Holding

Co‑operative banks are covered by Entry 45 of List I, the definition of "banking company" under the Banking Regulation Act includes them via Section 56(a), and the SARFAESI Act’s recovery provisions and related amendments are constitutionally valid.

Summary

The Court examined whether co‑operative banks, which are societies registered under State legislation, fall within the Union List entry 45 (banking) or the State List entry 32 (co‑operative societies) for the purposes of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). It held that the definition of "banking company" in Section 5(c) of the Banking Regulation Act, 1949, as amended by Section 56(a), incorporates co‑operative banks, making them "banks" under Entry 45 of List I. Consequently, the SARFAESI Act’s recovery provisions, including the 2003 notification and the 2013 amendment adding "multi‑State co‑operative bank", are within Parliament’s legislative competence and not ultra vires. The Court applied the doctrine of pith and substance and the principle of incorporation by reference to reach this conclusion. The appeal and related writ petitions were dismissed, and the matters were disposed of without costs.

Issues considered

The applicability of Entry 45 of List I versus Entry 32 of List II to co‑operative banks for SARFAESI Act purposes
Whether Section 5(c) of the Banking Regulation Act, 1949, as read with Section 56(a), includes co‑operative banks within the definition of "banking company"
The constitutional validity of the SARFAESI Act’s Section 2(1)(c)(iva) amendment and the 2003 notification
The Parliament’s competence to prescribe recovery procedures for co‑operative banks under the SARFAESI Act

Legislation cited

Banking Laws (Application to Co‑operative Societies) Act, 1965
Banking Regulation Act, 1949s. 56(a), s. 5(b), s. 5(c), s. 6
Multi-State Co-operative Societies Act, 2002s. 3(f), s. 84
Recovery of Debts Due to Banks and Financial Institutions Act, 1993s. 13, s. 17
Reserve Bank of India Act, 1934s. 2(bii), s. 2(biii), s. 2(biv), s. 2(ciii), s. 2(civ)
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002s. 13, s. 17, s. 2(1)(c), s. 2(1)(c)(iva)

Subjects

bankingco‑operative banksSARFAESI Actconstitutional lawlegislative competenceEntry 45 List IEntry 32 List IIpith and substanceincorporation by referencerecovery of debts

Judgment

1038 [2020]REPORTS
SUPREME COURT 5 S.C.R. 1038 [2020] 5 S.C.R.

A PANDURANG GANPATI CHAUGULE
v.
VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED
(Civil Appeal No.5674 of 2009)
B MAY 05, 2020
[ARUN MISHRA, INDIRA BANERJEE, VINEET SARAN,
M. R. SHAH AND ANIRUDDHA BOSE, JJ.]
Constitution of India – Seventh Schedule – List I, Entry 45;
C List II, Entry 32 – Power of the Parliament to legislate – Applicability
of SARFAESI Act, 2002 to co-operative banks – Held: Co-operative
banks registered under the State legislation and multi-State level
co-operative societies registered under MSCS Act w.r.t ‘banking’
are governed by the legislation relatable to Entry 45, List I, Seventh
Schedule – Co-operative banks run by co-operative societies
D registered under the State legislation w.r.t the aspects of
‘incorporation, regulation and winding up’, in particular, w.r.t the
matters outside the purview of Entry 45, List I, Seventh Schedule,
are governed by the said legislation relatable to Entry 32, List II,
Seventh Schedule – Co-operative banks involved in activities related
E to banking are covered within the meaning of ‘Banking Company’
defined u/s.5(c) r/w s.56(a) of the 1949 Act, a legislation relatable
to Entry 45, List I – Co-operative banks cannot carry on any activity
without compliance of said Act and any other legislation applicable
to such banks relatable to ‘Banking’ in Entry 45, List I and the RBI
Act relatable to Entry 38, List I, Seventh Schedule – Co-operative
F banks under the State legislation and multi-State co-operative banks
are ‘banks’ u/s.2(1)(c), SARFAESI Act – Recovery is an essential
part of banking; as such, the recovery procedure prescribed u/
s.13 of the said Act, a legislation relatable to Entry 45, List I, Seventh
Schedule, is applicable – Parliament has legislative competence u/
Entry 45, List I, Seventh Schedule to provide additional procedures
G
for recovery u/s.13 SARFAESI Act, with respect to co-operative banks
– s.2(1)(c)(iva), SARFAESI Act adding “ex abundanti cautela”, ‘a
multi-State co-operative bank’ and notification dtd. 28.01.03 issued
with respect to the co-operative banks registered under the State
legislation are not ultra vires – Securitisation and Reconstruction
H
1038
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1039
MURGUD SAHAKARI BANK LIMITED

of Financial Assets and Enforcement of Security Interest Act, 2002 A
– ss.2(c), (d), 2(1)(c)(iva), 2(1)(c)(v), 2(1)(d), 13 – Multi-State Co-
operative Societies Act, 2002 – ss.3(f), 84 –Banking Regulation
Act, 1949 – Part II, V – ss.5(b), (c), 5A, 6, 11, 18, 19, 22, 23,
35A(1)(c), 56(a)-(c), (e) – Interpretation of Statutes – Doctrine of
Pith and Substance; Incorporation by reference – Recovery of Debts
B
and Bankruptcy Act, 1993 – Doctrine of Colourable Legislation –
Banking Laws [Application of Cooperative Societies Act, 1965 (Act
No.23 of 1965)] – Reserve Bank of India Act, 1934 – ss.2(bii),
2(biii), 2(biv), 2(ciii), 2(civ) – National Bank for Agriculture and
Rural Development Act, 1981 – State Bank of India Act, 1955 –
Banking Companies Act, 1949 – Transfer of Property Act, 1882. C
Banking Regulation Act, 1949 – ss.5(b), (c), 6, 56(a) – Held:
s.6 is not a provision of the conferral of the status of the banking
company – Definitions of ‘banking’ and ‘banking company’ are
contained in s.5(b) & 5(c) respectively, and when reading with
s.56(a), it means co-operative banks also – Co-operative bank falls D
within the definition of s.5(c), and its activity is of banking, and in
addition a co-operative bank may engage in any of the business as
enumerated in s.6.
Constitution (Ninety Seventh Amendment) Act, 2011 – Arts.
43B, 243ZI, 243ZL, 243ZL(1); and Entry 45, List I, Seventh Schedule E
– Held: Art. 43B was added concerning the management of co-
operative societies – Art.243ZI provides that the legislature of a
State may, by law, make provisions with respect to ‘incorporation,
regulation and winding up’ of co-operative societies – Art.243ZL
deals with supersession and suspension of the board and interim
management – Constitutional provision itself makes distinction F
between a co-operative bank and other co-operative societies and
applied law enacted u/Entry 45, List I, Seventh Schedule – It set at
rest any controversy concerning the applicability of the Act 1949 to
banks run by co-operative societies – It also makes it clear that
such banks are governed by Entry 45, List I, Seventh Schedule – G
Banking Regulation Act, 1949.
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 – ss.2(1)(c), (d) – Held:
Term ‘bank’ has been defined in s.2(1)(c) to mean ‘banking
company’, a corresponding new bank, a subsidiary bank or a multi- H
1040 SUPREME COURT REPORTS [2020] 5 S.C.R.

A State co-operative bank or such other bank which the Central
Government may by notification specify for the Act – Term ‘banking
company’ u/s.2(d) shall have the meaning assigned to it in s.5(c)
1949 Act – Thus, the definition of ‘banking company’ stands
incorporated in s.2(1)(d), SARFAESI Act – Banking Regulation Act,
1949 – s.5(c).
B
Answering the reference, the Court
HELD: 1.1 The bank ordinarily means any establishment
which carries the business of banking. The expression ‘bank’
has been defined in several enactments. Banks can be of different
C kinds such as Co-operative Bank, Collecting Bank, Commercial
Bank, Correspondent Bank, Custodian Bank, Depository Bank,
Drawee Bank, Federal Home Loan Bank, Federal Land Bank,
Intermediary Bank, Investment Bank, Mutual Savings Bank,
Nationalised Banks, Negotiable Bank, Non-Member Bank, Payor
Bank, Savings and Loan Bank, Saving Bank. The expression
D ‘bank’ has been defined in various enactments relating to it.
[Para 34][1087-F; 1088-D-F]
1.2 The framers of the Constitution cannot be said to have
confined the meaning of ‘banking’ to a particular definition, as
given in the BR Act, 1949. The word ‘banking’ has been
E incorporated in Entry 45 of List I. The decision in Rustom
Cavasjee Cooper vividly leaves no room for doubt that banking
done by the co-operative bank is covered within the ambit of
Entry 45 of List I. The decision in Gannon Dunkerley & Co.,
(Madras) Ltd. stands neutralised by introduction of Article
F 366(29A) of the Constitution of India and the meaning of the said
term has been redefined. Entries have to be given full effect in
pith and substance considering forms of business of co-operative
banks performing the activities of banking under a licence. The
same is covered within the purview of Entry 45 of List I. Section
6 deals with the forms of business in which banking companies
G may engage. 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
H reading with Section 56(a), it means co-operative banks also. The
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1041
MURGUD SAHAKARI BANK LIMITED

co-operative bank falls within the definition of Section 5(c), and A
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. [Paras 41, 44][1103-B-D; 1104-A-B]
Rustom Cavasjee Cooper v. Union of India (1970) 1
SCC 248 : [1970] 3 SCR 530 – followed. B
The State of Madras v. Gannon Dunkerley & Co.,
(Madras) Ltd. AIR 1958 SC 560 : [1959] SCR 379 –
referred to.
2. Recovery of dues would be an essential function of any
banking institution and the Parliament can enact a law under Entry C
45 of List I as the activity of banking done by co-operative banks
is within the purview of Entry 45 of List I. Obviously, it is open to
the Parliament to provide the remedy for recovery under Section
13 of the SARFAESI Act. Co-operative bank’s entire operation
and activity of banking are governed by a law enacted under Entry D
45 of List I, i.e., the BR Act, 1949, and the RBI Act under Entry
38 of List I. ‘Incorporation, regulation and winding up’ of the co-
operative societies are covered under Entry 32 of List II of the
Seventh Schedule of the Constitution of India, whereas ‘banking’
is covered by Entry 45 of List I. Thus, aspect of ‘incorporation,
regulation and winding up’ would be covered under Entry 32 of E
List II. However, banking activity of such co-operative societies/
banks shall be governed by Entry 45 of List I. The said banks
are governed and regulated by legislation related to Entry 45 of
List I, the BR Act, 1949 as well as the Reserve Bank of India Act
under Entry 38 of List I. In the matter of licencing and doing F
business, a deep and pervasive control is carved out under the
provisions of the BR Act, 1949 and banking activity done by any
entity, primary credit societies, is a bank and is required to submit
the accounts to the Reserve Bank of India, and there is complete
control under the aforesaid Act. For activity of banking, these
banks are governed by the legislation under Entry 45 of List I. G
Thus, recovery being an essential part of the banking, no conflict
has been created by providing additional procedures under
Section 13 of the SARFAESI Act. It is open to the bank to adopt
a procedure which it may so choose. When banking in pith and
H
1042 SUPREME COURT REPORTS [2020] 5 S.C.R.

A substance is covered under Entry 45 of List I, even incidental
trenching upon the field reserved for State under Entry 32 List
II is permissible. There can be various aspects of an activity.
The co-operative societies may be formed under the provisions
of the State Co-operative Acts. The State law provides for
‘incorporation, regulation and winding up’ under Entry 32 of List
B
II, a membership registration, and other matters can be governed
by Entry 32 of List II, and, at the same time, the aspects relating
to the banking, licensing, accounts, etc. can be covered under
Entry 45 List I. The legislation and entries are to be considered
in pith and substance is the settled principles of law, and incidental
C trenching is permissible. Thus, section 2(c)(iv)(a) of the
SARFAESI Act and the notification dated 28.2.2003 cannot be
said to be ultra vires. They are within the ken of Entry 45 List I of
the Seventh Schedule to the Constitution of India.
[Paras 48, 58 -60][1107-E-F; 1130-D-G; 1131-G]
D 3. The aforesaid conclusion finds support by the
Constitutional provisions inserted by way of the Constitution
(Ninety Seventh Amendment) Act, 2011. Article 43B has been
added concerning the management of co-operative societies.
Article 243ZI provides that the legislature of a State may, by law,
make provisions with respect to ‘incorporation, regulation and
E winding up’ of co-operative societies. The Ninety Seventh
Amendment also incorporated Article 243ZL dealing with
supersession and suspension of the board and interim
management. The third proviso to Article 243ZL(1) clarifies that
in case of a co-operative society carrying on the business of
F banking, the provisions of the BR Act, 1949 shall also apply
besides the State Act. The fourth proviso to clause (1) of Article
243ZL also contains an exception with respect to 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’, had been substituted by words ‘one year.’ Thus,
G the constitutional provision itself makes a distinction between a
co-operative bank and other co-operative societies and applied
law enacted under Entry 45 of List I of the Seventh Schedule. It
set at rest any controversy concerning the applicability of the
BR Act, 1949 to banks run by co-operative societies. It also
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1043
MURGUD SAHAKARI BANK LIMITED

makes it clear that such banks are governed by Entry 45 of List A
I of the Seventh Schedule. [Paras 61-63][1132-A-B; 1133-F-G]
4.1 The term ‘bank’ has been defined in Section 2(1)(c) to
mean ‘banking company’, a corresponding new bank, a subsidiary
bank or a multi-State co-operative bank or such other bank which
the Central Government may by notification specify for the Act. B
The term ‘banking company’ under Section 2(d) shall have the
meaning assigned to it in Section 5(c) of the BR Act, 1949. Thus,
the definition of ‘banking company’ stands incorporated in Section
2(1)(d) of the SARFAESI Act, which came into force on 21.6.2002.
Section 56(a) was incorporated in the BR Act, 1949 by Act No.23
of 1965, w.e.f. 1.3.1966. On that date, Section 56(a) became part C
of the statute. Section 5(c) of the BR Act, 1949 defines ‘banking
company’ means any company which transacts the business of
banking. By virtue of Section 56(a), a reference to a ‘banking
company’ or ‘the company’ or ‘such company’ shall be construed
as references to a co-operative bank for the application of the D
Act to the co-operative banks. Section 5(c) was not amended,
and other provisions were also not amended where they were
placed. However, amendments were incorporated by a different
Chapter V by way of various provisions incorporated in Section
56 as it was necessary to retain certain provisions in the existing
form as they applied to other banks and companies considering E
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 F
‘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 G
formed the subject-matter of Entry 32 of List II. Thus, when the
provisions of the Act of 1949 are applied 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),
H
1044 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 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 of Section 5(c), as the full effect is required to be given. The
present one is a case of incorporation by reference in the same
Act by a subsequent amendment in the application to co-operative
B
banks. When the provisions of Section 5(c) are applied to the co-
operative banks, the co-operative banks have to be read as part
and parcel of said definition as mandated statutorily. In case a
company is not taken as a reference to the co-operative societies/
banks in Section 5(c), several problems as to the interpretation
C of Section 56 would arise. It would have become necessary to
amend all the provisions wherever words ‘banking company’ occur
in the BR Act, 1949 in the application to co-operative banks. In
order to avoid verbatim reproduction of the earlier provisions,
which did not apply to a co-operative bank, a device was carved
out in Section 56(a) to read ‘company’ as ‘banking company’ or
D
‘the company’ or ‘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
E 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 subject-matter 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
F
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
G 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 full effect. Merely because the procedure for
recovery of dues is provided in the Co-operative Societies Act,
could not have come in the way of interpretation of that expression
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1045
MURGUD SAHAKARI BANK LIMITED

‘co-operative bank’ which was included in the definition and A
interpretation clause of Section 5 of the BR Act, 1949. It was
open to the Parliament to deal with the subject of ‘banking’ in
Entry 45 of List I and this Court in Greater Bombay Coop. Bank
Ltd. itself opined that the BR Act, 1949 applies to co-operative
banks which is the enactment related to Entry 45 of List I and
B
third proviso to Article 243-ZL(1) of the Constitution of India
also provides that the BR Act shall also apply. Thus, the
Parliament considered it appropriate to provide additional remedy
for speedy recovery which is an alternative even if there is an
incidental encroachment on the field reserved for the State under
Entry 32 of List II, as in pith and substance, the ‘banking’ is part C
of Entry 45 of List I and recovery procedure is covered within
the ken of Entry 45 of List I. Thus, considering the Doctrine of
Pith and Substance and incorporation by amendment made, co-
operative banks are included in the definition of ‘bank’ and
‘banking company’ under Section 2(1)(c) and 2(1)(d) of the
D
SARFAESI Act. [Paras 71, 72 & 79][1139-F-H; 1140-A-F; 1142-
D-E; 1146-B-H; 1147-A-B]
Greater Bombay Coop. Bank Ltd. v. United Yarn Tex
(P) Ltd. and Ors. (2007) 6 SCC 236 : [2007] 4 SCR
823 – referred to.
E
4.2 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 from the public,
repayable on demand or otherwise and withdrawal by cheque,
draft, order or otherwise. Merely by the fact that lending of money
is limited to members, they cannot be said to be out of the purview F
of banking. They perform commercial functions. A society shall
receive deposits and loans from members and other persons.
They give loans also, and it is their primary function. Thus, they
are covered under ‘banking’ in Entry 45 of List I. [Para 84]
[1154-C-D] G
5.1 Since the activity of a co-operative bank is banking
regulated by the law enacted within the relatable Entry 45 of List
I, there is no reason as to why the Parliament lacked the
competence to enact the SARFAESI Act and to provide a
procedure for the speedy recovery of dues. The SARFAESI Act H
1046 SUPREME COURT REPORTS [2020] 5 S.C.R.

A also covers the activities undertaken by the co-operative banks.
The co-operative banks are doing banking business under Section
5(b) of the BR Act, 1949, and the exclusion of the co-operative
societies from Entry 43 of List I, does not have any bearing
regarding the interpretation of Entry 45 of List I. Even assuming
for the time being that definition of ‘bank’ in Section 5(c) of the
B
BR Act, 1949 did not cover the co-operative banks; the
expression ‘bank’ has been defined in the SARFAESI Act under
Section 2(1)(c), and the provisions contained in Section 2(1)(c)(v)
authorise the Central Government to specify ‘such other bank’
for that Act. Thus, the notification issued on 28.1.2003 notifying
C ‘co-operative bank’ as the ‘bank’ is covered by Entry 45 of List I
as they are regulated 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, co-
D
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
E also covered. 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
F
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 is permissible for the Parliament
to enact the law to provide recovery procedures for bank dues
that have been done by providing speedy recovery of secured
G interest without intervention of the court/tribunal. [Paras 85-
87][1154-F-H; 1155-A-F]
5.2 ‘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
H banks in the SARFAESI Act. It cannot be said to be over-inclusion
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1047
MURGUD SAHAKARI BANK LIMITED

on the anvil of the principles laid down by this Court. The provision A
in question/notification cannot be said to be colourable legislation.
The SARFAESI Act qualifies the test of legislative competence,
as well as the definition, cannot be said to be colourable piece or
over-inclusive or beyond the competence of the Parliament.
[Paras 100, 102][1166-D-E; 1168-E; 1169-D]
B
6. Resultantly, the reference is answered 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 C
Schedule of the Constitution of India.
(b) The co-operative banks run by the co-operative
societies registered under the State legislation with respect to
the aspects of ‘incorporation, regulation and winding up’, in
particular, with respect to the matters which are outside the D
purview of Entry 45 of List I of the Seventh Schedule of the
Constitution of India, are governed by the said legislation
relatable to Entry 32 of List II of the Seventh Schedule of the
Constitution of India.
(2) The co-operative banks involved in the activities related E
to banking are covered within the meaning of ‘Banking Company’
defined under Section 5(c) read with Section 56(a) of the Banking
Regulation Act, 1949, which is a legislation relatable to Entry 45
of List I. It governs the aspect of ‘banking’ of co-operative banks
run by the co-operative societies. The co-operative banks cannot
carry on any activity without compliance of the provisions of the F
Banking Regulation Act, 1949 and any other legislation applicable
to such banks relatable to ‘Banking’ in Entry 45 of List I and the
RBI Act relatable to Entry 38 of List I of the Seventh Schedule of
the Constitution of India.
(3)(a) The co-operative banks under the State legislation G
and multi-State co-operative banks are ‘banks’ under section
2(1)(c) of Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002. The recovery is
an essential part of banking; as such, the recovery procedure
prescribed undersection 13 of the SARFAESI Act, a legislation
H
1048 SUPREME COURT REPORTS [2020] 5 S.C.R.

