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2016 (12) TMI 1017 - SC - Indian LawsApplicability of Key provisions of SARFAESI ACT to the J&K - legislative competence of Parliament - whether SARFAESI cannot be held to apply to the State of Jammu & Kashmir? - Held that - Section 140 of the Transfer of Property Act of Jammu & Kashmir will be respected in auction sales that take place within the State. This being the case, it is clear that there is no collision or repugnancy with any of the provisions of SARFAESI, and therefore it is clear that the High Court is absolutely wrong in finding that as Section 140 of the Transfer of Property Act will be infracted, SARFAESI cannot be held to apply to the State of Jammu & Kashmir. The High court judgment begins from the wrong end and therefore reaches the wrong conclusion. It states that in terms of Section 5 of the Constitution of Jammu & Kashmir, the State has absolute sovereign power to legislate in respect of laws touching the rights of its permanent residents qua their immovable properties. The State legislature having enacted Section 140 of the Jammu & Kashmir Transfer of Property Act, therefore, having clearly stated that the State s subjects/citizens are by virtue of the said provision protected, SARFAESI cannot intrude and disturb such protection. The whole approach is erroneous. As has been stated hereinabove, Entries 45 and 95 of List I clothe Parliament with exclusive power to make laws with respect to banking, and the entirety of SARFAESI can be said to be referable to Entry 45 and 95 of List I, 7th Schedule to the Constitution of India. This being the case, Section 5 of the Jammu & Kashmir Constitution will only operate in areas in which Parliament has no power to make laws for the State. Thus, it is clear that anything that comes in the way of SARFAESI by way of a Jammu & Kashmir law must necessarily give way to the said law by virtue of Article 246 of the Constitution of India as extended to the State of Jammu & Kashmir, read with Section 5 of the Constitution of Jammu & Kashmir. This being the case, it is clear that Sections 13(1) and (4) cannot be held to be beyond the legislative competence of Parliament as has wrongly been held by the High Court. It is thus clear that the State of Jammu & Kashmir has no vestige of sovereignty outside the Constitution of India and its own Constitution, which is subordinate to the Constitution of India. It is therefore wholly incorrect to describe it as being sovereign in the sense of its residents constituting a separate and distinct class in themselves. The residents of Jammu & Kashmir, we need to remind the High Court, are first and foremost citizens of India.
Issues Involved:
1. Legislative competence of Parliament in enacting SARFAESI Act in relation to the State of Jammu & Kashmir. 2. Conflict between SARFAESI Act and Section 140 of the Jammu & Kashmir Transfer of Property Act, 1920. 3. Applicability of Article 370 in the context of SARFAESI Act. 4. Interpretation of Entries 45 and 95 of List I of the 7th Schedule of the Constitution of India. 5. The role and extent of the Constitution (Application to Jammu & Kashmir) Order, 1954. 6. Sovereignty and legislative power of the State of Jammu & Kashmir under its own Constitution. Detailed Analysis: 1. Legislative Competence of Parliament in Enacting SARFAESI Act: The Supreme Court examined whether the SARFAESI Act falls within the legislative competence of Parliament concerning the State of Jammu & Kashmir. The Court noted that SARFAESI is enacted under Entry 45 (Banking) and Entry 95 (Jurisdiction and powers of all courts except the Supreme Court) of List I of the 7th Schedule. The Court affirmed that recovery of debts by banks is an essential function of banking, thus falling under Entry 45. The Court held that SARFAESI, in pith and substance, relates to banking and not to the transfer of property, making it within the legislative competence of Parliament. 2. Conflict Between SARFAESI Act and Section 140 of the Jammu & Kashmir Transfer of Property Act, 1920: The Supreme Court addressed the conflict between SARFAESI and Section 140 of the Jammu & Kashmir Transfer of Property Act, which restricts the transfer of immovable property to non-permanent residents. The Court referred to Rule 8(5) proviso of the Security Interest (Enforcement) Rules, 2002, which respects the provisions of the Jammu & Kashmir Transfer of Property Act. The Court concluded that there is no collision or repugnancy between SARFAESI and Section 140, and thus, SARFAESI can be applied in Jammu & Kashmir. 3. Applicability of Article 370 in the Context of SARFAESI Act: The Court analyzed the role of Article 370, which grants special status to Jammu & Kashmir. It clarified that Article 370 allows the President to apply provisions of the Indian Constitution to Jammu & Kashmir with modifications. The Constitution (Application to Jammu & Kashmir) Order, 1954, extended various provisions, including Entries 45 and 95 of List I, to the State. The Court rejected the argument that Parliamentary legislation requires the State Government's concurrence every time a law is enacted, affirming that once a matter is specified by a Presidential Order, no further concurrence is needed. 4. Interpretation of Entries 45 and 95 of List I of the 7th Schedule of the Constitution of India: The Supreme Court emphasized that Entries 45 and 95 should be given a wide interpretation. It reiterated that "banking" includes all matters incidental to it, such as the recovery of debts. The Court referred to previous judgments, including Union of India v. Delhi High Court Bar Association and Central Bank of India v. State of Kerala, to support its conclusion that SARFAESI falls within these entries. 5. The Role and Extent of the Constitution (Application to Jammu & Kashmir) Order, 1954: The Court noted that the 1954 Order extended the provisions of the Indian Constitution to Jammu & Kashmir, including Entries 45 and 95 of List I. The Order, as amended, applied most of the Union List and Concurrent List entries to the State, excluding certain entries. The Court highlighted that the entire Constitution of India, as it existed in 1964, was made applicable to Jammu & Kashmir, subject to exceptions and modifications. 6. Sovereignty and Legislative Power of the State of Jammu & Kashmir under its Own Constitution: The Supreme Court clarified that the State of Jammu & Kashmir is an integral part of India, and its Constitution is subordinate to the Indian Constitution. The Court rejected the High Court's assertion of the State's absolute sovereign power, emphasizing that the residents of Jammu & Kashmir are citizens of India. The Court reiterated that Section 5 of the Jammu & Kashmir Constitution operates only in areas where Parliament has no power to legislate. Conclusion: The Supreme Court set aside the judgment of the High Court, holding that SARFAESI is within the legislative competence of Parliament and can be applied to Jammu & Kashmir. The Court affirmed that the provisions of SARFAESI do not conflict with Section 140 of the Jammu & Kashmir Transfer of Property Act and that the special status of Jammu & Kashmir under Article 370 does not limit Parliament's power to enact SARFAESI. The appeals were allowed, and the notices issued by banks under SARFAESI were validated.
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