2023 (3) TMI 731 - HC - Indian Laws

Doctrine of Eclipse (any law which is inconsistent with fundamental rights is not invalid) - Constitutional validity of the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act, 2011 and Telangana Micro Finance Institutions (Regulation of Money Lending) Act, 2011 - Challenge on the ground that it was beyond the legislative competence of the Andhra Pradesh Legislature - HELD THAT - Though the initial challenge to the 2011 Act was on the ground of lack of legislative competence, during pendency of the writ petitions, Supreme Court in Nedumpalli Finance Company Limited v. State of Kerala 2022 (5) TMI 702 - SUPREME COURT , declared the Gujarat Money Lenders Act, 2011 (Gujarat Act) as unconstitutional. The aspect relating to protecting the interest of the borrowers which is sought to be achieved by the State enactments gets subsumed in the provisions of Chapter III-B of the RBI Act. Thereafter Supreme Court adverted to the doctrine of eclipse and observed that while the RBI Act is traceable only to the entries in List-I, the State enactments are traceable only to entries in List-II. Therefore, question of repugnancy under Article 254 of the Constitution would not arise. Nonetheless Supreme Court held that Section 45-Q of the RBI Act confers overriding effect upon Chapter III-B of the RBI Act over other laws. Besides, Chapter III-B is a complete Code in itself. Rejecting the contention of the States of Gujarat and Kerala that the laws enacted by them are in addition to the provisions of Chapter III-B, Supreme Court held that provisions of Chapter III-B would eclipse the provisions of the State enactments insofar NBFCs are concerned - Finally, Supreme Court held that the Kerala Act and the Gujarat Act would have no application to NBFCs registered under the RBI Act and regulated by the RBI Act. Consequently, all the appeals filed by NBFCs against the judgment of the Kerala High Court were allowed and all the appeals filed by the State of Gujarat against the judgment of the Gujarat High Court were dismissed. Following the decision of the Supreme Court in Nedumpalli Finance Company Limited it is held that NBFCs operating in the States of Telangana and Andhra Pradesh registered with the RBI would be excluded from the purview of the above two enactments. In other words, the two enactments will have no application to NBFCs operating in the two States of Telangana and Andhra Pradesh which are registered under the RBI Act and regulated by RBI. Petition disposed off.

Summary

Issues involved:
Constitutional validity of Andhra Pradesh Micro Finance Institutions Act, 2011; Legislative competence; Applicability of State enactments to NBFCs registered under RBI Act; Comparison with Kerala and Gujarat Acts.

Detailed Analysis:
1. The initial writ petitions challenged the constitutional validity of the Andhra Pradesh Micro Finance Institutions Act, 2011, claiming it was beyond the legislative competence of the Andhra Pradesh Legislature. The petitioners were Non-Banking Financial Corporations (NBFCs) regulated by the RBI.

2. The High Court previously disposed of the writ petitions due to a pending Central Bill in 2012. However, the Supreme Court later overturned this decision, directing the High Court to reconsider the legislative competence issue.

3. Following the bifurcation of Andhra Pradesh into Telangana and Andhra Pradesh, the Telangana Micro Finance Institutions Act, 2011 was enacted. The Supreme Court's decision in a related case highlighted the legislative competence of states to regulate money lending businesses.

4. The Supreme Court's judgment in the Nedumpalli Finance Company case clarified that NBFCs regulated by the RBI are not subject to State enactments like the Kerala and Gujarat Acts. The Court emphasized the supervisory role of the RBI over NBFCs, rendering State laws redundant in protecting borrowers' interests.

5. Upon examining the Andhra Pradesh and Telangana Micro Finance Institutions Acts, the High Court found them similar to the Kerala and Gujarat Acts. Consequently, the Court held that NBFCs in Telangana and Andhra Pradesh registered with the RBI are exempt from the two State Acts.

6. The High Court disposed of the writ petitions accordingly, following the Supreme Court's precedent. No costs were awarded, and pending miscellaneous applications were closed.

This summary provides a detailed analysis of the judgment, covering the issues of legislative competence, applicability of State enactments to NBFCs, and the comparison with similar Acts in Kerala and Gujarat.