A relatable to Entry 45 List I of the Seventh Schedule to the
Constitution of India, is applicable.
(3)(b) The Parliament has legislative competence under
Entry 45 of List I of the Seventh Schedule of the Constitution of
India to provide additional procedures for recovery under section
B 13 of the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 with respect to
co-operative banks. The provisions of Section 2(1)(c)(iva), of
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002, adding “ex abundanti
cautela”, ‘a multi-State co-operative bank’ is not ultra vires as
C well as the notification dated 28.1.2003 issued with respect to
the co-operative banks registered under the State legislation.
[Para 103][1169-D-H; 1170-A-E]
S.S. Dhanoa v. Municipal Corporation, Delhi and Ors.
(1981) 3 SCC 431 : [1981] 3 SCR 864; Dalco
D Engineering Private Limited v. Satish Prabhakar
Padhye and Ors. (2010) 4 SCC 378 : [2010] 4 SCR 15
– distinguished.
Virendra Pal Singh and Ors. v. District Assistant
Registrar, Cooperative Societies, Etah, and Anr. (1980)
E 4 SCC 109 – held inapplicable.
Hindustan Lever and Anr. v. State of Maharashtra and
Anr. (2004) 9 SCC 438 : [2003] 5 Suppl. SCR 685;
Kerala State Electricity Board v. Indian Aluminium Co.
Ltd. (1976) 1 SCC 466 : [1976] 1 SCR 552; Sita Ram
F Sharma and Ors. v. State of Rajasthan and Ors. (1974)
2 SCC 301; UCO Bank and Anr. v. Dipak Debbarma
and Ors. (2017) 2 SCC 585 : [2016] 11 SCR 723; State
Bank of India v. Santosh Gupta and Anr. (2017) 2 SCC
538 : [2016] 9 SCR 985; Calcutta Gas Company
G (Proprietary) Ltd. v. State of West Bengal and Ors. AIR
1962 SC 1044 : [1962] 3 Suppl. SCR 1; Central Bank
of India v. State of Kerala and Ors. (2009) 4 SCC 94 :
[2009] 3 SCR 735; State of W.B. v. Kesoram Industries
Ltd. and Ors. (2004) 10 SCC 201 : [2004] 1 SCR 564;
Mary Roy, etc. v. State of Kerala and Ors. (1986) 2
H SCC 209 : [1986] 1 SCR 371; U.P. Avas Evam Vikas
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1049
MURGUD SAHAKARI BANK LIMITED

Parishad v. Jainul Islam and Anr. AIR 1998 SC 1028 : A
[1998] 1 SCR 254; Surana Steels Pvt. Ltd. v. Dy.
Commissioner of Income Tax and Ors. (1999) 4 SCC
306 : [1999] 2 SCR 589; Ram Sarup and Ors. v. Munshi
and Ors. AIR 1963 SC 553 : [1963] 3 SCR 858; Soma
Suresh Kumar v. Government of Andhra Pradesh and
B
Ors. (2013) 10 SCC 677 : [2013] 10 SCR 328; K.K.
Baskaran v. State Represented by its Secretary, Tamil
Nadu, and Ors. (2011) 3 SCC 793 : [2011] 3 SCR 527;
M/s. Ujagar Prints and Ors. (II) v. Union of India and
Ors. (1989) 3 SCC 488 : [1988] 3 Suppl. SCR 770;
Keshavlal Khemchand and Sons Private Limited and C
Ors. v. Union of India and Ors. (2015) 4 SCC 770 :
[2015] 2 SCR 51; Jayant Verma and Ors. v. Union of
India and Ors. (2018) 4 SCC 743 : [2018] 2 SCR 679;
Federation of Hotel & Restaurant Association of India,
etc. v. Union of India and Ors. (1989) 3 SCC 634 :
D
[1989] 2 SCR 918; Bharat Coop. Bank (Mumbai) Ltd.
v. Coop. Bank Employees Union (2007) 4 SCC 685 :
[2007] 4 SCR 347; Reserve Bank of India v. M.
Hanumaiah and Ors. (2008) 1 SCC 770 : [2008] 1 SCR
16; State of Gujarat and Anr. v. Shri Ambica Mills Ltd.,
Ahmedabad, and Anr. (1974) 4 SCC 656 : [1974] 3 E
SCR 760; Girnar Traders (3) v. State of Maharashtra
and Ors. (2011) 3 SCC 1 : [2011] 3 SCR 1; State of
Tamil Nadu and Ors. v. K. Shyam Sunder and Ors.
(2011) 8 SCC 737 : [2011] 11 SCR 1094 – relied on.
Delhi Cloth & General Mills Co. Ltd. v. Union of India F
and Ors. (1983) 4 SCC 166 : [1983] 3 SCR 438; T.
Velayudhan Achari and Anr. v. Union of India and Ors.
(1993) 2 SCC 582 : [1993] 1 SCR 832; Union of India
and Anr. v. Delhi High Court Bar Association and Ors.
(2002) 4 SCC 275 : [2002] 2 SCR 450; Narendra
Kantilal Shah v. Joint Registrar, Co-operative Societies G
AIR 2004 Bom 166; Rama Steel v. Union of India
(2007) 6 Mah. L.J. 387; Neel Oil Industries v. Union
of India AIR 2015 Gujarat 171; Mahaluxmi Bank Ltd.
v. Registrar of Companies, West Bengal AIR 1961
Calcutta 666; ICICI Bank Limited v. Official Liquidator H
1050 SUPREME COURT REPORTS [2020] 5 S.C.R.

A of APS Star Industries Limited and Ors. (2010) 10 SCC
1 : [2010] 12 SCR 644; Diamond Sugar Mills Ltd. and
Anr. v. State of Uttar Pradesh and Anr. AIR 1961 SC
652 : [1961] 3 SCR 242; I.T.C. Ltd. v. Agriculture
Produce Market Committee and Ors. (2002) 9 SCC 232
: [2002] 1 SCR 441; Hinsa Virodhak Sangh v. Mirzapur
B
Moti Kuresh Jamat and Ors. (2008) 5 SCC 33 : [2008]
4 SCR 1020; K. C. Gajapati Narayan Deo and Ors. v.
State of Orissa AIR 1953 SC 375 : [1954] SCR 1; Apex
Cooperative Bank of Urban Bank of Maharashtra &
Goa Ltd. v. Maharashtra State Cooperative Bank Ltd.
C and Ors. (2003) 11 SCC 66 : [2003] 4 Suppl. SCR
1071; Daman Singh and Ors. v. State of Punjab and
Ors. (1985) 2 SCC 670 : [1985] 3 SCR 580; Iqbal
Naseer Usmani v. Central Bank of India and Ors. (2006)
2 SCC 241; The Majoor Sahakari Bank Ltd. v. N.N.
Majmudar and Anr. AIR 1957 Bom 36; The Shamrao
D
Vithal Co-operative Bank Ltd., Mumbai, and Anr. v.
M/s. Star Glass Works, Mumbai and Ors. AIR 2003
Bom 205; State of A.P. and Ors. v. Mcdowell & Co.
and Ors. (1996) 3 SCC 709 : [1996] 3 SCR 721; Dewan
Bahadur Seth Gopal Das Mohta v. Union of India and
E Ors. [1955] 1 SCR 773; Khyerbari Tea Co. Ltd. and
Ors. v. State of Assam [1964] 5 SCR 975; Belsund Sugar
Co. Ltd.v. State of Bihar (1999) 9 SCC 620 : [1999] 1
Suppl. SCR 146; Sant Sadhu Singh v. State of Punjab
AIR 1970 P&H 528; Nagpur District Central
Cooperative Bank Ltd. v. Divisional Joint Registrar,
F
Cooperative Societies AIR 1971 Bom 365 –
referred to.
Justice G.P. Singh- ‘Principles of Statutory
Interpretation’ 12 th Edition 2010 Pages 318-320 –
referred to.
G
Portsmouth Corporation v. Smith (1885) 10 AC 364;
Secretary of State v. Hindustan Cooperative Insurance
Society Ltd. AIR 1931 PC 149 – referred to.
Concise Oxford English Dictionary; Black’s Law
H Dictionary, Ninth Edition – referred to.
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1051
MURGUD SAHAKARI BANK LIMITED

Case Law Reference A
[2007] 4 SCR 823 referred to Para 1
[1983] 3 SCR 438 referred to Para 1
[1993] 1 SCR 832 referred to Para 1
[2002] 2 SCR 450 referred to Para 1 B
[1970] 3 SCR 530 followed Para 9(a)
[2010] 12 SCR 644 referred to Para 9(b)
[1959] SCR 379 referred to Para 9(b)
C
[1961] 3 SCR 242 referred to Para 9(b)
[2002] 1 SCR 441 referred to Para 9(h)
[2008] 4 SCR 1020 referred to Para 9(i)
[1954] SCR 1 referred to Para 9(j)
D
[2003] 4 Suppl. SCR 1071 referred to Para 9(k)
(1980) 4 SCC 109 held inapplicable Para 9(k)
[1981] 3 SCR 864 distinguished Para 9(k)
[1985] 3 SCR 580 referred to Para 9(k)
E
[2010] 4 SCR 15 distinguished Para 9(k)
(2006) 2 SCC 241 referred to Para 10
[2003] 5 Suppl. SCR 685 relied on Para 17(a)
[1976] 1 SCR 552 relied on Para 17(a) F
[1974] 2 SCC 301 relied on Para 17(a)
[1996] 3 SCR 721 referred to Para 17(d)
[1955] 1 SCR 773 referred to Para 18
[1964] 5 SCR 975 referred to Para 18 G
[2016] 11 SCR 723 relied on Para 49
[2016] 9 SCR 985 relied on Para 50
[1999] 1 Suppl. SCR 146 referred to Para 52
[1962] 3 Suppl. SCR 1 relied on Para 53 H
1052 SUPREME COURT REPORTS [2020] 5 S.C.R.

A [2009] 3 SCR 735 relied on Para 54
[2004] 1 SCR 564 relied on Para 60
[1986] 1 SCR 371 relied on Para 73
[1998] 1 SCR 254 relied on Para 74
B [1999] 2 SCR 589 relied on Para 76
[1963] 3 SCR 858 relied on Para 78
[2013] 10 SCR 328 relied on Para 88
[2011] 3 SCR 527 relied on Para 89
C
[1988] 3 Suppl. SCR 770 relied on Para 90
[2015] 2 SCR 51 relied on Para 91
[2018] 2 SCR 679 relied on Para 93
[1989] 2 SCR 918 relied on Para 94
D
[2007] 4 SCR 347 relied on Para 96
[2008] 1 SCR 16 relied on Para 97
[1974] 3 SCR 760 relied on Para 98
[2011] 3 SCR 1 relied on Para 99
E
[2011] 11 SCR 1094 relied on Para 102
CIVIL ORIGINAL/APPELLATE JURISDICTION: Civil Appeal
No. 5674 of 2009.
From the Judgment and Order dated 13.08.2008 of the High Court
F of Judicature at Bombay in First Appeal No. 1481 of 2008.
With
Civil Appeal Nos. 5684, 5682, 5681, 5675 of 2009, 10871, 4391,
7410 of 2010, 2384, 2385, 2386, 2387-2390, 2391-92, 2393-2394, 2395,
2396-2397, 2398, 2399, 2400, 2401, 2402, 2403, 2404, 2405, 2406 of 2020,
G
C.C. No. 7586 of 2014, W.P. (C) Nos. 318 of 2010, 41, 220, 293, 306,
338, 375 of 2011, 122, 199, 250, 291, 386, 487, 537, 554 of 2012, 36, 146,
138, 179, 192, 191, 112, 111, 151, 175, 181, 201, 233, 236, 238, 253, 250,
248, 271, 265, 270, 279, 266, 280, 284, 353, 469, 452, 588, 758, 762, 761,
800, 753, 819, 922, 1007, 1037, 1044, 1043, 1045 of 2013, 5, 10, 40, 142,
H 169, 168, 352, 408, 420, 421, 492, 712, 714, 795, 754, 827, 849, 838, 1020
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1053
MURGUD SAHAKARI BANK LIMITED

of 2014, 26, 86 of 2015, 1035, 1232, 1355, 1331, 1339, 1353 of 2019, 31, A
62, 72, 134, 207, 271, 289, 292, 373 of 2020.
Tushar Mehta, SG, Jayant Muthraj, Jaideep Gupta, Shekhar
Naphade, Vijay Hansaria, Vinay Navare, Ritin Rai, Sr. Advs., Mahesh
Agarwal, Ankur Saigal, Vikrant Pachnanda, Utkarsh Pratap, E.C.
Agrawala, Devansh A. Mohta, Shishir Deshpande, Amit Yadav, Nilakanta B
Nayak, Ms. Sujata Kurdukar, Mrigank Prabhakar, Ms. Sakshi Banga,
Gautam Prabhakar, Gaurav Nair, Ms. Sanika Mehra, Ms. Pranati
Bhatnagar, Kritya Sinha, Varun Singh, Vikas Mehta, Apoorv Khator,
Rajat Sehgal, Satpal Singh, Ms. Seema Thapliyal, Jaimon Andrews,
K. Prajagopal, Piyo Harold Jaimon, Sandeep Thakur, Naresh Kumar,
Zaid Ali Subzposh, Tamim Qadri, Lakshmi Raman Singh, Vineet Bhagat, C
Nikhil Goel, S.K. Kulkarni, M. Gireesh Kumar, Ankur S. Kulkarni,
M.P. Vinod, Atul Shankar Vinod, Dileep Pillai, Ajay Kumar Jain, Sajith
P., Kannan Gopal Vinod, Chinmoy Khaladkar, Sanjay Kharde,
Ms. Chandan Ramamurthi, Pradhuman Gohil, Mrs. Taruna Singh,
Ms. Ranu Purohit, Ms. Tanya Srivastava, Ms. Charu Mathur, Yadav D
Narender Singh, Ms. E.R. Sumathy, Sarad Kumar Singhania,
Ms. Vanshaja Shukla, Rameshwar Prasad Goyal, H. Chandra Sekhar,
Mrs. Rekha Chandra Shekhar, Karri Venkata Reddy, Chirag M. Shroff,
Ms. Yashika Verma, Ms. Abhilasha Bharti, M.A. Chinnasamy, Arvind
Gupta, Sandeep Kumar Singh, Anil Kumar Sahu, Prakash Gautam, Sujeet
Kumar, J.N. Pathak, Sunil Kumar Pandey, Amol Nirmalkumar E
Suryawanshi, S. Sada Siva Reddy, Karri Venkata Reddy, S. Usha Reddy,
Santosh Krishnan, Ms. Rakhi Ray, Abhay Kumar, M.J. Paul, Renjith B.,
Lakshmi N. Kaimal, Jayakrishnan U., Mahendra Kumawat, Subodh S.
Patil, Ms. Supriya Patil, Ajay Kumar Singh, Garvesh Kabra, Mrs. Pooja
Kabra, Ms. Nikita Kabra, Harshvardhan Jha, Anup Lohiya, Adarsh F
Upadhyay, Abhishek Chaudhary, Anurag Kishore, Mridula Kanti Sinha,
S.K. Rajora, Ms. Mamta Upadhyaya, Kusum Chaudhary, Atul
Babasaheb Dakh, Mrs. Pragya Baghel, Ajay Majithia, Satyajit A. Desai,
Ms. Anagha S. Desai, Bankey Bihari Sharma, Rabin Majumder, Abhishek
Agarwal, A. Venayagam Balan, Gaurav Agrawal, Bharat L. Gandhi,
Mrs. Vithika Garg, Ms. Vidushi Garg, Ms. Karishma Singhal, Ms. Garima G
Prashad, Suresh Chandra Tripathy, Anirudh Sanganeria, Karunakar
Mahalik, B. Vishwanath Bhandarkar, Sarbendra Kumar, Upendra
Narayan Mishra, Durga Dutt, Prakash Sharma, Dilip Annasaheb Taur,
Rajul Shrivastav, Mohit D. Ram, Ms. Monisha Handa, Sachin Kaushal,
Bhagirath N. Patel, Rajat Nair, Ms. Swati Ghildiyal, Akshay Amritanshu H
1054 SUPREME COURT REPORTS [2020] 5 S.C.R.

