IMPORTANT POINTS
State of Jammu & Kashmir is and shall be an integral part of the Union of India.
Notwithstanding Article 370 being a temporary provision, its current usage would cease only when the President declares so on recommendation of the State’s Constituent Assembly.
Consultation and concurrence – distinction.
Parliament has legislative jurisdiction to make laws in relation to the subject matters of all Entries in List I and List III as specified by the 1954 Order for State of J&K.
Decisions of Supreme Court on principles of repugnancy (Article 254) would apply in full force to laws made on specified subject matters.
It is not correct to first dissect an Act into various parts and then refer those parts to different Entries in the legislative Lists.
Section 140 of the Jammu & Kashmir Transfer of Property Act has to be harmonised with SARFAESI failing which Section 140 of the Jammu & Kashmir Transfer of Property Act has to give way to SARFAESI.

Headnote:(a) Constitution of India – Article 1 and Article 370 r/w Section 3 of the Jammu & Kashmir Constitution, 1956 – Indian a quasi federal State – Federal structure of the Constitution tilting strongly towards the Central Legislature and Central Government – State of Jammu & Kashmir having its own constitution – Nevertheless, Articles 124 to 147 all apply to the State of Jammu & Kashmir, with Articles 135 and 139 being omitted – No dual citizenship – State of Jammu & Kashmir is and shall be an integral part of the Union of India. (Para 8, 10)
       (1964) 1 SCR 371; (1959) Supp. 2 SCR 270 – Relied upon
       (b) Constitution of India – Article 370 – Marginal note – Article 370, a temporary provision but without any time limit – Temporary period may come to an end by order of the President on recommendation of the Constituent Assembly of the State – Notwithstanding Article 370 being a temporary provision, its current usage would cease only when the President declares so on recommendation of the State’s Constituent Assembly. (Para 12)
       (c) Constitution of India – Article 370 – Parliament empowered to make laws for J&K only on matters in the Union List and the Concurrent List of the 7th Schedule to the Constitution of India, which are declared by the President in consultation with the Government of the State, to correspond to matters specified in the Instrument of Accession – Other matters contained in the Constitution but outside the Instrument of Accession in the said Lists can be extended only with the concurrence of the State. (Para 12, 13)
       (1969) 2 SCR 365; (1959) Supp. 2 SCR 270 – Relied upon
       (d) Constitution of India – Article 370 – Once a matter in either the Union List or the Concurrent List, with exceptions and modifications, is specified by a Presidential Order, no further concurrence is needed – Provisions of Article 1 and Article 370 made to apply to J&K by virtue of sub-clause (1)(c) of Article 370 – Constitution Application to Jammu & Kashmir Order, 1954 – Adopting all the provisions of Constitution of India as in force on the 20th June, 1964, together with certain amendments and modifications – Article 248 and List I, Seventh Schedule – Entries 45 and 95 of List I continue to apply, Entries 8, 9, 34, and 79 omitted and other entries modified or substituted in relation to the State of J&K – State List continues to be omitted altogether and Concurrent List applies to the State of Jammu & Kashmir with a number of Entries being omitted – Entry 6 dealing with the transfer of property and Entry 11A of the Concurrent List do not apply to the State of Jammu & Kashmir. (Para 15, 18, 19)
       (1962) 1 SCR 688 – Relied upon
       (e) Constitution of Jammu & Kashmir, 1956 – Sections 3 and 5 – State of Jammu & Kashmir stated to be an integral part of the Union of India – Combined reading, therefore, of Article 370 of the Constitution of India, the 1954 Presidential Order as amended from time to time, and the Constitution of Jammu & Kashmir, 1956 – Parliament has legislative jurisdiction to make laws in relation to the subject matters of all Entries in List I and List III as specified by the 1954 Order – Decisions of Supreme Court on principles of repugnancy (Article 254) would apply in full force to laws made on specified subject matters. (Para 21)
       (f) Constitution of India – Article 370 and 368 Proviso and List II Seventh Schedule – Amendment to Constitution of India including addition or deletion of subjects under List II applicable to J&K with concurrence of the State – ‘Modifications’ in Article 370(1)(d) not only means "to limit or restrict" but even "to extend or enlarge" – Nothing can ever be frozen so long as the drill of Article 370 is followed. (Para 22)
       (1969) 2 SCR 365; (1962) 1 SCR 688 – Relied upon
       (g) Constitution of India – Seventh Schedule, List I, Entries 45 and 95 – Banking – Recovery of debts by banks fall within Entry 45 – Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) – Referable to Entry 45 – Will prevail upon any enactment made under State List – Article 246 – In absence of State List being operative in the case of J&K, Entries 45 and 95 of List I must be given a wide meaning – In pith and substance, SARFAESI does not deal with "transfer of property" – Sections 17A and Section 18B of SARFAESI referable to Entry 45. (Para 24, 27, 29, 30, 32, 33, 37)
       (2002) 4 SCC 275; (2009) 4 SCC 94; Civil Appeal No. 11247 and Civil Appeal No. 11250 of 2016; (1970) 1 SCC 248; 1947 Appeal Cases 33; (1972) 2 SCR 33; (1972) 1 SCC 872; (1950) 1 SCR 51; (2005) 2 SCC 591 – Relied upon
       (h) Interpretation of Constitution – It is not correct to first dissect an Act into various parts and then refer those parts to different Entries in the legislative Lists. (Para 37)
       1957 SCR 399 – Relied upon
       (i) Constitution of India – Seventh Schedule – List I, Entries 95 and 45 r/w Section 5, Jammu & Kashmir Constitution – Administration of Justice would come into play only when Entries 45 and 95 of List 1 are not attracted – Even otherwise, expression "administration of justice" being general, must give way to special laws enacted under Entry 95 coupled with Entry 45, List I. (Para 39)
       (j) Security Interest (Enforcement) Rules, 2002 – Rule 8(5), Proviso r/w Section 140, Jammu & Kashmir Transfer of Property Act – Section 140 relating to auction taking place within the State – No collision or repugnancy with SARFAESI – In case of conflict SARFAESI will prevail over a Jammu & Kashmir law – Article 246 – Sections 13(1) and (4), held, within legislative competence of Parliament. (Para 40)
       (k) Constitution of Jammu and Kashmir – Preamble and Section 3, 6 and 10 – State of Jammu and Kashmir not sovereign constituting a separate and distinct class for its residents – The residents are citizens of India as the State is an integral part of India – They are governed first by the Constitution of India and also by the Constitution of Jammu & Kashmir. (Para 42, 43)
       (l) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) – Section 17A and 18B and Entry 11A, List 3, Seventh Schedule, Constitution of India – Whole of SARFAESI referable to Entry 45 and 95 of List I – Not possible to dissect the provisions of SARFAESI and attach them to different Entries under different Lists as done by High Court – Section 140 of the Jammu & Kashmir Transfer of Property Act has to be harmonised with SARFAESI failing which Section 140 of the Jammu & Kashmir Transfer of Property Act has to give way to SARFAESI – Article 246 r/w Section 5 of the Jammu & Kashmir Constitution. (Para 44)
       (m) Constitution of India – Article 35A – Bar on challenge to special rights of residents of the State of J&K on ground of being violative of fundamental rights – Not the issue presently – Section 140, Jammu & Kashmir Transfer of Property Act and Rule 8(5) proviso, Security Interest (Enforcement) Rules, 2002. (Para 46)
       (n) Constitution of India – Article 226 – High Court holding SARFAESI to be not applicable to State of J&K – Further holding that SARFAESI can be availed of by banks originating from State of J & K for securing monies which are due to them and which have been advanced to borrowers who are not the residents of the State of Jammu & Kashmir – Contradictory – Not sustainable. (Para 47)
       Facts of the case:
       This case is all about the State of Jammu & Kashmir vis`-a-vis` the Union of India, in so far as legislative relations between the two are concerned.
       The present appeals arise out of a judgment passed by the High Court of Jammu & Kashmir at Jammu, in which it has been held that various key provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 were outside the legislative competence of Parliament, as they would collide with Section 140 of the Transfer of Property Act of Jammu & Kashmir, 1920. The said Act has been held to be inapplicable to banks such as the State Bank of India which are all India banks.
       Finding of the Court:
       Notices issued by banks in terms of Section 13 and other coercive methods taken under the said Section are valid and can be proceeded with further.
       Result: Appeals allowed.

