’ or ‘mala fides’ on the
part of the legislature. The whole doctrine resolves
itself into the question of competency of a particular
legislature   to   enact   a   particular   law.   If   the
legislature is competent to pass a particular law, the
motives which impelled it to act are really irrelevant.
On   the   other   hand,   if   the   legislature   lacks
competency, the question of motive does not arise at
all. Whether a statute is constitutional or not is thus
always   a   question   of   power   Vide   Cooley’s
Constitutional   Limitations,   Vol.   1,   p.379.   A
distinction,   however,   exists   between   a   legislature
which   is   legally   omnipotent   like   the   British
Parliament   and   the   laws   promulgated   by   which
could   not   be   challenged   on   the   ground   of
incompetence, and a legislature which enjoys only a
limited or a qualified jurisdiction.
If   the   Constitution   of   a   State   distributes   the
legislative powers amongst different bodies, which
have to act within their respective spheres marked
out   by   specific   legislative   entries,   or   if   there   are
limitations on the legislative authority in the shape
of   fundamental   rights,   questions   do   arise   as   to
whether the legislature in a particular case has or
has   not,   in   respect   to   the   subject­matter   of   the
155
statute or in the method of enacting it, transgressed
the   limits   of   its   constitutional   powers.   Such
transgression may be patent, manifest or direct, but
it may also be disguised, covert and indirect and it
is to this latter class of cases that the expression
“colourable legislation” has been applied in certain
judicial pronouncements. The idea conveyed by the
expression is that although apparently a legislature
in  passing  a   statute  purported   to  act   within  the
limits of its powers, yet in substance and in reality it
transgressed these powers, the transgression being
veiled by what appears, on proper examination, to
be a mere pretence or disguise. As was said by Duff,
J. in — ‘Attorney­General for Ontario  v.  Reciprocal
Insurers’, 1924 A C 328 at p. 337 (B):
“Where the law making authority is of a limited or
qualified   character   it   may   be   necessary   to
examine with some strictness the substance of
the   legislation   for   the   purpose   of   determining
what is that the legislature is really doing.”
In other words, it is the substance of the Act that
is   material   and   not   merely   the   form   or   outward
appearance, and if the subject­matter in substance
is something which is beyond the powers of that
legislature to legislate upon, the form in which the
law is clothed would not save it from condemnation.
The   legislature   cannot   violate   the   constitutional
prohibitions by employing an indirect method. In
cases like these, the enquiry must always be as to
the   true   nature   and   character   of   the   challenged
legislation and it is the result of such investigation
and not the form alone that will determine as to
whether or not it relates to a subject which is within
the power of the legislative authority — ‘Vide 1924 A
C   328   p.   337   (B)’.   For   the   purpose   of   this
investigation the court could certainly examine the
effect of the legislation and take into consideration
its   object,   purpose   or   design   —   ‘Vide   AttorneyGeneral for Alberta v. Attorney­General for Canada’,
1939 A C 117 at p. 130 (C). But these are only
relevant   for   the   purpose   of   ascertaining   the   true
character and substance of the enactment and the
class   of   subjects   of   legislation   to   which   it   really
belongs and not for finding out the motives which
induced the legislature to exercise its powers.
156
It is said by Lefroy in his well­known work on
Canadian Constitution that even if the legislature
avow on the face of an Act that it intends thereby to
legislate in reference to a subject over which it has
no jurisdiction, yet if the enacting clauses of the Act
bring   the   legislation   within   its   powers,   the   Act
cannot   be   considered   ‘ultra   vires’   See   Lefroy   on
Canadian Constitution page 75.”
(emphasis supplied)
By   applying   the   aforesaid   principle,   the   provision   in
question/notification cannot be said to be colourable legislation.