A A.K. Sharma, Shubham Saurav, Ms. Vanshaja Shukla, Kuldeep
S. Parihar, H.S. Parihar, Ms. Ikshita Parihar, Shivaji M. Jadhav, Nicholas
Choudhary, Aditya P. Khanna, Aditya S. Jadhav, Shiv Ram Pandey,
S. Lakshmi Iyer, Ms. Aishwarya Dash, Chinmoy Khaladkar, (for
M/s. S.M. Jadhav and Company), Rutwik Panda, Ms. Nikhar Berry,
Ms. Anshu Malik, M.Y. Deshmukh, Ms. Manjeet Kirpal, Avanish Pandey,
B
Ms. Sneha Kalita, Gwen Karthika, Ms. Abha R. Sharma, P.S. Sudheer,
Rishi Maheshwari, Mrs. Mayuri Nayyar Chawla, Ms. Anne Mathew,
Bharat Sood, Ms. Shruti Jose, Amar Dave, Vishwas K. Shah, Massom
K. Shah, Anup Jain, Udit Gupta, Pulkit Tare, Ashok Panigarhi, Apoorv
Kurup, Ms. Upama Bhattacharjee, Ms. Nidhi Mittal, Mrs. Anil Katiyar,
C Pratap Venugopal, Ms. Surekha Raman, Ms. Ayushi Gaur, Akhil Abraham
Roy, Vijay Valsan, (for M/s. K.J, John and Co.), A.N. Arora, Piyush
Sharma, M.T. George, Mrs. Susy Abraham, Johns George, Aniruddha
P. Mayee, A. Rajarajan, Ms. N. Annapoorani, D. Bharat Kumar, Prasanna
Kumar Parhi, Tadimalla Bhaskar Gowtham, Aman Shukla, D.V. Raghu
Vamsu, Siddhartha Sinha, Hathindra Manda, Abhijit Sengupta, Anil Kumar
D
Mishra, Ms. Praveena Gautam, Pawan Shukla, Ms. Sweety Pandey,
Raja Ram, M. Khairati, Irshad Ahmad, Aniruddha Joshi, Rajeev
Maheshwaranand Roy, Gunjan Kumar, P. Srinivasan, Navjeet Giri, Rajeev
K. Panday, V.N. Raghupathy, Manendra Pal Gupta, S.N. Bhat,
Ms. Hemantika Wahi, Chinmoy Khaladkar, Ms. Neha Sharma,
E Deeptakriti Verma, Rajiv Shankar Dwivedi, Ms. Anuradha Mutatkar,
Ms. Usha Singh, Ms. Nidhi Saini, Siddharth Mittal, Arun Aggarwal, Ankur
Prakash, Praveen Chaturvedi, Dr. Lalit Bhasin, Ms. Nina Gupta,
Ms. Palak Chadha, Ms. Ruchika Joshi, P.V. Yogeswaran, Ms. Asha
Gopalan Nair, Sudhanshu S. Choudhari, Rameshwar Prasad Goyal,
Debmalya Banerjee, Kartik Bhatnagar, Rohan Sharma, A.S. Aman,
F
Ujjwal Singh, Vandaan Wanchoo (for M/s. Karanjawala & Co.), Soumyajit
Pani, Chittaranjan Singh (for Vinodh Kanna B.,), A. Venayagam Balan,
P.I. Jose, Prashant K. Sharma, Jenis Francis, Ravi Sagar, Anupam
Mishra, Hari Kumar V., Siddhesh Kotwal, Ms. Bansuri Swaraj, Nirnimesh
Dube, Ms. Astha Sharma, Ms. Arshiya Ghose, Divyansh Tiwari,
G Ms. Ana Upadhyay, Rajesh Mahale, Arjun Krishnan, Ankur Singh,
Shourya Bari, Aaditya A. Pande, Chander Shekhar Ashri,
Chandrashekhar A. Chakalabbi, Awanish Kumar, S.K. Pandey, Anshul
Rai (for M/s. Dharmaprabhas Law Associates), B.K. Pal, G. Prakash,
Jishnu M.L., Mrs. Priyanka Prakash, Mrs. Beena Prakash, P.V. Dinesh,
Uday B. Dube, Y. Raja Gopala Rao, Ms. Vismai Rao, Sanjeev Kumar,
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1055
MURGUD SAHAKARI BANK LIMITED

Pankaj Tikde, Sanjay Kumar, H.K. Naik, Rajnish K., Awanish Kumar, A
Ajay Amritraj, Arvind Kr. Sharma, Aniteja Sharma, Raj Kishor Choudhary,
Rohit K. Singh, Uday Tiwary, P.N. Razdan, Mirza Kayesh Begg,
Ms. Anshruta Maheshwari, Ms. Usha Nandini. V, Bineesh Karat, Biju
P. Raman, M.S. Vishnu Sankar, Ms. Athira G. Nair, Sonal Jain, Kumar
Shashank, Ms. Rukhmini Bobde, Aviral Kapoor, Ms. Shagufa Salim,
B
Nivesh Kumar, Ms. Riya Dhingra, Satyavir Yadav, Vishal Prasad, Anil
Nag, Arjun Vinod Bobde, Ms Richa Relhan, Sathak Bhatia,
S. Bushra Kazim, Rajat Joseph, Suresh Dutt Dobhal, Anil Kumar Sangal,
Harish Pandey, Ms. Pratibha Jain, Vijay Kumar, Dharmendra Kumar
Sinha, Shashibhushan P. Adgaonkar, Rahul Chitnis, Sachin Patil, T.L.V.
Rama Chari, Hitesh Kumar Sharma, Akhileshwar Jha, T. Ramamurty, C
Ms. Sushma Suri, Shreekant N. Terdal, Tanvir Nayar, Praful Sinha, Manoj
Kr. Mishra, M/s. Udit Kishan Associates, Advs. for the appearing parties.
The Judgment of the Court was delivered by
ARUN MISHRA, J.
D
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.1, Delhi Cloth & General Mills Co. Ltd. v. Union of India and
Ors.2, T. Velayudhan Achari and Anr. v. Union of India and Ors.3,
and Union of India and Anr. v. Delhi High Court Bar Association
and Ors.4. The question relates to the scope of the legislative field covered E
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 F
co-operative banks.
2. The Parliament’s competence to amend Section 2(c) of the
SARFAESI Act by adding sub-clause ‘(iva) - a multi-State co-operative
bank’ has also been questioned. The issue arises whether the definition
of ‘banking company’ contained in Section 5(c) of the Banking Regulation G
Act, 1949 (for short, ‘the BR Act, 1949’) covers co-operative banks
registered under the State law and also multi-State co-operative societies
1 (2007) 6 SCC 236
2 (1983) 4 SCC 166
3 (1993) 2 SCC 582

4 (2002) 4 SCC 275
H
1056 SUPREME COURT REPORTS [2020] 5 S.C.R.

A under the Multi-State Co-operative Societies Act, 2002 (for short, ‘the
MSCS Act’). Consequently, (i) whether co-operative banks at State and
multi-State level are co-operative banks within the purview of the
SARFAESI Act ? and (ii) whether provisions of the SARFAESI Act
apply to the co-operative banks registered under the MSCS Act ?
B 3. Section 56(c)(i)(cci) is contained in Part V of the BR Act,
1949, and was brought into force on 1.3.1966. It defines ‘co-operative
bank’ to mean a ‘state co-operative bank,’ a ‘central co-operative bank,’
and a ‘primary co-operative bank.’ By the notification issued in 2003,
the co-operative bank was brought within the class of banks entitled to
seek recourse to the provisions of the SARFAESI Act. Section
C 2(1)(c)(iva) was inserted into the SARFAESI Act, w.e.f. 15.1.2013.
Before that, the co-operative bank and the multi-State co-operative bank
took recourse to the SARFAESI Act under the notification issued in
2003.
4. Writ petitions were filed questioning vires of the notification
D dated 28.1.2003 issued under Section 2(1)(c)(v) of the SARFAESI Act
and the insertion of Section 2(1)(c)(iva) to the SARFAESI Act in 2013.
The backdrop history of litigation indicates that in Narendra Kantilal
Shah v. Joint Registrar, Co-operative Societies5, a Full Bench of the
Bombay High Court opined that term ‘banking company’ also means
E co-operative bank within the meaning of Section 2(d) of the RDB Act,
1993. Hence, with effect from the date of constitution of Debts Recovery
Tribunal under RDB Act, 1993, the courts and authorities under the
Maharashtra Co-operative Societies Act, 1960, as also the MSCS Act
would cease to have jurisdiction to entertain the applications submitted
by the co-operative banks for recovery of their dues. The decision in
F Narendra Kantilal Shah (supra) was set aside by this Court in Greater
Bombay Coop. Bank Ltd. (supra). This Court opined that the
co-operative banks established under the Maharashtra Co-operative
Societies Act, 1960 and Andhra Pradesh Co-operative Societies Act,
1964, transacting the business of banking do not fall within the meaning
G 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

H
5 AIR 2004 Bom 166
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1057
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

co-operative banks from their members. The field of co-operative societies A
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
B
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 can be applied to recovery provisions carved out in
the SARFAESI Act. C
5. Writ Petition No.2672 of 2007 was filed by Khaja Industries,
challenging the invocation of the SARFAESI Act by Jalgaon Peoples
Co-operative Bank. The Bombay High Court dismissed the same. The
recourse to the proceedings under the SARFAESI Act was upheld. In
Rama Steel v. Union of India6, the decision in Khaja Industries was D
followed. Against the decision of Bombay High Court, appeals have
been filed.
6. On 13.8.2008, Pandurang Ganpati Chougule – appellant,
questioned the action of Vishwasrao Patil Murgud Sahakari Bank Limited
under the SARFAESI Act before the Civil Judge in Spl. Civil Suit No.226 E
of 2007. Deciding the preliminary issue, the Trial Court held that it did
not have the jurisdiction to decide the suit. The first appeal preferred
was dismissed. Against that, the appeal has been preferred before this
Court. A separate writ petition under Article 32 of the Constitution of
India has also been filed, questioning the invocation of the SARFAESI
Act by issuing notices under Section 13 by co-operative banks. During F
the pendency of the matters, the Central Government brought into force
the Enforcement of Security Deposit and Debts Law (Amendment) Act,
2012 (Act 1 of 2013), amending the definition of Section 2(1)(c) of the
SARFAESI Act; the amendment has also been questioned in the writ
petition filed in this Court. G
7. In Administrator, Shri Dhakari Group Co-operative Cotton
Seal & Ors. v. Union of India, (Special Civil Application No. 930 of
2001), the Gujarat High Court struck down the notification dated 28.1.2003,
relying upon Greater Bombay Coop. Bank Ltd. (supra), same has also
6 (2007) 6 Mah. L.J. 387 H
1058 SUPREME COURT REPORTS [2020] 5 S.C.R.

A been questioned in the appeal. Later on, Gujarat High Court in Neel Oil
Industries v. Union of India7, rejected the challenge to the Constitutional
validity of clause (iva) ‘multi-State co-operative bank’ inserted by way
of Amendment Act, 2013.
8. On 30.7.2015, the matter was referred to a larger Bench. After
B that, on 26.2.2016, a three-Judge Bench referred the matter to a larger
Bench, due to conflicting decisions mentioned earlier of the three-Judge
Bench of this Court.
ARGUMENTS:
9. Shri Devansh A. Mohta, learned counsel appearing on behalf
C of the appellants, raised the following arguments:
(a) The scope of banking under Entry 45 of List I is to be
interpreted 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 India8 in which this Court held that ‘banking’ under
D 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
E referred to the decision in Mahaluxmi Bank Ltd. v. Registrar of
Companies, West Bengal9 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.
(b) As to the scope of Entry 45 List I, he has further referred to
F the decision in ICICI Bank Limited v. Official Liquidator of APS Star
Industries Limited and Ors.10, wherein it was emphasised that even if
a company was doing different businesses in addition to clause (a) to (o)
of Section 6(1), it would remain a banking company as long as it was
performing the core banking functions under Section 5(b). The core
banking function is the sine qua non for being regulated by the BR Act,
G 1949. Therefore, ‘banking’ in Entry 45 of List I is essentially meant to be
confined to ‘core banking business’. At the time when the Constitution
7 AIR 2015 Gujarat 171
8 (1970) 1 SCC 248
9 AIR 1961 Calcutta 666

10 (2010) 10 SCC 1
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1059
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

of India was promulgated, a well-defined and well-established meaning A
of the expression ‘banking’ prevailed in the form of the definition of
‘banking’ under Section 5(b) of the BR Act, 1949. The same expression
was borrowed by the Framers of the Constitution of India, and same
meaning was to be given to the expression ‘banking’ in the Entry as
defined in the BR Act, 1949 as observed by this Court in The State of
B
Madras v. Gannon Dunkerley & Co., (Madras) Ltd.11 and Diamond
Sugar Mills Ltd. and Anr. v. State of Uttar Pradesh and Anr.12.
(c) There is a difference between ‘entity’ and ‘activity’. Section
6(1) and 6(2) of the BR Act, 1949, enable only a banking entity to perform
certain additional business/functions. The performance of additional
business/functions does not confer any status of a banking company C
upon such an entity. He also referred to Sections 32 and 33 of the State
Bank of India Act, 1955 (for short, ‘the SBI Act’). Section 32 recognises
that the State Bank of India can carry ‘agency business’ on behalf of
Reserve Bank of India, that is not a banking business performed by the
State Bank of India as apparent from the perusal of Section 33, which D
categorically enables the State Bank of India to carry on banking business
under Section 5(b) and other forms of business under Section 6(1) of the
BR Act, 1949. Thus, it was submitted that every activity performed by a
bank is not a banking activity.
(d) That Entry 43 of List I of the Seventh Schedule of the E
Constitution of India confers upon the Parliament the competence to
pass law pertaining to ‘incorporation, regulation and winding up’ of a
trading corporation, more particularly a banking corporation. However,
‘co-operative societies’ are expressly excluded from the purview of the
Parliament’s competence being a State subject under Entry 32 of List
II. He argued that the legislative history of the BR Act, 1949, made a F
difference between ‘entity’ and ‘activity.’ The expression ‘banking’ was
defined in Chapter X-A 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 G
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,
11 AIR 1958 SC 560
12 AIR 1961 SC 652 H
1060 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 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
B
‘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 India Act, 1955. In the year 1965, the Central Government
passed the Banking Laws [Application of Cooperative Societies Act,
1965 (Act No.23 of 1965)]. He has referred to the Statement of Objects
C and Reasons, which brings out that the BR Act, 1949, was only to regulate
the banking business relatable to Entry 45 and not to regulate the
co-operative societies.
(e) Section 2(10) of the Maharashtra Co-operative Societies Act,
1960, is related to the management and business of co-operative societies.
D Under Section 91 of the Maharashtra Act, any dispute touching the
constitution, management or business is required to be referred to a
co-operative court.
(f) Similarly, Section 3(f) of the MSCS Act defines ‘co-operative
bank’ to mean a multi-State co-operative society, which undertakes the
E banking business. Under Section 84(2) of the MSCS Act, a dispute can
be raised. The power of Parliament is confined to specific provisions of
the BR Act, 1949 (a legislation referable to Entry 45 of List I), and the
Reserve Bank of India Act (a legislation referable to Entry 38 of List I).
The Parliament lacks legislative competence to regulate any other
business, function, or facets of co-operative societies. It could have
F extended the provisions of said Act only. The Parliament cannot regulate
these co-operative societies like a company performing banking functions
or a banking corporation.
(g) The object of the SARFAESI Act is to regulate securitisation
and reconstruction of financial assets and enforcement of security
G interests. The business of securitisation is not a banking business. Under
Section 2(1)(l)of the SARFAESI Act, a ‘financial asset’ means debt or
receivable and includes inter alia any financial asset. Section 2(1)(ha)
defines ‘debt’ to mean the same as defined in clause (g) of Section 2 of
the RDB Act, 1993. Financial assistance to members is another form of
H business that is not a banking business. Therefore, an attempt to regulate
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1061
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

the assets of a co-operative bank by bringing them within the purview of A
the SARFAESI Act is contrary to the original intent of the extending
provisions of the BR Act, 1949 and that would amount to exercising
control over the entities which are beyond the purview of competence
of Parliament.
(h) The Parliament lacks legislative competence to regulate B
financial assets related to the non-banking activity of a co-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 C
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 D
intendment as opined in I.T.C. Ltd. v. Agriculture Produce Market
Committee and Ors.13
(i) 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 E
Section 2(1)(c)(v) means ‘such other bank which the Central Government
may by notification, specify for this Act.’ The power of the Central
Government is confined to the entity of the kind referred under Clauses
(i) to (iv) and not beyond that, i.e., a banking company or a banking
corporation only and not co-operative societies/banks. The co-operative
bank is neither a banking company nor a banking corporation; thus, it F
falls outside the purview of Section 2(1)(c)(v) of the SARFAESI Act.
The notification is ultra vires and violative of not only the parent statute
but also the Constitution of India. For this purpose, learned counsel relied
upon Hinsa Virodhak Sangh v. Mirzapur Moti Kuresh Jamat and
Ors.14. Recovery of debts due is essential for the bank, i.e., entity and G
not for the banking business, i.e., activity. In Greater Bombay Coop.
Bank Ltd. (supra), the argument based upon the banking business of the
co-operative bank to be covered by Entry 45, was rejected. Therefore,
13 (2002) 9 SCC 232
14 (2008) 5 SCC 33 H
1062 SUPREME COURT REPORTS [2020] 5 S.C.R.

A recovery of dues was held to be outside the purview of Entry 45 of List
I. The Central legislation seeking to regulate banks can only bring within
its purview entities falling in Entry 43, i.e., banking corporation and banking
companies. Thus, the Parliament is not competent to enact a law
concerning the subject matter of Entry 32 of List II.
B (j) The amendment incorporated is a colourable exercise. The
notification dated 28.1.2003 is ultra vires in view of the decisions in
K.C. Gajapati Narayan Deo and Ors. v. State of Orissa15 and State
of Tamil Nadu and Ors. v. K. Shyam Sunder and Ors16. Once entities
are excluded by Entry 43, the Union of India cannot control it by an
indirect method. The Multi-State Co-operative Bank is a primary
C co-operative bank that is, in turn, a co-operative society. In Apex
Cooperative Bank of Urban Bank of Maharashtra & Goa Ltd. v.
Maharashtra State Cooperative Bank Ltd. and Ors.17, it was observed
that co-operative societies are in the purview of the State List.
(k) The MSCS Act is relatable to Entry 44. This Court is not
D required to pronounce upon the validity of the said Act. The source of
legislative authority to regulate such banks would be Entry 43. The purpose
of Act No.23 of 1965 was to regulate the banking business of certain
co-operative societies. They do not cease to be co-operative societies
as held in Virendra Pal Singh and Ors. v. District Assistant Registrar,
E Cooperative Societies, Etah, and Anr.18. There is a difference in the
Entries 43, 44 and 32 as held in S.S. Dhanoa v. Municipal Corporation,
Delhi and Ors.19, Daman Singh and Ors. v. State of Punjab and
Ors.20, and Dalco Engineering Private Limited v. Satish Prabhakar
Padhye and Ors.21. The decision in Greater Bombay Coop. Bank
Ltd. (supra) laid down the law correctly.
F
(l) 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. Ltd.
(supra).
G
15 AIR 1953 SC 375
16 (2011) 8 SCC 737
17 (2003) 11 SCC 66

18 (1980) 4 SCC 109

19 (1981) 3 SCC 431

20 (1985) 2 SCC 670

H 21 (2010) 4 SCC 378
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1063
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

10. Shri Vijay Kumar, learned counsel appearing on behalf of A
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
B
Naseer Usmani v. Central Bank of India and Ors.22. There is complete
mechanism provided under the State Co-operative Societies Acts and
MSCS Act; thus, the amendment to the SARFAESI Act and the
notification deserve to be struck down.
11. Shri Vishwas Shah, learned counsel appearing on behalf of
appellants, has argued that it is not necessary to question the 1965 C
Amendment made to the BR Act, 1949. The validity of the notification
and the provisions of the SARFAESI Act have to be tested on their
own. The co-operative banks differ from other banks. Entities are
basically co-operative societies, and it incidentally trenches on banking.
The dominant legislation on the subject is State legislation under Entry D
32. The co-operative banks are different from banking companies to the
extent that they advance loans to their members only. The banking
companies/corporations deal with the public. The co-operative banks do
not carry the business as defined in the BR Act, 1949. The Doctrine of
Pith and Substance has to be applied, co-operative society engaged in
banking does not cease to be a co-operative society. In Entry 45 of List E
I, ‘banking’ does not include co-operative banks. He relied upon Gannon
Dunkerley & Co. (Madras) Ltd. (supra) and I.T.C. Ltd. (supra).
12. Shri Satpal Singh, learned counsel, has re-emphasised that
amendment made by inserting the definition of ‘multi-State co-operative
bank’ is colourable legislation and deserves to be struck down. The F
Co-operative Acts are comprehensive. The meaning of the expression
‘bank’ could not have been enlarged.
13. Per contra, Shri Shekhar Naphade, learned senior counsel,
appearing on behalf of Cosmos Bank, raised the following arguments:
G
(a) Section 2(1)(c) of the SARFAESI Act defines ‘bank’ to mean
‘banking company’ as defined in Section 5(c) of the BR Act, 1949. Thus,
the definition of ‘bank’ contained in Section 5(c) of the BR Act, 1949
stands incorporated in Section 2(d) of the SARFAESI Act, that came
22 (2006) 2 SCC 241 H
1064 SUPREME COURT REPORTS [2020] 5 S.C.R.

