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X X X X Extracts X X X X X X X X Extracts X X X X ..... ad Kumar Singhania, AOR, Ms. Rashmi Singhania, Adv., Ms. Vanshaja Shukla, AOR, Mr. Rameshwar Prasad Goyal, AOR, Mr. Harish Pandey, AOR, Mr. H. Chandra Sekhar, AOR, Mrs. Rekha Chandra Sekhar, Adv., Mr. Karri Venkata Reddy, Adv., Mr. Chirag M. Shroff, AOR, Ms. Yashika Verma, Adv., Ms. Abhilasha Bharti, Adv., Mr. M.A. Chinnasamy, AOR, Mr. Arvind Gupta, AOR, Mr. Sandeep Kumar Singh, Adv., Mr. Piyush Sharma, Adv., Mr. Anil Kumar Sahu, Adv., Ms. Meera Mathew, Adv., Mr. Malay Swapnil. Adv., Mr. Prakash Gautam, Adv., Mr. Sujeet Kumar, Adv., Mr. J.N. Pathak, Adv., Mr. Sunil Kumar Pandey, Adv., Mr. Amol Nirmalkumar Suryawanshi, AOR, Ms. Nirmal Goenka, Adv., Mr. S. Sada Siva Reddy, Adv., Mr. Karri Venkata Reddy, Adv., Mrs. S. Usha Reddy, AOR, Mr. Santosh Krishnan, AOR, Mr. S. S. Ray, Adv., Ms. Rakhi Ray, AOR, Mr. Abhay Kumar, AOR, Mr. M.J. Paul, AOR, Mr. Renjith. B, AOR, Mrs. Lakshmi N. Kaimal, Adv., Mr. Jayakrishnan U., Adv., Mr. Mahendra Kumawat, Adv., Mr. Subodh S. Patil, AOR, Ms. Supriya Patil, Adv., Mr. Ajay Kumar Singh, Adv., Mr. Garvesh Kabra, AOR, Mrs. Pooja Kabra, Adv., Ms. Nikita Jaju, Adv., Mr. Abhishek Jaju, Adv., Mr. Harshvardhan Jha, Adv., Mr. Anup Lohiya, Adv., Mr. Adarsh Upadh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Mr. Pratap Venugopal, Adv., Ms. Surekha Raman, Adv., Ms. Ayushi Gaur, Adv., Mr. Akhil Abraham Roy, Adv., Mr. Vijay Valsan, Adv., M/S. K.J. John and Co., Mr. A.N. Arora, AOR, Mr. Piyush Sharma, AOR, Mr. M.T. George, AOR, Mrs. Susy Abraham, Adv., Mr. Johns George, Adv., Mr. Aniruddha P. Mayee, AOR, Mr. A. Rajarajan, Adv., Ms. N. Annapoorani, AOR, Mr. D. Bharat Kumar, Adv., Mr. Prasanna Kumar Parhi, Adv., Mr. Tadimalla Baskar Gowtham, Adv., Mr. Aman Shukla, Adv., Mr. D.V. Raghu Vamsu, Adv., Mr. Siddhartha Sinha, Adv., Mr. Hathindra Manda, Adv., Mr. Abhijit Sengupta, AOR, Mr. Anil Kumar Mishra, AOR, Mr. Anurag Singh, Adv., Ms. Praveena Gautam, AOR, Mr. Pawan Shukla, Adv., Ms. Sweety Pandey, Adv., Mr. Raja Ram, Adv., Mr. M. Khairati, Adv., Mr. Irshad Ahmad, AOR, Mr. Aniruddha A. Joshi, Adv., Mr. Rajeev Maheshwaranand Roy, AOR, Mr. Gunjan Kumar, Adv., Mr. P. Srinivasan, Adv., Mr. Navjeet Giri, Adv., Mr. Rajeev K. Panday, Adv., Mr. V.N. Raghupathy, AOR, Mr. Manendra Pal Gupta, Adv., Mr. S.N. Bhat, AOR, Ms. Hemantika Wahi, AOR, Mr. Chinmoy Khaladkar, Adv., Ms. Neha Sharma, Adv., Mr. Deeptakirti Verma, AOR, Mr. Rajiv Shankar Dvivedi, AOR, Mr. Praveen Satale, Adv., Ms. Anuradha Mutatkar, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ukhmini Bobde, Adv., Mr. Aviral Kapoor, Adv., Ms. Shagufa Salim, Adv., Mr. Nivesh Kumar, Adv., Ms. Riya Dhingra, Adv., Mr. Satyavir Yadav, Adv., Mr. Vishal Prasad, AOR, Mr. Anil Nag, AOR, Mr. Arjun Vinod Bobde, Adv., Ms. Richa Relhan, Adv., Mr. Sathak Bhatia, Adv., Mr. S. Bushra Kazim, Adv., Mr. Rajat Joseph, AOR, Mr. Suresh Dutt Dobhal, AOR, Ms. Shreya Tandon, Adv., Mr. Anil Kumar Sangal, AOR, Mr. Harish Pandey, AOR, Ms. Pratibha Jain, AOR, Mr. Vijay Kumar, AOR, Mr. Dharmendra Kumar Sinha, AOR, Mr. Shashibhushan P. Adgaonkar, Adv., Mr. Rahul Chitnis, Adv., Mr. Sachin Patil, Adv., Mr. T.L.V. Rama Chari, Adv., Mr. Hitesh Kumar Sharma, Adv., Mr. Akhileshwar Jha, Adv., Mr. T. Ramamurty, Adv., Ms. Sushma Suri, Adv., Mr. Shreekant N. Terdal, Adv., Mr. Tanvir Nayar, Adv., Mr. Praful Sinha, Adv., Mr. Manoj Kr. Mishra, AOR, M/s. Udit Kishan Associates, Mr. Ankur S. Kulkarni, AOR, Mr. M. P. Vinod, AOR, Ms. Chandan Ramamurthi, AOR, Ms. Charu Mathur, AOR, Mr. Yadav Narender Singh, AOR, Ms. E. R. Sumathy, AOR, Mr. Sarad Kumar Singhania, AOR, Ms. Vanshaja Shukla, AOR, Mr. Harish Pandey, AOR, Mr. H. Chandra Sekhar, AOR, Mr. M. A. Chinnasamy, AOR, Mr. Arvind Gupta, AOR, Mr. Amol Nirmalkumar Surya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irag M. Shroff, AOR, Mr. Anil Kumar Sangal, AOR, Mr. Harish Pandey, AOR, Ms. Pratibha Jain, AOR, Mr. Dharmendra Kumar Sinha, AOR, M/s. Udit Kishan Associates, AOR And Mr. Manoj Kr. Mishra, AOR JUDGMENT 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. (2007) 6 SCC 236, Delhi Cloth & General Mills Co. Ltd. v. Union of India and Ors. (1983) 4 SCC 166, T. Velayudhan Achari and Anr. v. Union of India and Ors. (1993) 2 SCC 582, and Union of India and Anr. v. Delhi High Court Bar Association and Ors. (2002) 4 SCC 275. 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 co-operative banks. 1. The Parliament's competence to amend Section 2(c) of the SARFAESI Act by adding subclause '(iva) a multi-State co-operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perative 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 co-operative banks from their members. The field of co-operative societies cannot be said to have been covered by the Central legislation by reference to Entry 45 of List I of the Seventh Schedule of the Constitution of India. Co-operative banks constituted under the Co-operative Societies Acts enacted by the respective States would be covered by 'co-operative 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erpreted 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 India (1970) 1 SCC 248 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 Bengal AIR 1961 Calcutta 666 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. (2010) 10 SCC 1, wherein it was emphasised that even if a company was doing different businesses in addition to clause (a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifference 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 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 Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -operative 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 co-operative 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. (2002) 9 SCC 232 (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 Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. There is a difference in the Entries 43, 44 and 32 as held in S.S. Dhanoa v. Municipal Corporation, Delhi and Ors. (1981) 3 SCC 431, Daman Singh and Ors. v. State of Punjab and Ors. (1985) 2 SCC 670, and Dalco Engineering Private Limited v. Satish Prabhakar Padhye and Ors. (2010) 4 SCC 378 Ltd. (supra). 