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SUPREME COURT OF INDIA
R.F. Nariman, Navin Sinha, JJ.
JAYANT VERMA & ORS. – PETITIONERS
VERSUS
UNION OF INDIA & ORS. – RESPONDENTS
WRIT PETITION (CIVIL) NO. 134 OF 2013
Decided On : 16-02-2018
(1970) 1 SCC 248; (2002) 4 SCC 275; AIR 1947 PC 60 : [74 IA 23]; (1980) 4 SCC 109; (1994) 5 SCC 324; (1977) 2 SCC 670; (1978) 2 SCC 1 – Relied upon
(b) Constitution of India – Seventh Schedule – Entry 30, List II – State Debt Relief Acts – Validly made under Entry 30, List II. (Para 13)
(1977) 2 SCC 670; (1978) 2 SCC 1 – Relied upon
(c) Interpretation – Constitution – seventh Schedule – Entry 45, List I and entry 30, List I – Harmonious construction – Article 246 – Two entries in the Union List and the State List – If in head-on collision and irreconcilable – State List to give way to Union List, as a last resort. (Para 16)
(1983) 3 SCR 130; (1969) 1 SCR 108 – Relied upon [Para 16]
(d) Constitution of India – Seventh Schedule – Entry 45, List I; Entry 30, List II and Entry 18, List II – Agricultural indebtedness – entry 45 List I dealing with banks generally – Entry 30 List II dealing with relief of agricultural indebtedness, special – Observed, indebtedness a species of banking – Agricultural indebtedness under Entry 18 List II a sub-species of indebtedness – Harmonising – Relief of agricultural indebtedness should include banks. (Para 19, 20)
(2002) 1 SCC 367 at 402; (1963) 3 SCR 209 – Relied upon
(e) Banking Regulation Act, 1949 – Section 21A and State Debt Relief Acts – Constitution of India – Article 246 – Two legislations, one Parliamentary and the other State – Competing – Once legislation is referable to one list or the other, the doctrine of incidental trenching and unoccupied field would apply equally to both Parliamentary and State legislations – State Debt Relief Act, referable to the special entry “relief of agricultural indebtedness” under Entry 30, List II – Banking Regulation Act, under general entry of “banking” in Entry 45, List I –Parliamentary statute making incidental encroachment on Entry 30, List II, read with the State Debt Relief Acts made thereunder – Section 21A would yield to State Debt Relief Acts, to the extent that they cover relief of agriculturists from debts due to banks. (Para 29, 32)
AIR 1941 FC 47; 1938 AIR 1939 FC 1; (2017) 2 SCC 585 – Relied upon
1930 A.C. 111 – Referred
(1989) 3 SCC 634; (2004) 4 SCC 489 – Distinguished
(f) Constitution of India – Seventh Schedule – List II and List I – State legislation made under exclusive legislative competence under List II – Cannot be effaced by legislation made under List I, which incidentally trenches upon such State legislation. (Para 36)
(g) Constitution of India – Article 141 – Law declared by Supreme Court – Binding nature – Decision of coordinate bench – Cryptic order without any reasoning – No ratio decidendi – Law cannot be declared on an ex parte appraisal of the facts. (Para 41, 42, 43)
(1979) 3 SCR 1059; (1981) 2 SCR 111; (1975) 3 SCR 616; (1989) 1 SCC 101; (2011) 7 SCC 639 – Relied upon
AIR 1986 AP 291; (1999) 2 SCC 375 – Distinguished
Facts of the case:
This writ petition, by way of a Public Interest Litigation, assails the constitutional validity of Section 21A of the Banking Regulation Act, 1949
Finding of the Court;
Section 21A is valid.
Result: Section 21A held valid.
JUDGMENT
R.F. NARIMAN, J.
1. A writ petition, by way of a Public Interest Litigation, filed under Article 32 of the Constitution of India, assails the constitutional validity of Section 21A of the Banking Regulation Act, 1949. The aforesaid section was introduced into the Banking Regulation Act by the Banking Laws (Amendment) Act of 1983 with effect from 15.2.1984. Section 21A of the Banking Regulation Act reads as under:
“21A. Rates of interest charged by banking companies not to be subject to scrutiny by courts
Notwithstanding anything contained in the Usurious Loans Act, 1918 (10 of 1918), or any other law relating to indebtedness in force in any State, a transaction between a banking company and its debtor shall not be reopened by any court on the ground that the rate of interest charged by the banking company in respect of such transaction is excessive.”
2. It will be seen that Section 21A interdicts the reopening by courts of a debt between a banking company and its debtor, on the ground that the rate of interest charged by the banking company, in respect of a loan transaction, is excessive. The section seeks to keep out of harm’s way the Usurious Loans Act, 1918 and/or any other State legislation relating to indebtedness, and then declares that no such loan transaction shall be reopened by any court on the ground of charging of excessive rates of interest. The writ petition has been filed by certain public spirited citizens, who rely on the report of the Parliamentary Standing Committee on Agriculture for the year 2006-2007 to say that Section 21A should be abolished, insofar as it applies to rural indebtedness. The Standing Committee’s Report reads as follows:
“The Committee feels that the worst exploitation of farmers is through the adverse credit policies of the financial institutions which compel farmers to starve under the burden of loans and commit suicides. The Committee finds that in 1918, the British passed the Usurious Loans Act which provided that no farmer could be charged a rate of interest higher than the authorised rate-which at that time was 5.5 per cent, and if charged, the case could be re-opened in court and the entire account re-settled. Moreover, the total amount of interest could not be higher than the original capital. But in 1949, the Banking Regulation Act was passed which made a special provision under Section 21 (A) saying that these will not apply to banking companies including cooperative banks.
In view of the plight of farmers due to heavy burden of credits, the Committee recommend that section 21 (A) of the Banking Regulation Act should be scrapped. All out concerted efforts should be made to bring down the rate of interest on Farm Credit to the level of 5.5% simple interest, as it used to be in the early 20th century. In case of cooperatives, transaction cost/margin at each layer must be reduced as the length of chain, from RBI to NABARD to State-District and Cooperative Societies at village level and Regional Rural Banks, is very big. Eventually, the farmer has to take the burden of all these middlemen/lending agencies. The Committee, therefore, recommends to shorten this chain, so that the eventual creditor is directly linked to the borrower. The Committee further desire the Government to ensure that in no case, the interest should be higher than the original capital and charging of compound rate of interest should be absolutely prohibited so that exploitation of farmers by financial institutions is minimized.
REPLY OF THE GOVERNMENT
1.23 The Government in their action taken reply have stated that in order to bring down rate of interest on farm loans it has been announced in the Union Budget for the year 2006-07 that effective from Kharif 2006-07, farmers would receive crop loans upto a principal amount of Rs. 3 lakh at 7% rate of interest and the Government of India would provide necessary interest subvention for this purpose. Crop loans to farmers are generally made available through Kis
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