A into existence on 21.6.2002; hence, it is necessary to examine Section
5(c) of the BR Act, 1949, as it stood on 21.6.2002. It is covered by way
of incorporation, w.e.f. 1.3.1966. Section 56(a) became part of Statute
since 1.3.1966, the reference to a ‘banking company’ or a ‘company’
shall be construed as a reference to a co-operative bank. Section 56(a)
becomes part of Section 5(c) of the BR Act, 1949, and stands incorporated
B
in Section 5(c) of the BR Act, 1949. Thus, a reference to the banking
company has to be read as a reference to the co-operative bank.
(b) 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
C 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.
(c) 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
D 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
E co-operative society.
(d) He relied on The Majoor Sahakari Bank Ltd. v. N.N.
Majmudar and Anr.23 in which the Bombay High Court observed that
co-operative society doing business of banking is a company. The question
mentioned above arose as the Government of Bombay issued a
F notification and directed that all the provisions of the Bombay Industrial
Disputes Act shall apply to the business of banking companies registered
under any of the enactments relating to the companies for the time being
in force.
(e) Article 246 distributes legislative powers between the Union
G and the State regarding three lists in the Seventh Schedule. Under Article
246(1), the Parliament has exclusive power to make laws in respect of
97 matters enumerated in List I notwithstanding anything contained in
clauses (2) and (3). As per Article 246(3), the State legislature has
legislative powers to make laws with respect to 66 matters enumerated

H 23 AIR 1957 Bom 36
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1065
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

in List II. The exclusive power of the State legislature to legislate with A
respect to any of the matters enumerated in List II has to be exercised
subject to Article 246(1), i.e., the exclusive power of the Parliament to
legislate concerning matters enumerated in List I. As a consequence if
there is a conflict in an Entry in List I and an Entry in List II, which is not
capable of reconciliation, the power of Parliament to legislate concerning
B
matters enumerated in List I must supersede pro tanto the power of the
State legislature. Both the Parliament and the State legislatures have
concurrent power of legislation for 47 matters enumerated in List III.
(f) Reliance has been placed on Virendra Pal Singh (supra), in
which the Court examined the powers of the State legislature relating to
the service conditions of employees. The Court held that the State C
legislature was competent to legislate concerning employees of the bank.
This Court did not deal with the banking business of the co-operative
societies. He argued that regulating the non-banking affairs of society
and regulating the banking business of society are two different things.
Entry 32 of List II deals with regulation of non-banking affairs of the D
co-operative society, on the other hand, Entry 45 of List I deals with
banking; hence, any legislation dealing with regulation of banking will be
traceable to Entry 45 of List I and only the Parliament will be competent
to legislate. The SARFAESI Act does not deal with incorporation,
regulation, and winding up of the corporation, company, or co-operative
societies. It does not regulate the working of a corporation, company, or E
co-operative society. It only provides for 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) F
requires reconsideration and clarification. There is no in-depth
consideration of its provisions and, more particularly, Section 56 of the
BR Act, 1949.
(g) 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 G
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
H
1066 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 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 the applicability of the RDB Act, 1993 to
debts due to co-operative banks constituted under the MCS Act, 1960,
the MSCS Act, and the APCS Act, 1964. The question whether the
B
State legislature was competent to legislate law concerning co-operative
societies transacting business of banking in the light of Entry 32 of List
II of the Seventh Schedule, did not arise in the matter; hence, any
observation made by this Court, concerning the said issue, cannot be
considered as the ratio of the judgment in Greater Bombay Coop. Bank
C Ltd. (supra).
(h) He relied upon the decision of a Division Bench of the Bombay
High Court in The Shamrao Vithal Co-operative Bank Ltd., Mumbai,
and Anr. v. M/s. Star Glass Works, Mumbai and Ors.24 in which
meaning of incorporation by reference was considered. The same has
D to be taken to a logical end. The Parliament has provided an additional
remedy to co-operative banks to recover their dues by recourse to the
Co-operative Societies Act. The Court did not consider the said aspect
in Greater Bombay Coop. Bank Ltd. (supra). The distinction between
co-operative banks serving the members and the corporate bank doing
commercial transactions would make no difference. The activity remains
E banking merely by the fact that co-operative banks are co-operative
societies doing banking business; it does not make the banking activity
carried out by them incidental one. It remains their activity. It was
observed that the definition of ‘banking company’ in Section 5(c) had
not been altered by Act No.23 of 1965. The incorporation, by reference,
F has the effect of changing the definition of ‘banking company.’ Even if
in the RDB Act, 1993, the co-operative bank is not included right from
the beginning, nothing came in the way of Parliament to enact a law that
provides for an additional remedy to co-operative banks.
14. Shri Jaideep Gupta, learned senior counsel appearing on behalf
G of the Reserve Bank of India, raised the following arguments:
(a) The matter is covered by Entry 45 of List I of the Seventh
Schedule of the Constitution of India. For the very reason, the Parliament
has the right to legislate in respect of the banking business as defined in
Section 5(b) of the BR Act, 1949.
H 24 AIR 2003 Bom 205
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1067
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

(b) Banking operations would inter alia include accepting of loans A
and deposits, the grant of loans and recovery of debts due to the bank.
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
B
relating to that. The SARFAESI Act falls within the ambit of Entry 45 of
List I.
(c) 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

(d) 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 D
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 notified co-operative banks under the purview
of Section 2(1)(c)(v) of the SARFAESI Act, more so, in view of the
definition in clause (cci) of Section 56 of the BR Act, 1949. E
(e) The argument of the appellant that Section 2(1)(c) of the
SARFAESI Act refers to an entity and not the activity, therefore, it
cannot be justified under Entry 45 of List I, is misconceived. Section
2(1)(c) is only a definition provision. The subject matter of legislation is
securitisation, reconstruction of financial assets and enforcement of F
security interest of banks or financial institutions. The subject matter of
legislation is not based on the entity.
(f) The SARFAESI Act is not a legislation relating to incorporation,
regulation, and winding up of the co-operative societies or multi-State
co-operative society engaged in banking. The same is traceable to Entry G
45 of List I, i.e., the activity of banking.
(g) The Statement of Objects and Reasons of the SARFAESI
Act indicates that it relates to the business of banking and matters
incidental to it. It confers the power upon the bank and financial institutions
to take possession of security and sell them to overcome the slow pacing
H
1068 SUPREME COURT REPORTS [2020] 5 S.C.R.

A of recovery of default loans and mounting levels of non-performing assets
of banks and financial institutions. It was based on the recommendation
of the Narasimham Committee I and II and the Andhyarujina Committee
formed by the Central Government to examine the banking sector
reforms. The legislation in question, thus, relates to the business of
banking.
B
(h) The argument of the appellant that ‘such other banks’ cannot
include co-operative banks, is also without basis, and the Parliament has
the power to legislate. Certain observations made in Greater Bombay
Coop. Bank Ltd. (supra) are incorrect and required to be overruled.
The questions which arose in the said case were different.
C
15. Shri Vijay Hansaria, learned senior counsel appearing on behalf
of Maharashtra State Co-operative Bank, reiterated the aforesaid
arguments and additionally urged that the Maharashtra State Co-operative
Bank has 41 branches in the State of Maharashtra. As on 31.3.2015, it
had deposits of Rs.9,992 crores and has granted loans and advances to
D the extent of Rs.12,006 crores and has working capital to the extent of
Rs.20,947 crores. There are total 2115 members including 1818
co-operative institutions, 296 individuals and 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
E 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
F Co-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
G 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 provides re-finance facilities to the District Central Co-operative
Bank, and it also takes care of the financial needs of the non-farming
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1069
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

sector by providing re-finance facilities to the District Co-operative Banks A
under the NABARD’s general re-finance to enable them to help rural
artisans and small-scale industries. It has also introduced the crop loan
system in the State in association with District Co-operative Banks. Thus,
the notification issued and the amendment are appropriate, more so, in
light of the amendment incorporated in 1965. The matter is covered
B
under Entry 45 of List I of the Seventh Schedule.
16. On behalf of the Indian Banks Association, Shri P.V.
Yogeswaran learned counsel, supported the arguments raised on behalf
of the Banks. He further argued that the enactment of the SARFAESI
Act is with in the legislative competence of the Parliament. It does not
deprive borrowers’ right to challenge the action under Section 13 of the C
SARFAESI Act as well as under the Maharashtra Co-operative Societies
Act and is not violative of Article 14. It only provided an additional remedy.
This Court upheld the validity of Sections 13 and 17 of the SARFAESI
Act. The Parliament can legislate concerning co-operative banks within
the purview of Entry 45 of List I. D
17. Shri Vinay Navre, learned senior counsel appearing on behalf
of Co-operative Banks, vehemently argued that:
(a) The expression ‘incorporation, regulation and winding up’ in
Entries 43 and 44 of List I and Entry 32 of List II refers only to
organisational aspects of the corporations. It does not have any bearing E
on the business/transactional aspects. He has relied upon decisions in
Hindustan Lever and Anr. v. State of Maharashtra and Anr.25, Kerala
State Electricity Board v. Indian Aluminium Co. Ltd.26 and Sita Ram
Sharma and Ors. v. State of Rajasthan and Ors.27. The framers of
the Constitution deliberately did not define many terms used in the Lists F
in the Seventh Schedule. Wherever it was required, they defined such
terms. Some of the subjects enumerated in Lists of the Seventh Schedule
are defined in Article 366 of the Constitution, for instance, Agricultural
Income (List I, Entry 82), Corporation Tax (List I, Entry 85), Debt
(List II, Entry 42), Pension (List I, Entry 71) and (List II, Entry 42). The
framers of the Constitution avoided defining the term ‘banking’ in Article G
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.
25 (2004) 9 SCC 438
26 (1976) 1 SCC 466
27 (1974) 2 SCC 301
H
1070 SUPREME COURT REPORTS [2020] 5 S.C.R.

A (b) 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
B
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.
(c) The term ‘banking’ as understood in 1950 was too narrow,
C 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 American Express. The definition in the BR Act, 1949,
cannot be used to restrict the scope of the term ‘banking’ in Entry 45 of
D List I.
(d) If the argument of the appellants that co-operative banks are
not covered by Entry 45 of List I is accepted, the consequences will be
disastrous. Entire Part V of the BR Act, 1949, would become
unconstitutional. The Parliament can amend Section 84 of the MSCS
E Act, and it could enact the SARFAESI Act. Similarly, power can be
provided to recover dues under the SARFAESI Act also. The argument
raised on behalf of appellants as to ‘occupied field’ cannot be accepted
as the question of ‘occupied field’ is germane concerning the Concurrent
List as held in State of A.P. and Ors. v. Mcdowell & Co. and Ors.28.
The recovery of dues is an essential function of a bank. The argument
F to the contrary cannot be accepted. The purpose of the SARFAESI Act
is the enforcement of security interests. The consequence thereof is a
recovery, which is an incidental one.
(e) The SARFAESI Act is for enforcement of security, and it is
referable to Entry 6 of List III also, more so, because of the provisions
G contained in Sections 69 and 69A of the Transfer of Property Act, 1882.
Section 13 or other provisions of the SARFAESI Act do not interfere
with the legislative field occupied by Entry 32 of List II. The Maharashtra
Co-operative Societies Act, 1960, provides two remedies to the
co-operative banks for recovery of their dues. Section 91 is akin to a
H 28 (1996) 3 SCC 709
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1071
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

civil suit, and Section 101 provides a summary procedure for issuance of A
a revenue recovery certificate. The SARFAESI Act does not take away
the remedies of the co-operative banks under Section 91 or 101 of the
said Act; it provides additional remedy under Section 13 to co-operative
banks to recover the dues and enforce security interest. It is a classic
case of co-operative/collaborative federalism.
B
18. Shri Abhijet Sengupta, learned counsel appearing on behalf of
Jana Seva Sahakari Bank Ltd., urged that petition under Article 32 of
the Constitution cannot be said to be maintainable, given the decisions in
Dewan Bahadur Seth Gopal Das Mohta v. Union of India and Ors.29,
and Khyerbari Tea Co. Ltd. and Ors. v. State of Assam30. Entry 45 of
List I and Entry 32 of List II are to be read harmoniously. C

19. Following questions arise for consideration:
(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? D
(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? E
(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 cooperative banks in the State are
ultra vires?
F
IN REFERENCE QUESTION NO.1:
20. 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:
G
“43. Incorporation, regulation and winding up of trading
corporations, including banking, insurance and financial
corporations but not including co-operative societies.
29 (1955) 1 SCR 773
30 (1964) 5 SCR 975 H
1072 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 44. Incorporation, regulation and winding up of corporations,
whether trading or not, with objects not confined to one State, but
not including universities.
45. Banking.
***
B
32. Incorporation, regulation and winding up of corporation, other
than those specified in List I, and universities; unincorporated
trading, literary, scientific, religious and other societies and
associations; co-operative societies.”

C 21. In the BR Act, 1949, ‘banking’ has been defined under Section
5(b) thus:
“5. Interpretation. — In this Act, unless there is anything
repugnant in the subject or context,—
(b) “banking” means the accepting, for the purpose of lending
D or investment, of deposits of money from the public, repayable on demand
or otherwise, and withdrawable by cheque, draft, order or otherwise;”
22. Under Section 5(c) of the BR Act, 1949, the term ‘banking
company’ has been defined thus:
“5. Interpretation.— In this Act, unless there is anything
E repugnant in the subject or context,—
(c) “banking company” means any company which transacts the
business of banking in India;
Explanation.— Any company which is engaged in the
F manufacture of goods or carries on any trade and which accepts
deposits of money from the public merely for the purpose of
financing its business as such manufacturer or trader shall not be
deemed to transact the business of banking within the meaning of
this clause;”

G 23. Section 6 in Part II of the BR Act, 1949 deals with forms of
business in which banking companies may engage, is extracted hereunder:
“6. Forms of business in which banking companies may
engage.— (1) In addition to the business of banking, a banking
company may engage in any one or more of the following forms
of business, namely:—
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1073
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

(a) the borrowing, raising, or taking up of money; the lending or A
advancing of money either upon or without security; the drawing,
making, accepting; discounting, buying, selling collecting and
dealing in bills of exchange, hoondees, promissory notes, coupons,
drafts, bills of lading, railway receipts, warrants, debentures,
certificates, scrips and other instruments, and securities whether
B
transferable or negotiable or not; the granting and issuing of letters
of credit, traveller’s cheques and circular notes; the buying, selling
and dealing in bullion and specie; the buying and selling of foreign
exchange including foreign bank notes; the acquiring, holding,
issuing on commission, underwriting and dealing in stock, funds,
shares, debentures, debenture stock, bonds, obligations, securities C
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
D
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 E
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 F
in managing and carrying out of any issue, public or private, of
State, municipal or other loans or of shares, stock, debentures, or
debenture stock of any company, corporation or association and
the lending of money for the purpose of any such issue;
(e) carrying on and transacting every kind of guarantee and G
indemnity business;
(f) managing, selling and realising and property which may come
into the possession of the company in satisfaction or part
satisfaction of any of its claims;
(g) acquiring and holding and generally dealing with any property H
or any right, title or interest in any such property which may form
1074 SUPREME COURT REPORTS [2020] 5 S.C.R.

A the security or part of the security for any loans or advances or
which may be connected with any such security;
(h) undertaking and executing trusts;
(i) undertaking the administration of estates as executor, trustee
or otherwise;
B (j) establishing and supporting or aiding in the establishment and
support of associations, institutions, funds, trusts and conveniences
calculated to benefit employees or ex-employees of the company
or the dependents or connections of such persons; granting
pensions and allowances and making payments towards insurance;
C subscribing to or guaranteeing moneys for charitable or benevolent
objects or for any exhibition or for any public, general or useful
object;
(k) the acquisition, construction, maintenance and alteration of
any building or works necessary or convenient for the purposes
of the company;
D
(l) selling, improving, managing, developing, exchanging, leasing,
mortgaging, disposing of or turning into account or otherwise
dealing with all or any part of the property and rights of the
company;
(m) acquiring and undertaking the whole or any part of the business
E of any person or company, when such business is of a nature
enumerated or described in this sub-section;
(n) doing all such other things as are incidental or conducive to
the promotion or advancement of the business of the company;
(o) any other form of business which the Central Government
F may, by notification in the Official Gazette, specify as a form of
business in which it is lawful for a banking company to engage.
(2) No banking company shall engage in any form of business
other than those referred to in sub-section (1).”
24. Initially, the provisions of the BR Act, 1949, applied only to
G banking companies. The provisions of the BR Act, 1949, were extended
to co-operative banks by Act No.23 of 1965, w.e.f. 1.3.1966. Earlier
Section 56 was repealed by Act No.36 of 1957, 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
H
and for matters connected in addition to that.
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1075
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

25. Before we come to the amendments made, it is necessary to A
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:
B
“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 C
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 co-operative banks and the more
important primary non-agricultural co-operative banks certain
provisions of the existing Central laws which are relatable to D
“banking”.
2. The notes on clauses explain in detail the various provisions of
the Bill.” (emphasis supplied)
The President’s recommendation under Article 117 of the E
Constitution contained in appended Notes on clauses is also significant.
The State or apex co-operative banks, all central co-operative banks,
and primary non-agricultural credit societies, which have paid-up capital
and reserves of a nominal value of Rs.1 lakh or more, were to be deemed
to be co-operative banks. Consequential change in the qualifications of
directors was proposed to be made. Clause 6 provided to keep reserve F
at 3 per cent for apex co-operative banks. It was proposed to control
co-operative banks effectively under the provisions of the Reserve Bank
of India Act and Banking Companies Act. It would not be necessary to
make separate provisions concerning them, as such the Banking
Companies Act was to be renamed as Banking Regulation Act, and it G
would not be confined any longer to companies incorporated under the
Companies Act carrying on the business of banking.
26. What is of utmost significance is that extensive amendments
and omissions of several provisions of the BR Act, 1949 became
necessary concerning matters covered under Entry 32 of List II; as
H
1076 SUPREME COURT REPORTS [2020] 5 S.C.R.