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. 9. Shri Vijay Kumar, learned counsel appearing on behalf of petitioners, submitted that Parliament is not competent to enact laws concerning co-operative societies/banks. Banking business for a co-operative society is merely an incidental/ancillary business. A co-operative society doing business remains a co-operative 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. (2006) 2 SCC 241. There is complete mechanism provided under the State Co-operativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Thus, a reference to the banking company has to be read as a reference to the co-operative 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 co-operative bank both on State level as well as multi-State level becoming part of a banking company. Therefore, the SARFAESI Act covers in its purview co-operative banks and multi-State co-operative banks. (b) The insertion of a 'multi-State co-operative bank' in Section 2(1) (c)(iva) is ex majori cautela as multi-State co-operative 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 co-operative society. (c) He relied on The Majoor Sahakari Bank Ltd. v. N.N. Majmudar and Anr. AIR 1957 Bom 36 in which the Bombay High Court observed that co-operative society doing business of banking is a company. The question mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the recovery of dues of banks, including co-operative 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 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 Co-operative Societies Act and the MSCS Act continue to have jurisdiction to consider applications/disputes submitted before them by State level and multi-State co-operative banks for recovery of debts due to them. The question was of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 co-operative society. Entry 45 of List I makes no difference whether an entity carrying business of banking is a company or statutory corporation or a co-operative society. (c) The 1965 amendment to the BR Act, 1949, brought within its ken co-operative 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 co-operative society. It is permissible for the Parliament to include multi-State co-operative banks within the definition of 'bank.' Similarly, the Government could have notifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 co-operative 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 co-operative processing units like Sugar Factories, Private Sugar Mills, Spinning Mills, Oil Mills, Marketing Co-operatives, Educational Institutions, and other co-operative Industrial Units. It is the apex institution of all District Central Co-operative Banks, Urban Co30 operative Banks, and Primary Agricultural Co-operative Societies. It has a network of co-operative banks and the agricultural co-operative societies in the State of Maharashtra on 31.3.2015 as under: Total number of District Central Co-operative Banks 31 Number of branches of District Central Co-operative 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 Co-operative Banks, 30 primarily cater to the financial needs of the agriculture sector. MSC Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration: (1) Whether 'co-operative banks', which are co-operative 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 co-operative banks registered under the State Co-operative Laws and also multi-State co-operative societies? (3)(a) Whether co-operative banks both at the State level and multi-State 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 multi-State co-operative banks and notification dated 28.1.2003 notifying co-operative 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 co-operative socie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 957, 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 co-operative 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 co-operative banks, the central co-operative banks, and, more importantly, to primary non-agriculture 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 co-operative banks. The deposits and working funds of co-operative 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 co-operative banks, the central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reserves of a nominal value of Rs. 1 lakh or more, will be deemed to be co-operative banks. The definition of the expression "co-operative bank" will exclude (a) all primary agricultural credit societies, whatever the nominal value of their paid-up capital may be, (b) primary non-agricultural credit societies with paid-up capital and reserves of a nominal value of less than rupees one lakh, even though they may be accepting deposits from non-members and (c) all other co-operative societies which do not obtain, or may hereafter cease to obtain, deposits from non-members. 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 co-operative banks, (b) all agricultural credit societies and (c) all primary non-agricultural credit societies which are not co-operative 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. Co-operative banks will be effectively controlled in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act for this purpose." The co-operative 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 co-operative banks. The 'central co-operative bank' was defined by substituting clause (bi) to Section 2 of the Reserve Bank of India Act, 1934. Similarly, 'co-operative bank', 'co-operative credit society' and 'co-operative 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 co-operative bank" means the principal co-operative society in a district in a State, the primary object of which is the financing of other co-operative 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 