101. In State of Tamil Nadu and Ors. v. K. Shyam Sunder and Ors.66
,
the   concept   of   colourable   legislation   was   considered   and   it   was
observed that the doctrine of malafides does not involve any question
of bonafide or malafide on the part of the legislature, and the Court is
concerned   with   a   limited   issue   of   competence   of   the   particular
legislature to enact a particular law.   The motive of the legislature
while enacting a law is inconsequential.  It was observed:
“37. It has consistently been held by this Court that
the   doctrine   of   mala   fides   does   not   involve   any
question of bona fide or mala fide on the part of
legislature as in such a case, the Court is concerned
to a limited issue of competence of the particular
legislature   to   enact   a   particular   law.   If   the
legislature   is   competent   to   pass   a   particular
enactment, the motives which impelled it to an act
are   really   irrelevant.   On   the   other   hand,   if   the
legislature lacks competence, the question of motive
does not arrive at all. Therefore, whether a statute is
constitutional or not is, thus, always a question of
power of the legislature to enact that statute. Motive
of   the   legislature   while   enacting   a   statute   is
inconsequential:   “Malice   or   motive   is   beside   the
point,   and   it   is   not   permissible   to   suggest
parliamentary incompetence on the score of mala
66 (2011) 8 SCC 737
157
fides.” The legislature, as a body, cannot be accused
of having passed a law for an extraneous purpose.
This kind of “transferred malice” is unknown in the
field of legislation. (See K.C. Gajapati Narayan Deo v.
State of Orissa, AIR 1953 SC 375, STO v. Ajit Mills
Ltd.,  (1977) 4 SCC 98, SCC p. 108, para 16,  K.
Nagaraj v. State of A.P., (1985) 1 SCC 523, Welfare
Assn., A.R.P.  v.  Ranjit P. Gohil,  (2003) 9 SCC 358
and  State   of   Kerala  v.  Peoples   Union   for   Civil
Liberties, (2009) 8 SCC 46).”
We find that  the SARFAESI Act qualifies the test of legislative
competence, as well as the definition, cannot be said to be colourable
piece or over­inclusive or beyond the competence of the Parliament.
102. Resultantly, we answer the reference as under:
(1)(a) The   co­operative   banks   registered   under   the   State
legislation and multi­State level co­operative societies registered
under the MSCS Act, 2002 with respect to 'banking' are governed
by the legislation relatable to Entry 45 of List I of the Seventh
Schedule of the Constitution of India.
(b)   The   co­operative   banks   run   by   the   co­operative   societies
registered under the State legislation with respect to the aspects
of 'incorporation, regulation and winding up', in particular, with
respect to the matters which are outside the purview of Entry 45
of List I of the Seventh Schedule of the Constitution of India, are
governed by the said legislation relatable to Entry 32 of List II of
the Seventh Schedule of the Constitution of India.
158
(2) The co­operative banks involved in the activities related to
banking are covered within the meaning of 'Banking Company'
defined under Section 5(c) read with Section 56(a) of the Banking
Regulation Act, 1949, which is a legislation relatable to Entry 45
of List I. It governs the aspect of 'banking' of co­operative banks
run by the co­operative societies.  The co­operative banks cannot
carry on any activity without compliance of the provisions of the
Banking Regulation Act, 1949 and any other legislation applicable
to such banks relatable to 'Banking' in Entry 45 of List I and the
RBI Act relatable to Entry 38 of List I of the Seventh Schedule of
the Constitution of India.
(3)(a) The   co­operative   banks   under   the   State   legislation   and
multi­State co­operative banks are ‘banks’ under section 2(1)(c) of
Securitisation   and   Reconstruction   of   Financial   Assets   and
Enforcement of Security Interest Act, 2002.   The recovery is an
essential   part   of   banking;   as   such,   the   recovery   procedure
prescribed under section  13 of the SARFAESI Act, a legislation
relatable   to   Entry   45     List  I   of   the   Seventh   Schedule   to   the
Constitution of India, is applicable.
(3)(b) The Parliament has legislative competence under Entry 45 of
List I of the Seventh Schedule of the Constitution of India to
provide additional procedures for recovery under section 13 of the
159
Securitisation   and   Reconstruction   of   Financial   Assets   and
Enforcement of Security Interest Act, 2002 with respect to cooperative   banks.     The   provisions   of   Section   2(1)(c)(iva),   of
Securitisation   and   Reconstruction   of   Financial   Assets   and
Enforcement of Security Interest Act, 2002, adding “ex abundanti
cautela”, ‘a multi­State co­operative bank’ is not ultra vires as well
as the notification dated 28.1.2003 issued with respect to the cooperative banks registered under the State legislation. 
The civil appeals, writ petitions and the pending applications, if
any, are disposed of accordingly. No costs.
       ..............................J.
  (Arun Mishra)
                  ...............................J.
  (Indira Banerjee)
...............................J.
(Vineet Saran)
                ...............................J.
(M.R. Shah)
New Delhi;               ...............................J.
May 05, 2020.       (Aniruddha Bose)