A such various amendments were separately reflected in a separate chapter,
amendments were incorporated under various provisions of the Act in
Parts IIA, III and IIIA. The provisions relatable directly or indirectly to
incorporation, management and winding up of co-operative banks were
proposed to be omitted as these Parts or provisions were not in pith and
substance within the scope of any entry in the Central or Concurrent
B List of subjects in the Seventh Schedule of the Constitution of India.
Following is the relevant extract of the Notes appended to President’s
recommendation under Article 117 of the Constitution of India:
“According to the scheme of control as it is envisaged in the
Reserve Bank of India Act and in the Banking Companies Act,
C (a) all the State or apex co-operative banks, (b) all central
co-operative banks and (c) such of the primary non-agricultural
credit societies, including in particular urban co-operative banks,
as have paid-up capital and 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)
D 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
E 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) non-banking 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
F 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
non-banking institutions. Co-operative banks will be effectively
G controlled in accordance with other provisions which are being
made for this purpose in the Reserve Bank of India Act and the
Banking Companies Act and it will not, therefore, be necessary to
make any separate provision in regard to them. Agricultural credit
societies have been excluded generally from the scope of the
various provisions of the present Bill. The working funds and
H turnover of primary non-agricultural credit societies which are
not co-operative banks are relatively insignificant, with the result
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1077
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

that the trouble or expense involved in controlling their loans or A
advances or investment policies may not be worthwhile.
Clauses 10 and 11.— Chapter III provides for the amendments
necessary to Banking Companies Act. Clauses 10 and 11 seek to
alter the description of this Act and to make certain consequential
changes in the long title and the preamble. The Act, it is proposed, B
should be known in future as the Banking Regulation Act, 1949.
This will be appropriate, as its application will not be confined any
longer to companies incorporated under the Companies Act and
carrying on the business of banking.
Parts IIA, III and IlIA and such of the provisions in the other
Parts of the Act as are relatable either directly or indirectly to the C
incorporation, management and winding up of co-operative banks
are proposed to be omitted, as these Parts or provisions are not in
pith and substance within the scope of any entry in the Central or
Concurrent List of subjects in the Seventh Schedule to the
Constitution.” D
(emphasis supplied)
The provisions of Bankers’ Books Evidence Act, 1891 were also
proposed to be suitably modified to apply to the co-operative banks
thus:
“The provisions of the Bankers’ Books Evidence Act, 1891 and E
the Banking Companies (Legal Practitioners’ Clients’ Accounts)
Act, 1949 are proposed to be modified suitably, so that the special
procedure as to evidence or the protection in respect of certain
accounts may be extended to or be available in future in relation
to co-operative banks [clause (zk)].
F
The Third Schedule as proposed to be amended provides for the
prescribed Forms in which the ba1ance-sheets and profit and loss
accounts of co-operative banks will have to be maintained. The
Forms may, if necessary, be modified in future in the light of further
experience and in accordance with the procedure which is already
prescribed in the Act for this purpose.” G
The co-operative banks were also required to submit the balance
sheet and profit and loss account to the Reserve Bank of India.
27. 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 H
1078 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 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:
B “(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
C Government may declare any one or more co-operative societies
carrying on the business of financing other co-operative societies
in that district to be a central co-operative bank or banks within
the meaning of this definition;
(bii) “co-operative bank” means a State co-operative bank, a
D central co-operative bank and a primary co-operative bank;
(biii) “co-operative credit society” means a co-operative society,
the primary object of which is to provide financial accommodation
to its members and includes a co-operative land mortgage bank:
(biv) “co-operative society” means a society registered, or deemed
E to be registered, under the Co-operative Societies Act, 1912 or
any other law relating to co-operative societies for the time being
in force in any State;”
The ‘primary co-operative bank’ has been defined in Section 2(ciii),
and ‘primary credit society’ has been defined in Section 2(civ). The
F definitions are extracted hereunder:
“(ciii) “primary co-operative bank” means a co-operative society,
other than a primary agricultural credit society,—
(1) the primary object or principal business of which is the
transaction of banking business;
G
(2) the paid-up share capital and reserves of which are not less
than one lakh of rupees; and
(3) the bye-laws of which do not permit admission of any other
co-operative society as a member;
H (civ) “primary credit society” means a co-operative society, other
than a primary agricultural credit society,—
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1079
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

(1) the primary object or principal business of which is the A
transaction of banking business;
(2) the paid-up share capital and reserves of which are less than
one lakh of rupees; and
(3) the bye-laws of which do not permit admission of any other
co-operative society as a member; B

Explanation.— If any dispute arises to the primary object or
principal business of any co-operative society referred to in this
clause or clause (cii) or clause (ciii), a determination thereof by
the Bank shall be final.’;”
C
Other corresponding changes were brought in the provisions to
apply the Reserve Bank of India Act to co-operative banks.
(a) Various amendments have been carried out in the Banking
Companies Act, 1949, it was renamed as the BR Act, 1949. The ‘primary
agricultural credit society’ was excluded from the purview of the Reserve D
Bank of India Act and the BR Act, 1949. Co-operative land mortgage
banks and any other co-operative society except in the manner and to
the extent specified in Part V were also excluded. Section 3 of the BR
Act, 1949 was substituted as under:
“3. Nothing in this Act shall apply to-
E
(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.”
F
(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, G
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 H
1080 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 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 apply to,
or in relation to banking companies subject to the following
B modifications, namely:—
(a) Throughout this Act, unless the context otherwise requires,—
(i) references to a “banking company” or, “the company” or “such
company” shall be construed as references to a co-operative
bank,
C
(ii) references to “commencement of this Act” shall be construed
as references to commencement of the Banking Laws
(Application to Co-operative Societies) Act, 1964"
By virtue of Section 56(b) in Section 2, the words and figures ‘the
D Companies Act, 1956’ were omitted. After clause (cc) in Section 5
definition of ‘central co-operative banks’ in clause (ccc) was added as
under:
“(ccc) “central co-operative bank”, “co-operative bank”,
“co-operative society”, “director”, “primary agricultural credit
society”, “primary co-operative bank”, “primary credit society”
E
and “State co-operative bank” shall have the meanings respectively
assigned to them in the Reserve Bank of India Act, 1934.”
(d) Section 5A was modified concerning the co-operative banks.
Section 5A provided that the provisions of Part V shall prevail and
override bye-laws of a co-operative society or any agreement executed
F
by it, whether the same be registered, executed or passed, before or
after the commencement of the Banking Laws (Application to
Co-operative Societies) Act, 1964. Section 5A is extracted hereunder:
“5A. (1) The provisions of this Part shall have effect,
notwithstanding anything to the contrary contained in the bye-
G laws of a co-operative society, or in any agreement executed by
it, or in any resolution passed by it in general meeting, or by its
Board of directors or other body entrusted with the management
of its affairs, whether the same be registered, executed or passed,
as the case may be, before or after the commencement of the
H Banking Laws (Application to Co-operative Societies) Act, 1964.
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1081
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

(2) Any provision contained in the bye-laws, agreement or A
resolution aforesaid shall, to the extent to which it is repugnant to
the provisions of this Part, become or be void, as the case may
be.”;”
(e) By virtue of provisions contained in Section 56(e) in Part V of
the BR Act, 1949 so far as it extends to co-operative society/banks, the B
modification has been made in Section 6(1)(b) to the extent ‘but excluding
the business of a managing agent or secretary and treasurer of the
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 C
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 D
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 E
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 F
for the time being in force, no co-operative bank shall commence
or carry on the business of banking in India unless the aggregate
value of its paid-up capital and reserves is not less than one lakh
of rupees:”
(h) Section 18 was substituted, which provided for maintaining G
cash reserve. Every co-operative bank not being a State co-operative
bank included in the Second Schedule to the Reserve Bank of India Act,
1934, shall maintain in India by way of cash reserve of 3 per cent of the
amount. The relevant portion of Section 18 is extracted hereunder:
“18. Every co-operative bank, not being a State co-operative bank H
·for the time being included in the Second Schedule to the Reserve
1082 SUPREME COURT REPORTS [2020] 5 S.C.R.

A Bank of India Act, 1934, shall maintain in India, by way of cash
reserve with itself or in current account opened with the Reserve
Bank or the State Bank of India or the State co-operative bank of
the State concerned or with any other bank notified by the Central
Government in this behalf or, in the case of a primary co-operative
bank, with the central co-operative bank of the district concerned
B
or partly in cash with itself and partly in such account or accounts,
a sum equivalent to at least three per cent of the total of its time
and demand liabilities in India and shall submit to the Reserve
Bank before the 15th day of every month a return showing the
amount so held on Friday of each week of the preceding month
C with particulars of its time and demand liabilities in India on each
such Friday, or, if any such Friday is a public holiday under the
Negotiable Instruments Act, 1881, at the close of business on the
preceding working day.”
(i) Section 19 was substituted concerning the application to the
D co-operative societies. The relevant portion of Section 19 is as under:
“19. No co-operative bank shall hold shares in any other
co-operative society except to such extent and subject to such
conditions as the Reserve Bank may specify in that behalf: ...”
The restriction was imposed under Section 19 on holding shares
E in other co-operative societies except as provided by the Reserve Bank
of India.
(j) Section 22 of the BR Act, 1949, as amended in its application
with respect to the co-operative banks, provides that no co-operative
society shall carry on banking business in India unless it is a primary
credit society or a co-operative bank and holds a licence issued in that
F behalf by the Reserve Bank. Thus, it was necessary that only primary
credit society could involve in the banking business in India and to hold a
licence from the Reserve Bank of India. The provisions of sub-Sections
(1) and (2) of Section 22 were also substituted in their application to the
co-operative bank as under:
G “(0) in section 22,—
(i) for sub-sections (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—
H (a) it is a primary co-operative society, or
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1083
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

(b) it is a co-operative bank and holds a licence issued in that A
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 sub-section 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 B
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 Cooperative Societies) Act, 1964, shall before the C
expiry of three months from such commencement, every primary
credit society which becomes a primary co-operative bank after
such commencement shall before the expiry of three months from
the date on which it so becomes a primary co-operative bank and
every co-operative society other than a primary credit society
shall before commencing banking business in India, apply in writing D
to the Reserve Bank for a licence under this section:
Provided that nothing in clause (b) of sub-section (1) shall be
deemed to prohibit a 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, and a primary E
credit society which becomes a primary co-operative bank after
such commencement, from carrying on banking business until it is
granted a licence in pursuance of this section or is by notice in
writing informed by the Reserve Bank that a licence cannot be
granted to it.;” F
(emphasis supplied)
(k) The embargo has also been created by sub-Section (1) of
Section 23, to open a new place of business insofar as it applies to the
co-operative banks thus:
G
“(1) Without obtaining the prior permission of the Reserve Bank,
no co-operative bank shall open a new place of business or change
otherwise than within the same city, town or village, the location
of an existing place of business:”
It has been made necessary by substituting Sections 29 and 30
for every co-operative bank to submit accounts and balance sheets to H
1084 SUPREME COURT REPORTS [2020] 5 S.C.R.

A the Reserve Bank of India. Reserve Bank of India has also been given
power under Section 35 to inspect primary co-operative banks. In Section
35A(1)(c), after the words ‘banking company’, the words ‘banking
business of any co-operative bank’ has been substituted. Forms have
also been prescribed for submitting balance sheet, property, and assets,
and profit and loss account.
B
Thus, it is apparent that deep and pervasive control by the Reserve
Bank of India is provided on primary credit society, which is involved in
banking. As per the provisions of the BR Act, 1949, no business can be
done by any co-operative society without obtaining a licence from the
Reserve Bank of India. The very existence of the co-operative banks is
C dependent and is governed by the Reserve Bank of India Act as well as
the BR Act, 1949. The aforesaid legislations are under Entry 38 and
Entry 45, respectively, of List I of the Constitution of India.
28. Before proceeding further, it is necessary to consider the
provisions contained in the SARFAESI Act. The SARFAESI Act has
D 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
E 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
F 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
G facilitating securitisation of financial assets of banks and financial
institutions. Further, unlike international banks, the banks and
financial institutions in India do not have power to take possession
of securities and sell them. Our existing legal framework relating
to commercial transactions has not kept pace with the changing
commercial practices and financial sector reforms. This has
H resulted in slow pace of recovery of defaulting loans and mounting
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1085
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

levels of non-performing assets of banks and financial institutions. A
Narasimham Committee I and II and Andhyarujina Committee
constituted by the Central Government for the purpose of
examining banking sector reforms have considered the need for
changes in the legal system in respect of these areas. These
Committees, inter alia, have suggested enactment of a new
B
legislation for securitisation and empowering banks and financial
institutions to take possession of the securities and to sell them
without the intervention of the court. Acting on these suggestions,
the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Ordinance, 2002 was
promulgated on the 21st June, 2002 to regulate securitisation and C
reconstruction of financial assets and enforcement of security
interest and for matters connected therewith or incidental thereto.
The provisions of the Ordinance would enable banks and financial
institutions to realise long-term assets, manage problem of liquidity,
asset liability mismatches and improve recovery by exercising
D
powers to take possession of securities, sell them and reduce non-
performing assets by adopting measures for recovery or
reconstruction.
2. It is now proposed to replace the Ordinance by a Bill, which,
inter alia, contains provisions of the Ordinance to provide for—
(g) defining ‘security interest’ as any type of security including E
mortgage and charge on immovable properties given for due
repayment of any financial assistance given by any bank or
financial institution;
(h) empowering banks and financial institutions to take possession
of securities given for financial assistance and sell or lease the F
same or take over management in the event of default, i.e.
classification of the borrower’s account as non-performing asset
in accordance with the directions given or guidelines issued by
the Reserve Bank of India from time to time;”
29. Under Section 13 of the SARFAESI Act, it is open to the G
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 H
under the RDB Act, 1993.
1086 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 30. 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,—
B (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
C
(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 (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);”
31. In exercise of power conferred under Section 2(1)(c)(v) of
the SARFAESI Act, a notification was issued by the Ministry of Finance
and Company Affairs on 28.1.2003 specifying co-operative banks as
E defined in clause (cci) of Section 5 of the BR Act, 1949 for the purpose
of the SARFAESI Act. Following notification was issued:
“S.O.105 (E).— In exercise of the powers conferred under item
(v) of clause (c) of Sub-section (1) of Section 2 of the Securitisation
and Reconstruction of Financial Assets and Enforcement of
F Security Interest Act, 2002 (54 of 2002), the Central Government
hereby specifies “Co-operative Bank” as defined in clause (cci)
of Section 5 of the Banking Regulation Act 1949 (10 of 1949) as
‘bank’ for the purpose of the Securitization and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
(54 of 2002).”
G
32. In Section 2(1)(c) of the SARFAESI Act, further amendments
have been made by incorporating a ‘multi-State co-operative bank,’ w.e.f.
15.1.2013 by way of Enforcement of Security Interest and Recovery of
Debts Laws (Amendment) Act, 2012 (No.1 of 2013). Other provisions
of the SARFAESI Act were also amended. A similar amendment was
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1087
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

made to the RDB Act, 1993, in Section 2(d) by inserting clause (vi) ‘a A
multi-State co-operative bank.’ Section 2(d) is extracted hereunder:
“2. Definitions.—In this Act, unless the context otherwise
requires,—
(d) “bank” means—
B
(i) a banking company;
(ii) a corresponding new bank;
(iii) State Bank of India;
(iv) a subsidiary bank; or
C
(v) a Regional Rural Bank;
(vi) a multi-State-co-operative bank;”
33. We have to examine the legislative competence of the
Parliament with respect to co-operative banks within the State as the
MSCS Act, 2002 is enacted in exercise of power under Entry 44 List I D
of the Seventh Schedule of the Constitution of India. The legislative
competence of Parliament regarding the MSCS Act, 2002 is not in issue.
MEANING OF ‘BANKING’
34. The main issue is as to the meaning of ‘banking’ used in Entry E
45 of List I of the Seventh Schedule of the Constitution of India. It is
necessary to understand the meaning of ‘bank’ and ‘banking.’ Before
the Constitution was promulgated, banking was dealt with by the erstwhile
Banking Companies Act, 1949. Upon its extension to co-operative banks
run by co-operative societies, it was renamed as the BR Act, 1949.
Before we consider the definition of ‘banking’ under the BR Act, 1949, F
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 G
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:
H
1088 SUPREME COURT REPORTS [2020] 5 S.C.R.

A “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,
B 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 consists of receiving
C deposits or exercising fiduciary powers similar to those permitted
to national banks and if the institution is supervised and examined
by a state or federal banking authority; or a receiver, conservator,
or other liquidating agent of any of the above institutions. 15USCA
§ 78c(a)(6). [Cases: Banks and Banking 2, 232, 289, 359.].

D 2. The office in which such an establishment conducts
transactions.”
Banks can be of different kinds such as Co-operative Bank,
Collecting Bank, Commercial Bank, Correspondent Bank, Custodian
Bank, Depository Bank, Drawee Bank, Federal Home Loan Bank,
E Federal Land Bank, Intermediary Bank, Investment Bank, Mutual
Savings Bank, Nationalised Banks, Negotiable Bank, Non-Member Bank,
Payor Bank, Savings and Loan Bank, Saving Bank.
The expression ‘bank’ has been defined in various enactments
relating to it.
F 35. The ‘Reserve Bank’ has been defined in Section 5(l) to mean
Reserve Bank of India constituted under Section 3 of the Reserve Bank
of India Act, 1934 (2 of 1934). Section 5(ha) defines the ‘National Bank’
to mean the National Bank for Agriculture and Rural Development
established under Section 3 of the National Bank for Agriculture and
Rural Development Act, 1981. The ‘State Bank of India’ is defined in
G
Section 5(nc) to mean the State Bank of India constituted under Section
3 of the State Bank of India Act, 1955 (23 of 1955).
36. The term ‘banking’ used in Entry 45 List I, came up for
consideration in Rustom Cavasjee Cooper (supra), in which 11-Judge
Bench of this Court considered the question of ‘banking’ and observed:
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1089
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

“27. The argument raised by Mr. Setalvad, intervening on behalf A
of the State of Maharashtra and the State of Jammu and Kashmir,
that the Parliament is competent to enact Act 22 of 1969, because
the subject-matter of the Act is “with respect to” regulation of
trading corporations and matters subsidiary and incidental thereto,
and on that account is covered in its entirety by Entries 43 and 44
B
of List I of the Seventh Schedule, cannot be upheld. Entry 43
deals with incorporation, regulation and winding up of trading
corporations including banking companies. Law regulating the
business of a corporation is not a law with respect to regulation of
a corporation. In List I entries expressly relating to trade and
commerce are Entries 41 and 42. Again several entries in List I C
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
D
commercial as well as non-commercial in List II — Entry 21
“Fisheries”; Entry 24 “Industries XXX” ; Entry 25 “Gas and Gas
works”; Entry 26 “Trade and commerce”; Entry 30 “Money-
lending and money-lenders”; Entry 31 “Inns and Inn-keeping”;
Entry 33 “Theatres and dramatic performances, cinemas etc.”.
We are unable to accede to the argument that the State Legislatures E
are competent to legislate in respect of the subject-matter 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 F
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 by cheque, draft or otherwise”. The definition did
not include other commercial activities which a banking institution
may engage in. G

32. In support of his contention Mr. Palkhivala relied upon the
observation of Lord Porter in Commonwealth of Australia v.
Bank of New South Wales, LR (1950) AC 235 that banking
consists of the creation and transfer of credit, the making of loans,
H
1090 SUPREME COURT REPORTS [2020] 5 S.C.R.