co-operative societies carrying on the business of financing other co-operative societies in that district to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1949 was substituted as under: "3. Nothing in this Act shall apply to( a) a primary agricultural credit society; (b) a co-operative land mortgage bank; and (c) any other co-operative 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 co-operative 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 co-operative societies concerning co-operative 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 co-operative bank. Section 56(a)(i) and (ii) is extracted hereunder: "56. The provisions of this Act, as in force for the time being, shall apply to, or in relation to, co-operative societies as they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company' shall be omitted. In clause (d) after the word 'company,' the words 'or co-operative society' shall be inserted. (f) In Section 6(1) in clause (d), the words 'co-operative society' were inserted after the word 'company.' For co-operative society to be named as a co-operative bank, the following section was substituted: "7. (1) No co-operative society other than a co-operative bank shall use as part of its name any of the words "bank", "banker" or "banking" and no co-operative 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 co-operative society formed for the protection of the mutual interests of co-operative banks or co-operative land mortgage banks.;" (emphasis supplied) (g) Section 11 was substituted in application to co-operative banks. The relevant portion of Section 11(1) is extracted hereunder: "11. (1) Notwithstanding any law relating to co-operative societies for the time being in force, no co-operative bank shall commence or carry on the business of banking in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 co-operative bank as under: "(0) in section 22,- (i) for subsections (1) and (2), the following sub-sections shall be substituted, namely: "(1) Save as hereinafter provided, no co-operative society shall carry on banking business in India unless- (a) it is a primary co-operative society, or (b) it is a co-operative 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: Provided that nothing in this subsection shall apply to a co-operative society, not being a primary credit society or a co-operative bank carrying on banking business at the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1964, for a period of one year from such commencement. (2) Every co-operative society carrying on business as a co-operative bank at the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1964, shall before the expiry of three months from such commencement, ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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: "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 multi-State co-operative 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finition 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 consist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Association of a Banking Company in Palmer's Company Precedents Form 138; and to the Statement of Objects and 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" i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms 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) 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. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C 2) it was argued before the Federal Court that Bengal 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 busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 co-operative banks is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age. 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 co-operative banks also. The co-operative bank falls within the definition of Section 5(c), and its activity is of banking, and in addition to the business of banking, a co-operative 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, more particularly, a banking corporation. However, co-operative societies are expressly excluded from the purview of the Parliament's competence. No doubt about it that in Entry 43 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated 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 Co-operative Societies Act, 1965 (Act No.23 of 1965) and extended the provisions of Banking Companies Act, 1949, and Reserve Bank of India Act to co-operative 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 co-operative societies. The provisions relatable either directly or indirectly to 'incorporation, management and winding up' of co-operative banks were omitted as they were not covered under Entry 45 of List I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 Lis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 Tripur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 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 competenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onjoint 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es (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. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sibility 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. AIR 1962 SC 1044, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 co-operative society the status of a body corporate having perpetual 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 co-operative 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 co-operative societies in Entry 43 of List I and the express inclusion of co-operative 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 co-operative societies as institutions distinct from corporations. On the other hand one would think that the very mention of co-operative soc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding co-operative societies. The follow-up 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: "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 leavi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ashtra, (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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal 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, 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 sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate 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. 