JUDGMENT

R.F. Nariman, J.

Leave granted.

1. The Constitution of India is a mosaic drawn from the experience of nations worldwide. The federal structure of this Constitution is largely reflected in Part XI which is largely drawn from the Government of India Act, 1935. The State of Jammu & Kashmir is a part of this federal structure. Due to historical reasons, it is a State which is accorded special treatment within the framework of the Constitution of India. This case is all about the State of Jammu & Kashmir vis`-a-vis` the Union of India, in so far as legislative relations between the two are concerned.

2. The present appeals arise out of a judgment dated 16.7.2015 passed by the High Court of Jammu & Kashmir at Jammu, in which it has been held that various key provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "SARFAESI") were outside the legislative competence of Parliament, as they would collide with Section 140 of the Transfer of Property Act of Jammu & Kashmir, 1920. The said Act has been held to be inapplicable to banks such as the State Bank of India which are all India banks.

3. Before going into the merits of the case, it is important to note that SARFAESI is an enactment which inter alia entitles banks to enforce their security interest outside the court's process by moving under Section 13 thereof to take possession of secured assets of the borrower and sell them outside the court process. Sections 13 (1) and (4) and 17 are key provisions of SARFAESI relevant for the present case and are set out herein as follows:

"Section 13. Enforcement of security interest.

(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of court or tribunal, by such creditor in accordance with the provisions of this Act.

(4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-- (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; (b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset:

PROVIDED that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt:

PROVIDED FURTHER that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt. (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.

xxx

Section 17. Right to appeal.

(1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorised officer under this Chapter, may make an application along with such fee, as may be prescribed to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measure had been taken:

PROVIDED that different fees may be prescribed for making the application by the borrower and the person other than the borrower.

Explanation: For the removal

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2016 Supreme(SC) 1009

Cases Referred (10)