A purchase and disposal of investments and other kindred
transactions; and upon the statement in Halsbury’s Laws of
England, 3rd Edn., Vol. 2, Article 270 at pp. 150 and 151 that:
“A ‘banker’ is an individual partnership or corporation, whose
sole or predominating business is banking, that is the receipt of
B money on current or deposit account and the payment of
cheques drawn by and the collection of cheques paid by a
customer.”
and in the footnote (g) at p. 151 that:
“Numerous other functions are undertaken at the present
C day by banks such as the payment of domiciled bills, custody of
valuables, discounting bills, executor and trustee business, or acting
in relation to stock exchange transactions, and banks have functions
under certain financial legislation,
X X X .”
D
These functions are not strictly banking business.
33. The Attorney-General said that the expression “banking” in
Entry 45, List I means all forms of business which since the
introduction of western methods of banking in India, banking
institutions have been carrying on in addition to banking as defined
E
in Section 5(b) of the Banking Regulation Act, and on that account
all forms of business described in Section 6(1) of the Banking
Regulation Act in clauses (a) to (n) are, if carried on in addition to
the “hard-core of banking” banking and the Parliament is
competent to legislate in respect of that business under Entry 45,
F List I. In support of his contention that apart from the business of
accepting money from the public for lending or investment, and
withdrawable by cheque, draft or otherwise, banking includes many
allied business activities which banking institutions were engaged
in, the Attorney-General invited our attention to clause 21 of the
Charter of the Bank of Bengal (Act 6 of 1839); Section 27 of Act
G
4 of 1862; to Sections 36 and 37 of the Presidency Banks Act 11
of 1876; to Section 91(15) of the British North America Act; to
Paget’s Law of Banking, 7th Edn., at p. 5; to the Standard Form
of Memorandum of Association of a Banking Company in Palmer’s
Company Precedents Form 138; and to the Statement of Objects
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1091
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

and Reasons in support of the Bill which was enacted as the A
Indian Companies (Amendment) Act, 1936.
34. The Charter of the Bank of Bengal, the Presidency Banks
Act 4 of 1862, Ch. X-A of the Indian Companies Act, 1913, as
incorporated by the Indian Companies (Amendment) Act, 1936,
merely described the business which a banking institution could B
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 C
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 D
in construing the Entry “Banking” in Entry 45, List I.
35. In modern times in India as elsewhere, to attract business,
banking establishments render, and compete in rendering, a variety
of miscellaneous services for their constituents. If the test for
determining what “banking” means in the constitutional entry is E
any commercial activity which bankers at a given time engage in,
great obscurity will be introduced in the content of that expression.
The coverage of constitutional entry in a Federal Constitution which
carves out a field of legislation must depend upon a more
satisfactory basis.
F
36. The legislative entry in List I of the Seventh Schedule is
“Banking” and not “Banker” or “Banks”. To include within the
connotation of the expression “Banking” in Entry 45, List I, power
to legislate in respect of all commercial activities which a banker
by the custom of bankers or authority of law engages in, would
result in re-writing the Constitution. Investment of power to legislate G
on a designated topic covers all matters incidental to the topic. A
legislative entry being expressed in a broad designation indicating
the contour of plenary power must receive a meaning conducive
to the widest amplitude, subject however to limitations inherent in
the federal scheme which distributes legislative power between H
1092 SUPREME COURT REPORTS [2020] 5 S.C.R.

A the Union and the constituent units. The field of “banking” cannot
be extended to include trading activities which not being incidental
to banking encroach upon the substance of the entry “trade and
commerce” in List II.
148. Counsel for the petitioner contended that the word “banking”
B would have the same meaning as the definition of “banking”
occurring in Section 5(b) of the Banking Regulation Act of 1949
hereinafter referred to for the sake of brevity as the 1949 Act.
This contention was amplified to exclude four types of business
from the banking business and therefore the Act of 1969 was said
to be not within the legislative competence of Banking under Entry
C 45 in List I. These four types of business are: (1) the receiving of
scrips or other valuables on deposit or for safe custody and providing
of safe deposit vaults, (2) agency business, (3) business of
guarantee, giving of indemnity and underwriting and (4) business
of acting as executors and trustees. “Banking” was defined for
D the first time in the 1949 Act as meaning the acceptance for the
purpose of lending or investments of 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.
E
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
F 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
G 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 within the normal business activities of commercial
banks of repute. Entry 45 in List I of the 7th Schedule of the
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1093
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

Constitution, namely, “banking” will therefore have the wide A
meaning to include all legitimate businesses of a banking company
referred to in Section 5(b) as well as in Section 6(1) of the 1949
Act. The contention on behalf of the petitioner that the four disputed
businesses are not banking businesses is not supportable either on
logic or on principle when businesses mentioned in the sub-clauses
B
of Section 6(1) of the 1949 Act are recognised to be legitimate
business activities of a banking company by statute and practice
and usage fully supports that view.
158. It was suggested by counsel for the petitioner that by banking
business is meant only the hard core of banking as defined in
Section 5(b) of the 1949 Act. It is unthinkable that the business of C
banks is only confined to that aspect and not to the various forms
of business mentioned in Section 6(1) of the 1949 Act. Receiving
valuables on deposit or for safe custody and providing for safe
custody vaults which are contemplated in clause (a) of Section
6(1) of the 1949 Act cannot be dissociated from other forms of D
unchallenged business of a bank mentioned in that clause because
any such severance would be illogical particularly when deposit
for safe custody and safe deposit vaults are mentioned in the long
catalouge of businesses in clause (a). The agency business which
is mentioned in clause (b) of Section 6(1) is one of the recognised
forms of business of commercial banks with regard to mercantile E
transactions and payment or collection of price. Agency is after
all a comprehensive word to describe the relationship of
appointment of the bank as the constituent’s representative. The
forms of agency transactions may be varied. It may be acting as
collecting agent or disbursing agent or as depository of parties. F
The categories of agency can be multiplied in terms of transactions.
That is why the business of agency mentioned in clause (b) is
first in the general form of acting as an agent for any Government
or local authority, secondly carrying on of agency business of any
description including the clearing and forwarding of goods and
thirdly acting as attorney on behalf of the customers. The business G
of guarantee is in the modern commercial word practically
indissolubly connected with 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 H
1094 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 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
B
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
C 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 general funds
of the trustee bank. Payments to beneficiaries are made by
crediting the beneficiaries accounts in the trustee bank and if they
D
are not constituents other modes of payment through other banks
are adopted. The position of the banks as executor is similar to
that of a trustee. Whatever moneys the bank may spend are
recouped by the bank out of the accounts of the trust estate.
160. There are various provisions in the 1949 Act to indicate that
E a banking company cannot carry on business of a managing agent
or Secretary and treasurer of a company and that it cannot acquire,
construct, maintain, alter any building or works other than those
necessary or convenient for the purpose of the company. A
banking company cannot acquire or undertake the whole or any
F portion of any business unless such business is of one of those
enumerated in Section 6(1) of the 1949 Act. A bank cannot deal
in buying or selling or bartering of goods except in connection
with certain purposes related to some of the businesses
enumerated in the aforesaid Section 6(1). These provisions also
establish that businesses mentioned in Section 6 of the 1949 Act
G are incidental and conducive to banking business. A bank cannot
employ any person whose remuneration is in the form of a
commission or a share in the profits of the banking company or
whose remuneration is in the opinion of the Reserve Bank
excessive. One of the most important provisions is Section 35 of
H the 1949 Act, which states that the Reserve Bank at any time
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1095
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

may and on being directed so to do by the Central Government A
cause an inspection to be made by one or more of its officers of
the books of account and to report to the Central Government on
any inspection and the Central Government thereafter if it is of
opinion after considering the report that the affairs of the banking
company are being conducted to the detriment of the interests of
B
its depositors, may prohibit the banking company from receiving
fresh deposits or direct the Reserve Bank to apply under Section
38 for the winding up of the banking company. Another important
provision in the 1949 Act, is found in Section 27 which provides
for monthly returns in the prescribed form and manner showing
assets and liabilities. The power of the Reserve Bank under C
Sections 27 and 35 of the 1949 Act relates to the affairs of the
banking company which comprehend the various forms 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 35-A of
D
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 E
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) F
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 G
business of a bank.
37. It was argued on behalf of appellants that the BR Act, 1949
recognises two categories of finance activity which a bank may undertake
such as (1) the banking business under Section 5(b), i.e., core banking
business; and (2) any other business as provided in Section 6(1). For the
H
1096 SUPREME COURT REPORTS [2020] 5 S.C.R.

A purpose, reliance has been placed on Rustom Cavasjee Cooper (supra).
The decision of the High Court of Calcutta in Mahaluxmi Bank Ltd.
(supra), is pressed into service, wherein it was held:
“5. After this an application was made to this Court for sanction
of the special resolution effecting the said alterations. The Court
directed certain advertisements to issue and also directed service
B of the usual notices as required by Sec.17 of the Companies Act,
1956. The Registrar of Joint Stock Companies filed an affidavit-
in-opposition and at the hearing opposed the application but no
creditor or share-holder of the company opposed the application.
P. B. Mukharji, J., before whom the application was heard, gave
effect to the contentions raised by the Registrar and dismissed
C
the application. In dismissing the application the learned Judge
made inter alia the following observations in his judgment:
“At the outset it must be said that it is a curious application. If
the object is “to lend money to such person or persons or firms
and at such terms as may seem expedient,” then it may amount
D to some kind of a banking in disguise. It is quite true that under
the Banking Companies Act, banking’ is defined to mean the
acceptance, “for the purpose of lending or investment of deposits
of money from the public, repayable on demand or otherwise,
and withdrawable by cheque, draft, order or otherwise.” With a
little clever manipulation, the petitioner might go on doing the
E banking business under the proposed amendment although by
allowing such amendment it will put on the garb of a non-banking
company.”
It has been argued that these observations of the learned Judge
are due to a misconception of the true nature and character of a
banking business. Reliance is placed by the learned counsel for
F the appellant company on the definition of the word ‘banking’ as
given in Sec.5 (1)(b) of the Banking Companies Act, 1949, which
is as follows:
“‘Banking’ means the accepting, for the purpose of lending or
investment, of deposits of money from the public, repayable on
G demand or otherwise, and 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
H the bank also undertakes the obligation to repay the deposit on
demand or otherwise and the mode by which the withdrawal of
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1097
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

the deposit can be effected is by the issue of cheques, drafts, A
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 B
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.
C
“A person cannot claim to be carrying on the business of banking
unless he receives money or instruments representing money on
current account, honours cheques drawn thereon, and collects
the proceeds of cheques which his customers place into his hands
for collection.’’
In the case of Re Bottomgate Industrial Co-operative Society, D
(1891) 65 LT 712 at p. 714, Smith, J. defines the business of
bankers thus:
“The principal part of the business of a banker is receiving money
on deposit, allowing the same to be drawn against as and when
the depositor desires, and paying interest on the amounts standing
on deposit.’’ E
7. Then Sec.6 (1) of the Banking Companies Act, 1949, provides
that in addition to the business of banking, a banking company
may engage in any one or more of the different kinds of business
specified in the various sub-clauses of sub-sec. (1) of Sec. 6.
This indicates that the main or real business of a banking company F
is as stated in Sec. 5 (1)(b) of the Act but banking companies
usually carry on and are permitted to carry on other kinds of
business which are auxiliary or incidental to the main business.
Sub-section (2) of Sec. 6 Iays down that no banking company
shall engage in any form of business other than those referred to
in sub-section (1). So the banking company is expressly prohibited G
from carrying on any kind of incidental or allied business other
than those enumerated in sub-clauses (a) to (o) of sub-section (1)
of Sec. 6 of the Act. Thus it is abundantly clear that the essence
of banking is the relationship which is brought into existence at
the time of the deposit; that is the core of banking. It is true that
the business of banking covers every possible phase or combination H
of deposit, custody, investment, loan, exchange, issue and
1098 SUPREME COURT REPORTS [2020] 5 S.C.R.

A transmission of money, creation and transfer of credit and other
kindred activities but if the essential characteristic of banking,
namely, the power to receive deposits from the public which are
repayable in the manner indicated in Sec. 5 (1) (b) of the Banking
Companies Act is absent and merely the power of granting loans
is retained and exercised that, in my view, does not make the
B company a banking company. Lending of money may be one phase
of a banking business but it is not the main phase or the
distinguishing phase. In the case of Bank of Commerce Ltd. v.
Kunja Behari Kar, 1944 FCR 370: (AIR 1945 FC 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
C 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
D 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).”
38. 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
E 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
F into new businesses subject to such businesses being subject to
the control of the regulator viz. RBI. In other words, the 1949 Act
allows banking companies to undertake activities and businesses
as long as they do not attract prohibitions and restrictions like
those contained in Sections 8 and 9. In this connection we need to
emphasise that Section 6(1)(n) enables a banking company to do
G
all things as are incidental or conducive to promotion or
advancement of the business of the company. Section 6(1) enables
banking companies to carry on different types of businesses. Under
Section 6(1), these different types of businesses are in addition to
business of banking viz. core banking. The importance of the words
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1099
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

“in addition to” in Section 6(1) is that even if different businesses A
under clauses (a) to (o) are shut down, the company would still
be a banking company as long as it is in the core banking of
accepting deposits and lending so that its main income is from the
spread or what is called as “interest income”. Thus, we may
broadly categorise the functions of the banking company into two
B
parts viz. core banking of accepting deposits and lending and
miscellaneous functions and services. Section 6 of the BR Act,
1949 provides for the form of business in which banking companies
may engage. Thus, RBI is empowered to enact a policy which
would enable banking companies to engage in activities in addition
to core banking and in the process it defines as to what constitutes C
“banking business”.”
39. Learned counsel urged that performing core banking function
is the sine qua non for being regulated by the BR Act, 1949. The BR
Act, 1949 applies to a primary credit society which has been brought
within its purview, leaving out primary agricultural credit society and a D
co-operative land mortgage bank. The business of banking cannot be
carried out in India as per Section 22 of the BR Act, 1949 as applicable
to the co-operative banks/societies, unless it is a primary credit society,
and it is a co-operative bank and holds a licence issued by the Reserve
Bank of India. It is not in dispute that all co-operative banks run by
cooperative societies hold the licence, and all co-operative banks are E
doing the business within the purview of the BR Act, 1949. We are
unable to accept the submission that banking under Entry 45 of List I
does not cover ‘co-operative banks’. The activity of the co-operative
bank is covered under Section 5(1)(b). A similar submission was not
accepted in Rustom Cavasjee Cooper (supra). No doubt about it that F
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.
40. It was argued on behalf of appellants that banking’s legal G
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
H
1100 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 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
B could not have been in its contemplation, the statutory provisions
could properly be applied to them if the words thereof are in a
broad sense capable of containing them. In that situation, “it is
not,” as observed by Lord Wright in 1936 AC 578 (H), “that the
meaning of the words changes, but the changing circumstances
illustrate and illuminate the full import of that meaning”. The
C question then would be not what the framers understood by those
words, but whether those words are broad enough to include the
new facts. Clearly, this principle has no application to the present
case. Sales tax was not a subject which came into vogue after
the Government of India Act, 1935. It was known to the framers
D of that statute and they made express provision for it under Entry
48. Then it becomes merely a question of interpreting the words,
and on the principle, already stated, that words having known
legal import should be construed in the sense which they had at
the time of the enactment, the expression “sale of goods” must be
construed in the sense which it has in the Sale of Goods Act.
E (37) A contention was also urged on behalf of the respondents
that even assuming that the expression “sale of goods” in Entry
48 could be construed as having the wider sense sought to be
given to it by the appellant and that the provisions of the Madras
General Sales Tax Act imposing a tax on construction contracts
F could be sustained as within that entry in that sense, the impugned
provisions would still be bad under S. 107 of the Government of
India Act, and the decision in Dukhineswar Sarkar v. Commercial
Tax Officer, (S) AIR 1957 Cal 283 (Z19) was relied on in support
of this contention. Section 107, so far as is material, runs as follows:
S. 107 — (1) “If any provision of a Provincial law is repugnant to
G
any provision of a Dominion law which the Dominion Legislature
is competent to enact or to any provision of an existing law with
respect to one of the matters enumerated in the Concurrent
Legislative List, then, subject to the provisions of this section, the
Dominion law, whether passed before or after the Provincial law,
H or, as the case may be, the existing law, shall prevail and the
Provincial law shall, to the extent of the repugnancy, be void.
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1101
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

(2) Where a Provincial law with respect to one of the matters A
enumerated in the Concurrent Legislative List contains any
provision repugnant to the provisions of an earlier Dominion law
or an existing law with respect to that matter, then, if the Provincial
law, having been reserved for the consideration of the Governor-
General has received the assent of the Governor-General, the
B
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 C
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 Governor-
General as provided in S. 107 (2). Its provisions are bad to the D
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 matter E
within the exclusive competence of the Province under Entry 48
in List II. The only question that can arise with reference to such
a law is whether it is within the purview of that Entry. If it is, no
question of repugnancy under S. 107 can arise. The decision in
(S) AIR 1957 Cal 283 (Z19) on this point cannot be accepted as F
sound.”
In Diamond Sugar Mills Ltd. (supra), it was held:
“(10) In considering the meaning of the words “local area” in
entry 52 we have, on the one hand to bear in mind the salutary
rule that words conferring the right of legislation should be G
interpreted liberally and the powers conferred should be given the
widest amplitude; on the other hand we have to guard ourselves
against extending the meaning of the words beyond their
reasonable connotation, in an anxiety to preserve the power of
the legislature. In Re the Central Provinces & Berar Sales of
H
1102 SUPREME COURT REPORTS [2020] 5 S.C.R.

A Motor Spirit and Lubricants Taxation Act, 1938, 1939 FCR 18 at
p. 37: (AIR 1939 FC 1 at p. 4) Sir Maurice Gwyer, C.J., observed:
“I conceive that a broad and liberal spirit should inspire those
whose duty it is to interpret it; but I do not imply by this that they
are free to stretch or pervert the language of the enactment in the
B interests of any legal or constitutional theory, or even for the
purpose of correcting any supposed errors.”
Again, in Navinchandra Mafatlal v. Commissioner of Income Tax,
Bombay City, 1955 1 SCR 829: ( (S) AIR 1955 SC 58) Das, J. (as
he then was) delivering the judgment of this Court observed: —
C “………. The cardinal rule of interpretation however, is that words
should be read in their ordinary, natural and grammatical meaning
subject to this rider that in construing words in a constitutional
enactment conferring legislative power the most liberal
construction should be put upon the words so that the same may
have effect in their widest amplitude.”
D (25) It is true that when words and phrases previously interpreted
by the courts are used by the Legislature in a later enactment
replacing the previous statute, there is a presumption that the
Legislature intended to convey by their use the same meaning
which the courts had already given to them. This presumption
E can however only be used as an aid to the interpretation of the
later statute and should not be considered to be conclusive. As
Mr. Justice Frankfurter observed in Federal Communication
Commissioner 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
F 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
G 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
H weight to the rule of interpretation mentioned above, we are of
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1103
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

opinion that the Constitution makers did not use the words “local A
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 area is a
part of the State imposing the law) is an area administered by a
local body like a municipality, a district board, a local board, a
B
union board, a Panchayat or the like. The premises of a factory is
therefore not a “local area”.
41. In our opinion, the framers of the Constitution cannot be said
to have confined the meaning of ‘banking’ to a particular definition, as
given in the BR Act, 1949. The word ‘banking’ has been incorporated in
Entry 45 of List I. The decision in Rustom Cavasjee Cooper (supra) C
vividly leaves no room for doubt that banking done by the co-operative
bank is covered within the ambit of Entry 45 of List I. The decision in
Gannon Dunkerley & Co., (Madras) Ltd. (supra) stands neutralised
by introduction of Article 366(29A) of the Constitution of India and the
meaning of the said term has been redefined. Entries have to be given D
full effect in pith and substance considering forms of business of
co-operative banks performing the activities of banking under a licence.
The same is covered within the purview of Entry 45 of List I.
42. On the strength of Sections 32 and 33 of the State Bank of
India Act, 1955, learned counsel on behalf of appellants argued that E
Section 32 recognises that State Bank of India can carry on ‘agency
business’ on behalf of Reserve Bank of India. Section 33 enables the
State Bank of India to carry on banking business under Section 5(b) and
other forms of business under Section 6(1) of the BR Act, 1949. The
argument is of no avail. The State Bank of India Act, 1955, is independent
and is not co-related with the co-operative banks, and the State Bank of F
India has been established as a corporation under the Act. Thus, the
provision is of no help to take home the submission espoused on behalf
of appellants to take them out of the purview of Entry 45 of List I.
43. Learned Counsel on behalf of appellants argued that there is
a difference between entity and activity. On a plain reading of Section G
6(1) of the BR Act, 1949, it becomes evident that there is a distinction
between the business of banking and entity that performs the banking
functions. Section 6(1) and 6(2) enable only an entity to perform certain
additional business functions. It does not confer any such status upon
such an entity.
H
1104 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 44. In our opinion, Section 6 deals with the forms of business in
which banking companies may engage. 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
B
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
C OF LIST II OF THE SEVENTH SCHEDULE OF THE
CONSTITUTION OF INDIA
45. 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
D ‘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 of List I ‘incorporation, regulation and
winding up’ of the co-operative societies have been kept out of the
E purview of the Union List by specifically excluding the co-operative
societies, otherwise, they would have been included for ‘incorporation,
regulation and winding up’ in Entry 43 of List I. The terms “incorporation,
regulation and winding up of co-operative societies” were reserved as
State subjects under Entry 32 of List II, it was so omitted from List 43 of
List I. But the exclusion from Entry 43 of List I taking out ‘incorporation,
F regulation and winding up’ of co-operative societies out of the purview
of the Parliament, does not advance the cause of the co-operative banks.
As a corollary to the aforesaid submission, it was also urged that the
banking company was defined and governed by Sections 277F to Section
277N under Chapter X-A of the Companies Act (VII of 1913). It was
G inserted vide Amendment Act No.22 of 1936. On 10.3.1949, the Banking
Companies Act, 1949, was enforced. The primary objective of the Banking
Companies Act, 1949, was to provide a comprehensive definition of
‘banking’ to bring within its scope all the institutions which receive deposits
repayable on demand or otherwise for lending or investment. At the
relevant time, the Government of India Act, 1935, which dealt with the
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1105
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

subject of ‘banking’ as well as ‘trading corporation,’ was in List I (Federal A
Legislative List), thus:
“Entry 38 in relation to “banking”: “Banking,” that is to say, the
conduct of banking business by corporations other than
corporations owned and controlled by a federated state and carrying
on business only within that State. B
Entry 33 in relation to corporation: “Corporations,” that is to say,
the incorporation, regulation, and winding-up of trading corporations,
including banking, insurance, and financial corporations, but not
including corporations owned or controlled by a Federated State
and carrying on business only within that State or co-operative
societies, and of corporations, whether trading or not, with objects C
not confined to one unit (but not including Universities).”
Entry 38 of the Government of India Act was re-enacted as
‘banking’ in Entry 45 of List I, while Entry 33 was bifurcated in
Entries 43 and 44. Learned Counsel further argued that up to
1965, the primary entity which was regulated by the Parliament D
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. E
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 F
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
G
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.
46. Shri Devansh A. Mohta, learned counsel, further argued that
Section 2(10) of the Maharashtra Co-operative Societies Act, 1960 has
defined ‘co-operative bank’ thus: H
1106 SUPREME COURT REPORTS [2020] 5 S.C.R.