16. We have little doubt in our mind that the subject-matter of Section 4 clearly falls within Items 35 and 42 of List III and not within Item 43 of List I. The subject-matter 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 constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; 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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t; or (ii) of negligence in the performance of its duties; Or (iii) the board has committed any act prejudicial to the interests of the co-operative society or its members; or (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 co-operative 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 co-operative 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 co-operative society, other than a multi-State co-operative 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 affa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have jurisdiction to entertain the applications submitted by the co-operative 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 Co-operative 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 co-operative 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be covered by Entry 45 of List I dealing with "banking". The subject of co-operative 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 co-operative 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 Punjab AIR 1970 P&H 528, and Nagpur District Central Co-operative Bank Ltd. v. Divisional Joint Registrar, Co-operative Societies AIR 1971 Bom 365. In Sant Sadhu Singh (supra), the amendment made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Co-operative 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 co-operative societies, there must also be co-operative societies that do banking business to facilitate the working of other co-operative societies merely because they do banking business, they do not cease to be co-operative 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 leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the co-operative 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 co-operative bank/co-operative society. It provides for recovery of dues to banks, including co-operative banks, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 co-operative banks were separately provided. When the BR Act, 1949 was applied to the co-operative bank, all the provisions under the Act concerning 'incorporation, regulation and winding up' were omitted insofar as the Act of 1949 is applied to co-operative banks, though they continue to exist in the Act for other entities but not concerning co-operative 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 co-operative bank, the definition of 'banking company' has to be read to include a co-operative bank. 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 co-operative banks, Section 56(a) amends the definition of the 'banking company,' and it becomes an integral part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterprises 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).) 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." (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 .)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, effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. With respect to legislative device of incorporation by reference in Mary Roy, etc. v. State of Kerala and Ors. (AIR 1986 SC 1011: (1986) 2 SCC 209), 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 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 sub-sec. (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. AIR 1998 SC 1028, it was observed: "The determination if a legislation was by way of incorpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he profit and loss account." (emphasis supplied) 76. In Secretary of State v. Hindustan Co-operative Insurance Society Ltd. AIR 1931 PC 149, 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 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such company' as references to a co-operative 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 co-operative societies/banks, relatable 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 co-operative societies and other provisions were to apply in a modified form, the amendments were made in the provisions in their application to the co-operative 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 co-operative banks and has to be given ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parent from the fact that instead of amending the original clause (c) of Section 5 separate clause (cci) was added to cover the "co-operative bank" to mean "a State co-operative bank, a Central co-operative bank and a primary co-operative bank". In clause (ccv) "primary co-operative bank" means "a co-operative society, other than a primary agricultural credit society". The primary object or principal business of the "co-operative 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 co-operative banks also in the process of bringing the co-operative banks under the discipline of Reserve Bank of India and other authorities. A co-operative 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 co-operative banks also. Accordingly, Section 56 brought co-operative 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative banks" by notification dated 28-1-2003. 