2012 (9) TMI 1108 - HC - Indian Laws

GML Act Gujarat Money-Lenders Act, 2011 is ultra vires the Constitution of India for legislative incompetence of the State Legislature only to the extent it seeks to have control over the NBFCs registered under the RBI Act in the matter of carrying on their business under Chapter IIIB of the RBI Act. The State Respondent is restrained from applying the provisions of the GML Act against the petitioners while carrying on their activities governed under Chapter IIIB of the RBI Act.

Summary

Issues Involved:
1. Applicability of the principle of res judicata.
2. Legislative competence and repugnancy between the Gujarat Money-Lenders Act, 2011 (GML Act) and the Reserve Bank of India Act, 1934 (RBI Act).
3. Constitutionality of the GML Act concerning Non-Banking Financial Companies (NBFCs).

Issue-wise Detailed Analysis:

1. Applicability of the Principle of Res Judicata:
The court determined that the principle of res judicata does not apply in this case. The previous judgment by a Division Bench did not consider the GML Act as it was not in existence at that time. The earlier proceedings focused on the Bombay Money Lenders Act (BML Act) and its applicability to the petitioner. The court emphasized that res judicata does not apply to pure questions of law, as seen in the Supreme Court Employees Welfare Association vs. Union of India case. Therefore, the previous decision cannot be considered res judicata in the present proceedings.

2. Legislative Competence and Repugnancy Between GML Act and RBI Act:
The court examined whether the GML Act encroaches upon the legislative field of the Parliament, specifically concerning NBFCs. The RBI Act, under Entries 38 and 43 of List I of the 7th Schedule of the Constitution, governs the regulation of NBFCs. The GML Act, under Entry 30 of List II, deals with money-lending and money-lenders. The court found that the GML Act and the RBI Act operate in distinct fields, with the RBI Act focusing on depositors' interests and the GML Act on borrowers' interests. However, the court held that the GML Act encroaches upon the provisions of the RBI Act by automatically registering NBFCs under the GML Act. This automatic registration imposes additional restrictions on NBFCs, which is not permissible as it conflicts with the RBI Act's provisions.

3. Constitutionality of the GML Act Concerning NBFCs:
The court declared that the GML Act is ultra vires the Constitution of India to the extent it seeks to control NBFCs registered under the RBI Act in their business activities under Chapter IIIB of the RBI Act. The court emphasized that NBFCs, regulated by the RBI, should not be subjected to the GML Act's provisions. The court recognized that while the State Legislature has the competence to enact laws relating to money-lending, it cannot impose restrictions on NBFCs already regulated by the RBI Act. The court restrained the State Respondent from applying the GML Act against the petitioners in their activities governed under Chapter IIIB of the RBI Act.

Conclusion:
The court allowed the Special Civil Applications with the declaration that the GML Act is ultra vires the Constitution of India for legislative incompetence concerning NBFCs. The State Respondent is restrained from applying the GML Act against the petitioners while carrying on their activities governed under Chapter IIIB of the RBI Act. No costs were awarded.