A “Section 2 - Definitions
In this Act, unless the context otherwise requires, —
(10) “co-operative bank” means a society which is doing the
business of banking as defined in clause (b) of sub-section (1) of
section 5 of the Banking Companies Act, 1949 and includes any
B society which is functioning or is to function as a Co-operative
Agriculture and Rural Multipurpose Development Bank under
Chapter XI;”
Under Section 91 of the Maharashtra Act, any dispute relating to
constitution, management or business is required to be referred to a
C co-operative court. Similarly, Section 2(f) of the Multi-State Co-operative
Society Act defines ‘co-operative bank’ to mean multi-State co-operative
society, which undertakes the banking business. Under Section 84(2), a
claim for any debt or demand due shall be deemed to be a dispute touching
the constitution, management, or business of a multi-State co-operative
D society. The Parliament has extended specific provisions of the BR Act,
1949, and the Reserve Bank of India Act, 1934, which legislations are
relatable to Entry 45 of List I and Entry 38 of List I, respectively. The
Parliament lacks legislative competence to regulate any other business,
function, or facet of co-operative societies. It could not have provided a
recovery procedure as that is within the domain of the State legislature.
E We cannot accept the aforesaid submission raised by the learned Counsel.
47. In Delhi High Court Bar Association (supra), this Court in
the context of the RDB Act, 1993 held that Parliament has the legislative
competence to enact the Act. ‘Banking’ in Entry 45 of List I would
comprehend legislation in respect of matters ancillary or subsidiary to it.
F The Parliament can enact a law regarding the conduct of the banking
business, which includes recovery of banks’ dues, and for that purpose,
set up the adjudicatory body like the Banking Tribunal is permissible.
Thus, the establishment of Debts Recovery Tribunal under the RDB
Act, 1993, was upheld. The Court opined:
G “14. The Delhi High Court and the Guwahati High Court have
held that the source of the power of Parliament to enact a law relating to
the establishment of the Debts Recovery Tribunal is Entry 11-A 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
H
legislation now enacted. Entry 45 of List I relates to “banking”. Banking
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1107
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

operations would, inter alia, include accepting of loans and deposits, A
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
B
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 C
within the ambit of Entry 45 of List I. As none of the items in the lists are
to be read in a narrow or restricted sense, the term “banking” in Entry
45 would mean legislation regarding all aspects of banking including
ancillary or subsidiary matters relating to banking. Setting up of an
adjudicatory body like the Banking Tribunal relating to transactions in
D
which banks and financial institutions are concerned would clearly fall
under Entry 45 of List I giving Parliament specific power to legislate in
relation thereto.”
48. In view of the aforesaid discussion, we are of the opinion that
recovery of dues would be an essential function of any banking institution
and the Parliament can enact a law under Entry 45 of List I as the E
activity of banking done by co-operative banks is within the purview of
Entry 45 of List I. Obviously, it is open to the Parliament to provide the
remedy for recovery under Section 13 of the SARFAESI Act.
Co-operative bank’s entire operation and activity of banking are governed
by a law enacted under Entry 45 of List I, i.e., the BR Act, 1949, and the F
RBI Act under Entry 38 of List I.
49. In UCO Bank and Anr. v. Dipak Debbarma and Ors.31, the
question arose under the SARFAESI Act vis-a-vis the provisions of
Section 187 of Tripura Land Revenue and Land Reforms Act, 1960 as
under the Tripura Act there was a legislative embargo on the sale of G
mortgaged properties by the bank to any person who is not a member of
a Scheduled Tribe. The auction purchasers in the case were not members
of the Scheduled Tribe. This Court observed that provisions of the
SARFAESI Act enable the bank to take possession of any property
31 (2017) 2 SCC 585 H
1108 SUPREME COURT REPORTS [2020] 5 S.C.R.

A where a security interest has been created in its favour and sell such
property to any person to realise dues. This Court observed that the
Parliament enacted the law traceable to Entry 45 dealing exclusively
with activities relating to the sale of secured assets, which being Central
legislation would prevail, thus:
B “15. In the present case the conflict between the Central and the
State Act is on account of an apparent overstepping by the
provisions of the State Act dealing with land reform into an area
of banking covered by the Central Act. The test, therefore, would
be to find out as to which is the dominant legislation having regard
the area of encroachment.
C
18. The 2002 Act is relatable to the entry of banking which is
included in List I of 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
D 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
E 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
F 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 Tripura Act, 1960.”
50. In State Bank of India v. Santosh Gupta and Anr.32, the
G question arose concerning the rights of banks to enforce security interests
outside the court’s process by acting under Section 13 of the SARFAESI
Act and its applicability to the State of Jammu and Kashmir. The recovery
of debts and adjudicatory mechanisms provided in the SARFAESI Act,

H
32 (2017) 2 SCC 538
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1109
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

therefore, it comes within the purview of subject ‘banking’ in Entry 45 A
of List I of the Seventh Schedule. The Presidential order under Article
370 empowered the Parliament to legislate on the Seventh Schedule
List I Entry 45 read with Entry 95 in respect of the State of Jammu and
Kashmir. The SARFAESI Act can be validly applied to the State of
Jammu and Kashmir even if Section 140 of the Transfer of Property
B
Act of J&K, 1920, conflicts with the SARFAESI Act. Thus, the transfer
of property by way of sale or assignment is only one of the several ways
for recovery of debts and, thus, the SARFAESI Act as a whole cannot
be said to be in pith and substance an Act relatable to the subject of
transfer of property. The sale and mortgage of property for recovering
loans/debts is also an integral part of ‘banking’. The setting up of an C
adjudicatory body like the banking tribunal would also fall under Entry
45 of List I of the Seventh Schedule. Thus, State law can operate if
there is no Central law regarding the same. The State law cannot encroach
upon the Central law by operation of the principle of repugnancy if there
is a Central law. The Parliament is qualified with exclusive power to
D
make law concerning banking. It is not possible to dissect the provisions
of the SARFAESI Act and attach them to different entries under different
lists. In pith and substance, the SARFAESI Act does not deal with the
transfer of property in Entry 6 of List III of the Seventh Schedule but
deals with the recovery of debt owing to banks and financial institutions.
It was observed: E
“30. When it came to SARFAESI itself, this Court has held in
Central Bank of India v. State of Kerala, (2009) 4 SCC 94:
(SCC p. 116, para 36)
“36. Undisputedly, the DRT Act and the Securitisation Act
have been enacted by Parliament under Schedule VII List I F
Entry 45 whereas the Bombay and Kerala Acts have been
enacted by the State Legislatures concerned under Schedule
VII List II Entry 54. To put it differently, two sets of legislations
have been enacted with reference to entries in different lists in
the Seventh Schedule. Therefore, Article 254 cannot be invoked G
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)
H
1110 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 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
B 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
C for 30 years or more such deposits or credits are not the subject
of any operation or claim by the persons entitled thereto. In an
appeal from the Court of King’s Bench of the Province of Quebec,
the Bank of Montreal argued that the State Act was beyond the
powers of the Quebec Legislature as “banking” was one of the
D subjects allotted exclusively to Parliament of Canada. Lord Porter,
in an illuminating judgment, posed the question and answered it
thus: (AC p. 44)
“Is then, the repayment of deposits to depositors or their
successors-in-title under the law as existing a part of the
E business of banking or necessarily incidental thereto, or is it
primarily concerned with property and civil rights or incidental
to those subjects? Their Lordships cannot but think that the
receipt of deposits and the repayment of the sums deposited to
the depositors or their successors as defined above is an
essential part of the business of banking.”
F
In this view of the matter, the Privy Council further held: (AC p.
46)
“… In their view, a Provincial Legislature enters on the field
of banking when it interferes with the right of depositors to
G receive payment of their deposits, as in their view it would if it
confiscated loans made by a bank to its customers. Both are in
a sense matters of property and civil rights, but in essence
they are included within the category of banking.”
37. Applying the doctrine of pith and substance to SARFAESI, it
is clear that in pith and substance the entire Act is referable to
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1111
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

Entry 45 List I read with Entry 95 List I in that it deals with A
recovery of debts due to banks and financial institutions, inter alia
through facilitating securitisation and reconstruction of financial
assets of banks and financial institutions, and sets up a machinery
in order to enforce the provisions of the Act. In pith and substance,
SARFAESI does not deal with “transfer of property”. In fact,
B
insofar as banks and financial institutions are concerned, it deals
with recovery of debts owing to such banks and financial institutions
and certain measures which can be taken outside of the court
process to enforce such recovery. Under Section 13(4) of
SARFAESI, apart from recourse to taking possession of secured
assets of the borrower and assigning or selling them in order to C
realise their debts, the banks can also take over the management
of the business of the borrower, and/or appoint any person as
manager to manage secured assets, the possession of which has
been taken over by the secured creditor. Banks as secured
creditors may also require at any time by notice in writing, any
D
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 E
case, it is clear that SARFAESI, as a whole, cannot possibly be
said to be in pith and substance, an Act relatable to the subject-
matter “transfer of property”.
51. In Delhi Cloth & General Mills Co. Ltd.(supra), the question
came up for consideration concerning legislation whether it falls within F
one entry or the other. However, some portion of the subject-matter 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:
G
“33. Mr. O.P. Malhotra raised a contention as to the legislative
competence of the Parliament to enact Section 58-A and the
Deposits Rules enacted in exercise of the power conferred by
Section 58-A read with Section 642 of the Companies Act, 1956.
This is only to be mentioned to be rejected. Mr. Malhotra urged
H
1112 SUPREME COURT REPORTS [2020] 5 S.C.R.

A that when a company invites and accepts deposits, there comes
into existence a lender-borrower relationship between the depositor
and the company, and therefore the legislation dealing with the
subject squarely falls under Entry 30 of the State List, ‘money
lending and moneylenders’. If this submission were to carry
conviction, every depositor in the bank would be a moneylender
B
and the transaction would be one of moneylending. Is the banking
industry to be covered under Entry 30? On the other hand, Entry
45 in Union List is a specific Entry ‘Banking’ and therefore any
legislation relating to banking would be referable to Entry 45 in
the Union List. Entry 43 in the Union List is: “Incorporation,
C regulation and winding up of trading corporations, including banking,
insurance and financial corporations but not including cooperative
societies”. Entry 44 refers to “incorporation, regulation, and
winding up of corporation whether trading or not when business
is not confined to one State but not including universities”.
Obviously the power to legislate about the companies is referable
D
to Entry 44 when the objects of the company are not confined to
one State and irrespective of the fact whether it is trading or not.
When a law is impugned on the ground that it is ultra vires the
powers of the legislature which enacted it, what has to be
ascertained is the true character of the legislation. To do that one
E must have regard to the enactment as a whole, to its objects and
to the scope and effect of its provisions (see A.S. Krishna v.
State of Madras, 1957 SCR 399, 410). To resolve the controversy
if it becomes necessary to ascertain to which entry in the three
Lists, the legislation is referable, the court has evolved the doctrine
of pith and substance. If in pith and substance, the legislation falls
F
within one entry or the other but some portion of the subject-
matter of the legislation incidentally trenches 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 (see Ishwari Khaetan Sugar Mills
G (P) Ltd. v. State 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 58-A which is
incorporated in the Companies Act is referable to Entries 43 and
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1113
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

44 in the Union List and the enactment viewed as a whole cannot A
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
58-A.”
52. Reliance has also been placed on the decision of a Constitution B
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 - C
parliamentary legislation. The scope of Entry 52 in the Union List of the
Seventh Schedule of the Constitution of India with particular reference
to the meaning of the expression ‘Industries’ as also in Entry 24 in the
State List of the Seventh Schedule of the Constitution came up for
consideration. The Court relied on the decision of Constitution Bench in D
Belsund Sugar Co. Ltd.v. State of Bihar33, in which it was held that
merely because the 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 power to regulate the products of
such industry by the exercise of its legislative power under the State
List. The Court ultimately held that State Legislation and the Tobacco E
Board Act, 1975 to the extent they relate to the sale of tobacco in market
areas, cannot co-exist. The State legislatures were competent to pass
legislation concerning such goods. In I.T.C. Ltd. (supra), it was observed:
“87. Further, in Belsund Sugar Co., (1999) 9 SCC 620, the
Constitution Bench cited with approval the decision in SIEL case, F
(1998) 7 SCC 26 and reiterated that merely because the 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 power to regulate the products of such an
industry by exercise of its legislative power under the State List. G
It would be useful to extract para 119 of Belsund Sugar Co.
case, (1999) 9 SCC 620, as under: (SCC pp. 670-71)
“119. However, so far as the IDR Act is concerned, it is
enacted under Entry 52 of the First Schedule which deals with
33 (1999) 9 SCC 620 H
1114 SUPREME COURT REPORTS [2020] 5 S.C.R.

A industries in general. Simultaneously in the State List itself there
is Entry 24 which deals with industries subject to the provisions
of Entries 7 and 52 of List I. Consequently, the products of
such controlled industries would necessarily not be
governed by the sweep of the general legislation pertaining
to such industries as per Entry 52 of the Union List. The
B
aforesaid Constitution Bench judgment was not concerned
with any State legislation enacted under Entry 24. On the
contrary, it dealt with legislation of the Union Parliament
under Entry 54 of the Union List read with Entry 23 of the
State List. The scheme of the aforesaid legislative entries
C is entirely different from the scheme of Entry 52 of List I
read with Entry 24 of List II with which we are concerned.
On a conjoint 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
D
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
E 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
F
Adhiniyam, 1964 could be said to be repugnant to the Molasses
(Control) Order issued by the Central Government under
Section 18-G 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
G term ‘industry’ in Entry 24 would not take within its ambit
trade and commerce or production, supply and distribution
of goods which are within the province of Entries 26 and
27 of List II. Similarly, Entry 52 in List I which deals with
industry also would not cover trade and commerce in, or
production, supply and distribution of, the products of
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1115
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

those industries which fall under Entry 52 of List I. For the A
industries falling in Entry 52 of List I, these subjects are carved
out and expressly put in Entry 33 of List III. It was also held
that since the Molasses (Control) Order of 1961 passed by the
Central Government in exercise of powers conferred by Section
18-G was not extended at any point of time to the State of
B
U.P. or the State of Bihar, the question of repugnancy between
the Molasses Control Order, 1961 and the U.P. Sheera
Niyantran Adhiniyam, 1964 does not arise. Consequently, it
must be held that in the absence of a statutory order
promulgated under Section 18-G of the IDR Act, it cannot be
said that the field for regulation of sale and purchase of products C
of the flour industry like atta, maida, suji, bran, etc. would
remain outside the domain of the State Legislature.”
93. That the legislative power of Parliament in certain areas is
paramount under the Constitution is not in dispute. What is in
dispute is the limits of those areas as judicially defined. Broadly D
speaking, parliamentary paramountcy is provided for under Articles
246 and 254 of the Constitution. The first three clauses of Article
246 of the Constitution relate to the demarcation of legislative
powers between Parliament and the State Legislatures. Under
clause (1), notwithstanding anything contained in clauses (2) and
(3), Parliament has been given the exclusive power to make laws E
with respect to any of the matters enumerated in List I or the
Union List in the Seventh Schedule. Clause (2) empowers
Parliament, and the State Legislatures subject to the power of
Parliament under clause (1), to make laws with respect to any of
the matters enumerated in List III in the Seventh Schedule F
described in the Constitution as the “Concurrent List”
notwithstanding anything contained in clause (3). Under clause
(3) the State Legislatures have been given exclusive powers to
make laws in respect of matters enumerated in List II in the
Seventh Schedule described as the “State List” but subject to
clauses (1) and (2). The three lists while enumerating in detail the G
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 H
1116 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 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
B
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
C List II, the State Legislatures exercise authority as plenary and
ample as Parliament.
“276. The fact that under the scheme of our Constitution,
greater power is conferred upon the Centre vis-à-vis the States
does not mean that States are mere appendages of the Centre.
D Within the sphere allotted to them, States are supreme. The Centre
cannot tamper with their powers. More particularly, the courts
should not adopt an approach, an interpretation, which has the
effect of or tends to have the effect of whittling down the powers
reserved to the States.”
E 126. To sum up: the word “industry” for the purposes of Entry 52
of List I has been firmly confined by Tika Ramji, AIR 1956 SC
676 to the process of manufacture or production only. Subsequent
decisions including those of other Constitution Benches have
reaffirmed that Tika Ramji case, AIR 1956 SC 676 authoritatively
defined the word “industry” — to mean the process of
F manufacture or production and that it does not include the raw
materials used in the industry or the distribution of the products of
the industry. Given the constitutional framework, and the weight
of judicial authority it is not possible to accept an argument
canvassing a wider meaning of the word “industry”. Whatever
G the word may mean in any other context, it must be understood in
the constitutional context as meaning “manufacture or production”.
130. It was held that: (AIR pp. 94-95, para 10)
“Market no doubt ordinarily means a place where
business is being transacted. That was probably all that it meant
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1117
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

at a time when trade was not developed and when transactions A
took place at specified places. But with the development of
commerce, bargains came to be concluded more often than
not through correspondence and the connotation of the word
‘market’ underwent a corresponding expansion. In modern
parlance the word ‘market’ has come to mean business as
B
well as the place where business is carried on.”
163. As noticed earlier the majority view in ITC case, 1985 Supp
SCC 476 has been upheld in the judgment of Brother Pattanaik,
on slightly different reasoning and the decisions of this Court in
M.A. Tulloch, AIR 1964 SC 1284 and Baijnath Kadio, (1969) 3
SCC 838 dealing with legislation on mining and relied upon in the C
majority judgment of ITC case, 1985 Supp SCC 476 have been
found to be not relevant for the decision. It is true, while legislating
on any subject covered under an entry of any list, there can always
be a possibility of entrenching upon or touching the field of
legislation of another entry of the same list or another list for D
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 E
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 F
Entry 52 of List I, in the guise of touching or entrenching upon the
subjects of List II.”
53. In Calcutta Gas Company (Proprietary) Ltd. v. State of
West Bengal and Ors.34, a Constitution Bench of this Court considered
the meaning of ‘industry’ in Entry 52 of List I and Entries 24 and 25 of G
List II and observed that having regard to the principles, while giving the
most extensive scope to both the entries, the interpretation which
harmonizes has to be adopted. It was held:
“9. With this background let us construe the aforesaid entries.
There are three possible constructions, namely, (1) Entry 24 of H
1118 SUPREME COURT REPORTS [2020] 5 S.C.R.