42. The context of the interpretation clause plainly excludes the effect of a reference to banking company being construed as reference to a co-operative bank for three reasons: firstly, Section 5 is an interpretation clause; secondly, substitution of "co-operative bank" for "banking company" in the definition in Section 5(c) would result in an absurdity because then Section 5(c) would read thus: "co-operative bank" means any company, which transacts the business of banking in India; thirdly, Section 56(c) does define "co-operative 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, "co-operative bank" was separately defined by the newly inserted clause (cci) and "primary co-operative bank" was similarly separately defined by clause (ccv). The meaning of "banking company" must, therefore, necessarily be strictly confined to the words used in Section 5(c) of the BR Act. If the intention of Parliament was to define the "co-operative bank" as "banking co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative bank" as defined in Section 5 (cci) and "primary co-operative bank" as defined in Section 5(ccv). However, Parliament did not do so. There was thus a conscious exclusion and deliberate omission of co-operative banks from the purview of the RDB Act. The reason for excluding co-operative banks seems to be that co-operative banks have comprehensive, selfcontained and less expensive remedies available to them under the State Co-operative 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a co-operative 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 co-operative banks also. At the same time, it was held that Section 56 brought co-operative 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 co-operative 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 'co-operative 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 Co-operative Societies Act. The RDB Act, 1993, refers to the transfer of 'every suit or other proceeding pending before any court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inery 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 co-operative 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 co-operative 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 stop the business forthwith. 83. The co-operative 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated 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 co-operative societies/banks stand included by incorporation in Section 5(1)(c) of the BR Act and the notification was issued ex abundanti cautela. By virtue of Section 56(a), co-operative banks, as defined in Section 56(cci) of the BR Act, 1949, are included in Section 5(1)(c). Similarly, multi-State co-operative banks were also covered. 86. The earlier procedure for recovery of dues was differently provided for general banks and the co-operative 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 co-operative tribunals or summary procedure under the Co-operative Societies Act, was sought to be redressed. Apart from that, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pied 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 legislati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the matter may well be taken to be legislation on the topic." 90. In Keshavlal Khemchand and Sons Private Limited and Ors. v. Union of India and Ors. (2015) 4 SCC 770, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidering its activity, could be termed as industry to which Bombay Industrial Disputes Act would apply. Though co-operative society was doing the business of banking, it was submitted that nonetheless, it was a co-operative 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 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 Co-operative 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 co-operative 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 Co-operative Societies Act as far as the result of registration is concerned. The High Court observed: "(4) Now turning to the lang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with costs." 92. In Jayant Verma and Ors. v. Union of India and Ors. (2018) 4 SCC 743, 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 co-operative 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 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther Acts. However, as this case concerns a society in Maharashtra, the Maharashtra Co-operative Societies Act was shown to us. Significantly, this law does not define a co-operative society. It did not need to, as a society registered under it would be automatically covered. The need to define a co-operative society arises only in a Central legislation which does not cover all co-operative societies and thus needs to indicate to which society it applies." 95. In Bharat Coop. Bank (Mumbai) Ltd. v. Coop. Bank Employees Union (2007) 4 SCC 685, 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 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 self-contained code in itself, and its working was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ors. (2011) 3 SCC 1, 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 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 distin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt 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 co-operatives 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 co-operative banks in the SARFAESI Act. It cannot be said to be overinclusion on the anvil of the principles laid down by this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 - 'Attorney General 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 subject-matter 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 po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issible to suggest parliamentary incompetence on the score of mala 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 co-operative banks registered under the State legislation and multi-State level co-operative 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 co-operative banks run by the co-operative societies registered under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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