A List II, which provides for industries generally, covers the industrial
aspect of gas and gas-works leaving Entry 25 to provide for other
aspects of gas and gas-works; (2) Entry 24 provides generally for
industries, and Entry 25 carves out of it the specific industry of
gas and gas-works, with the result that the industry of gas and
gas-works is excluded from Entry 24; and (3) the industry of gas
B
and gas-works falls under both the entries, that is, there is a real
overlapping of the said entries. Having regard to the aforesaid
principle, while giving the widest scope to both the entries, we
shall adopt the interpretation which reconciles and harmonizes
them.”
C 54. In Central Bank of India v. State of Kerala and Ors.35, the
question came up for consideration concerning Entry 45 of List I and
Entry 54 of List II. The question arose whether Section 38-C of the
Bombay Sales Tax Act, 1959 and Section 26-B of the Kerala General
Sales Tax Act, 1963 and similar provisions contained in other State
D legislation by which a first charge was created on the property of the
dealer or such other person, who was liable to pay sales tax, were
inconsistent with the provisions contained in the RDB Act, 1993 and the
SARFAESI Act and whether central legislations would have primacy
over the state legislations. It was observed:
E “92. An analysis of the above noted provisions makes it clear that
the primary object of the DRT Act was to facilitate creation of
special machinery for speedy recovery of the dues of banks and
financial institutions. This is the reason why the DRT Act not only
provides for establishment of the Tribunals and the Appellate
Tribunals with the jurisdiction, powers and authority to make
F summary adjudication of applications made by banks or financial
institutions and specifies the modes of recovery of the amount
determined by the Tribunal or the Appellate Tribunal but also bars
the jurisdiction of all courts except the Supreme Court and the
High Courts in relation to the matters specified in Section 17. The
G Tribunals and the Appellate Tribunals have also been freed from
the shackles of 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
34 AIR 1962 SC 1044
H 35 (2009) 4 SCC 94
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1119
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

of the dues of banks and financial institutions, but also made A
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 B
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.
C
110. The DRT Act facilitated establishment of two-tier 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
technicalities of the Code of Civil Procedure. The Securitisation D
Act drastically changed the scenario inasmuch as it enabled banks,
financial institutions and other secured creditors to recover their
dues without intervention of the courts or tribunals. The
Securitisation Act also made provision for registration and regulation
of securitisation/reconstruction companies, securitisation of E
financial assets of banks and financial institutions and other related
provisions.
116. The non obstante clauses contained in Section 34(1) of the
DRT Act and Section 35 of the Securitisation Act give overriding
effect to the provisions of those Acts only if there is anything F
inconsistent contained in any other law or instrument having effect
by virtue of any other law. In other words, if there is no provision
in the other enactments which are inconsistent with the DRT Act
or the Securitisation Act, the provisions contained in those Acts
cannot override other legislations. Section 38-C of the Bombay
Act and Section 26-B of the Kerala Act also contain non obstante G
clauses and give statutory recognition to the priority of the State’s
charge over other debts, which was recognised by Indian High
Courts even before 1950. In other words, these sections and similar
provisions contained in other State legislations not only create first
charge on the property of the dealer or any other person liable to H
1120 SUPREME COURT REPORTS [2020] 5 S.C.R.

A pay sales tax, etc. but also give them overriding effect over other
laws.”
This Court found no conflict in the provisions of the Central Act
and that of the State.
55. Learned counsel on behalf of appellants relying on the decisions
B in S.S. Dhanoa, Daman Singh, and Dalco Engineering Private
Limited (supra), argued that the Parliament was conscious of the
distinction between a corporation falling under Entries 43 and 44 of
List I and a co-operative society falling under Entry 32 of List II. In S.S.
Dhanoa (supra), this Court considered the distinction between
C corporation created by law and a body or society created by an act of
individual in accordance with provisions of the statute and observed:
“8. A corporation is an artificial being created by law having a
legal entity entirely separate and distinct from the individuals who
compose it with the capacity of continuous existence and
D succession, notwithstanding changes in its membership. In addition,
it possesses the capacity as 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
E 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
F 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
G 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 from
hand to hand. It is chiefly for the purpose of clothing bodies of
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1121
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

men, in succession, with these qualities and capacities, that A
corporations were invented, and are in use. By these means, a
perpetual succession of individuals are capable of acting for
the promotion of the particular object, like one immortal being.”
The term ‘corporation’ is, therefore, wide enough to include private
corporations. But, in the context of clause Twelfth of Section 21 B
of the Indian Penal Code, the expression ‘corporation’ must be
given a narrow legal connotation.
9. Corporation, in its widest sense, may mean any association of
individuals entitled to act as an individual. But that certainly is not
the sense in which it is used here. Corporation established by or C
under an Act of Legislature can only mean a body corporate which
owes its existence, and not merely its corporate status, to the Act.
For example, a Municipality, a Zilla Parishad or a Gram Panchayat
owes its existence and status to an Act of Legislature. On the
other hand, an association of persons constituting themselves into
a company under the Companies Act or a society under the D
Societies Registration Act owes its existence not to the Act of
Legislature but to acts of parties though, it may owe its status as
a body corporate to an Act of Legislature.”
In Daman Singh (supra), a Constitution Bench of this Court
considered Entry 43 of List I and Entry 32 of List II of the Seventh E
Schedule of the Constitution of India and observed:
“5. What is a corporation? In Halsbury’s Laws of England, Fourth
Edition, Volume 9, Paragraph 1201, it is said,
A corporation may be defined as a body of persons (in F
the case of a corporation aggregate) or an office (in the case
of a corporation sole) which is recognised by the law as having
a personality which is distinct from the separate personalities
of the members of the body or the personality of the individual
holder for the time being of the office in question.
G
A corporation aggregate has been defined in paragraph 1204 as,
[A] collection of individuals united into one body under
a special denomination, having perpetual succession under an
artificial form, and vested by the policy of the law with the
capacity of acting in several respects as an individual, particularly
H
1122 SUPREME COURT REPORTS [2020] 5 S.C.R.

A of taking and granting property, of contracting obligations and
of suing and being sued, of enjoying 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.
B
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
C 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
D 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 non-trading corporation. The usual
examples of a trading corporation are (1) charter companies,
E (2) companies incorporated by special Acts of Parliament, (3)
companies registered under the Companies Act, etc.
Non-trading corporations are illustrated by (1) municipal
corporations, (2) district boards, (3) benevolent institutions, (4)
universities etc. An essential element in the legal conception
of a corporation is that its identity is continuous, that is, that the
F original member or members and his or their successors are
one. In law the individual corporators, or members, of which it
is composed are something wholly different from the
corporation itself; for a corporation is a legal persona just as
much as an individual. Thus, it has been held that a name is
G essential to a corporation; that a corporation aggregate can, as
a general rule, only act or express its will by deed under its
common seal; that at the present day in England a corporation
is created by one or other of two methods, namely, by Royal
Charter of incorporation from the Crown or by the authority of
Parliament that is to say, by or by virtue of statute. There is
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1123
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authority of long standing for saying that the essence of a A
corporation consists in (1) lawful authority of incorporation,
(2) the persons to be incorporated, (3) a name by which the
persons are incorporated, (4) a place, and (5) words sufficient
in law to show incorporation. No particular words are necessary
for the creation of a corporation; any expression showing an
B
intention to incorporate will be sufficient.
The Court then noticed the various provisions of the Societies
Registration Act, 1860 which according to them contained no
sufficient words to indicate an intention to incorporate but on the
contrary contained provisions showing that there was an absence
of such intention. Therefore, they observed, “We have, therefore, C
come to the conclusion that the provisions aforesaid do not
establish the main essential characteristic of a corporation
aggregate, namely, that of an intention to incorporate the society”.
Considering next the question whether the new Board was a
corporation, the Court had no difficulty in answering the question D
with reference to sub-section (2) of Section 3 which stated that
the Board shall be a body corporate having perpetual succession
and common seal and shall by the said name sue and be sued.
The Court observed, “Sub-section (2) of Section 3 says in express
terms that the new Board constituted under the impugned Act is
given a corporate status; in other words, the new Board is a E
corporation in the full sense of the term”.
6. We have already extracted Section 30 of the Punjab Act which
confers on every registered cooperative society the status of a
body corporate having perpetual succession and a common seal,
with power to hold property, enter into contracts, institute and F
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 cooperative society
is a corporation as commonly understood. Does the scheme of
the Constitution make any difference? We apprehend not. G
7. … According to Mr. Ramamurthi the express exclusion of
cooperative societies in Entry 43 of List I and the express inclusion
of cooperative 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 H
1124 SUPREME COURT REPORTS [2020] 5 S.C.R.

A was designed to treat cooperative societies as institutions distinct
from corporations. On the other hand one would think that the
very mention of cooperative societies both in Entry 43 of List I
and Entry 32 of List II along with other corporations gave an
indication that the Constitution makers were of the view that
cooperative societies were of the same genus as other corporations
B
and all were corporations. In fact the very express exclusion of
cooperative societies from Entry 43 of List I is indicative of the
view that but for such exclusion, cooperative societies would be
comprehended within the meaning of expression “corporations”.”
In Dalco Engineering Private Limited (supra), the Court followed
C the decision in S.S. Dhanoa (supra) and opined that there is a difference
between a corporation established by law and established under the law.
However, the question involved in the instant case is different.
56. In Hindustan Lever (supra), question was considered, whether
there was an encroachment on the field of the Parliament reserved under
D Entry 43 of List I of the Seventh Schedule of the Constitution of India,
which empowers the Union Government to make law relating to
‘incorporation, regulation and winding up of trading corporations including
banks, insurance, and finance corporations’. It was held that the levy of
stamp duty and prescribing rate of stamp duty on such documents is a
E different aspect. The Bombay Stamp Act does not provide for
‘incorporation, regulation and winding up of corporations’. The Court
held:
“42. It was next contended that provisions of Section 2(g)(iv)
read with Section 34 of the Bombay Stamp Act which provide
F that an instrument not duly stamped would be inadmissible in
evidence are repugnant to Section 394 of the Companies Act and
that the State legislation cannot prevail over the provisions of the
Companies Act. It was also contended that in the guise of stamp
duty the State Legislature is in reality imposing a tax on the
amalgamation of companies and has therefore encroached on the
G field of Parliament under Entry 43 List I of the Constitution. We
do not find any substance in this submission as well. Stamp duty is
levied on the instrument and the measure is the valuation of the
property transferred. There is no question of encroachment on
the field of Parliament under Entry 43 List I of the Constitution
H which empowers the Union to make laws re: incorporation,
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1125
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

regulation and winding up of trading corporations including banks, A
insurance and finance corporations but not including cooperative
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
B
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.”
57. In Kerala State Electricity Board (supra), a Constitution
Bench, while considering the Doctrine of Pith and Substance and
dominant purpose, opined: C

“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 D
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
leaving out of consideration the provisions of clause (2)]. No what E
is the meaning of the words “notwithstanding” in clause (1) and
“subject to” in clause (3)? They mean that where an entry is in
general terms in List II and part of that entry is in specific, terms
in List I, the entry in List I takes effect notwithstanding the entry
in List II. This is also on the principle that the “special” excludes
the “general” and the general entry in List II is subject to the F
special entry in List 1. For instance, though house accommodation
and rent control might fall within either the State list or the
concurrent list, Entry 3 in List I of Seventh Schedule carves out
the subject of rent control and house accommodation in
Cantonments from the general subject of house accommodation G
and rent control (see Indu Bhusan v. Sundari Devi, (1970) 1
SCR 443). Furthermore, the word “notwithstanding” in clause (1)
also means that if it is not possible to reconcile the two entries the
entry in List I will prevail. But before that happens attempt should
be made to decide in which list a particular legislation falls. For
H
1126 SUPREME COURT REPORTS [2020] 5 S.C.R.

A deciding under which entry a particular legislation falls the theory
of “pith and substance” has been evolved by the courts. If in pith
and substance a legislation falls within one list or the other but
some portion of the subject-matter of that legislation incidentally
trenches upon and might come to fall under another list, the Act
as a whole would be valid notwithstanding such incidental
B
trenching. These principles have been laid down in a number of
decisions.
16. It would be obvious that one part of the Act does deal with
the constitution of the Board, the incorporation of the Board and
the regulation of its activities. But the main purpose of the Act is
C for rationalising the production and supply of electricity. The
regulation contemplated in Entries 43 and 44 is not regulation of
the business of production, distribution and supply of electricity of
the corporation. As the 1910 and 1948 Acts together form a
complete code, with respect to Entry 38 in List 111 the Board is
D only an instrument fashioned for carrying out this object. The
provision regarding the incorporation and regulation of the
Electricity Board should be taken to be only incidental to the
provision regarding production, supply and distribution of electricity.
18. In Ramtanu Housing Society v. Maharashtra, (1970) 1 SCC
E 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, 327-328, paras 3, 4, 8, 11 & 15]
F
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
G 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.
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1127
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

Broadly stated the functions and powers of the A
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 any property
held by the corporation on such conditions as may be deemed
proper by the corporation ....
B
The principal functions of the corporation in regard to
the establishment, growth and development of industries in the
State are first to establish and manage industrial estates at
selected places and secondly to develop industrial areas selected
by the State Government. When industrial areas are selected
the necessity of acquisition of land in those areas is apparent. C
The Act, therefore, contemplates that the State Government
may acquire land by publishing a notice specifying the particular
purpose for which such land is required .... Where the land
has been acquired for the corporation or any local authority,
the State Governmentshall, after it has taken possession of the D
land, transfer the land to the corporation or that local authority
....
* * * *
It is in the background of the purposes of the Act and powers and
functions of the corporation that the real and true character of the E
legislation will be determined .... Industries come within Entry 24
of the State list. The establishment, growth and development of
industries in the State of Maharashtra does not fall within Entry 7
and Entry 52 of the Union list. Establishment, growth and
development of industries in the State is within the State list of F
industries .... Acquisition or requisition of land falls under Entry
42 of the concurrent list. In order to achieve growth of industries
it is necessary not only to acquire land but also to implement the
purposes of the Act. The corporation is therefore established for
carrying out the purposes of the Act, The pith and substance of
the Act is establishment, growth and organisation of industries, G
acquisition of land in that behalf and carrying out the purposes of
the Act by setting up the corporation as one of the limbs or agencies
of the Government. The powers and functions of the corporation
show in no uncertain terms that these are all in aid of the principal
and predominant purpose of establishment, growth and H
1128 SUPREME COURT REPORTS [2020] 5 S.C.R.

A establishment of industries. The corporation is established for that
purpose .... We, therefore, hold that the Act is a valid piece of
legislation.
19. In the present case the incorporation of the State Electricity
Boards is merely for the rationalisation of the production and supply
B of electricity, for taking measures conducive to electrical
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
C 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
D 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
E given by State Governments (Section 78-A). There are no
shareholders and there is no distribution of profits. This is another
reason why the 1948 Act cannot be said to fall under Entry 43 of
List I.
20. The question, therefore, is whether the impugned legislation
F falls under Entry 38 of List III or Entries 26 and 27 of List II and
if the former, whether it is repugnant to the existing law on the
subject, that is, the 1910 and 1948 Acts and if that were so, whether
that repugnancy has been cured by Presidential assent?
21. Even assuming that part of the 1948 Act is legislation with
G respect to incorporation and regulation of a trading corporation,
falling under Entry 43 of List I of Schedule VII, the rest of it will
fall under Entry 38 of List III. That part of the Act relating to the
regulation of the activities regarding production and distribution of
electricity would, as we have shown, fall under the entry
H “Electricity”. The Kerala Act has nothing to do with the
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1129
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

incorporation and regulation of the Electricity Board and, therefore, A
it can only relate to Entry 38 of List III, if at all.”
It was held that repugnancy could only arise if both the legislations
of Parliament and State fell within List III.
58. In Sita Ram Sharma and Ors. (supra) the question concerning
Entry 43 of List I and Entries 35 and 42 of List III was considered. It B
was held:
“9. The main argument is that the subject-matter of Section 4
falls within Item 43 of List I of the Seventh Schedule to the
Constitution. So the State Legislature could not enact Section 4.
The rival contention of Dr. L.M. Singhvi, Advocate-General of C
Rajasthan, is that the subject-matter of Section 4 in its true nature
and character falls within Items 35 and 42 of List III of the Seventh
Schedule to the Constitution.
10. Item 43 of List I reads: “Incorporation, regulation and winding
up of trading corporation, including banking, insurance and financial D
corporation but not including cooperative societies.” Item 35 of
List III reads: “Mechanically propelled vehicles including the
principles on which taxes on such vehicles are to be levied.” Item
42 of List III reads: “Acquisition and requisitioning of property.”
15. It is not disputed by the appellant that the subject-matter of E
Chapter IV-A falls within Items 35 and 42 of List III. It would
accordingly follow that Section 68-A the definition clause, also is
a law with respect to those very items. Section 4 of the Ordinance
declares that any scheme prepared and published under
Section 68-C by the General Manager of State Transport F
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 G
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 68-CC in Chapter IV-A 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
H
Undertaking as defined in Section 68-C.
1130 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 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
B
and winding up of trading corporations. The constitutionality of
the law is to be determined by its real subject-matter and not by
the incidental effect which it may have on any topic of legislation
in List I. (See Prafulla Kumar Mukherjee v. Bank of Commerce
Ltd., 1947 FCR 28: AIR 1947 PC 60: 74 IA and Kannan Devan
C Hills Produce Company Ltd. v. State of Kerala, (1973) 1 SCR
356).”
(emphasis supplied)
It is apparent that ‘incorporation, regulation and winding up’ of
the co-operative societies are covered under Entry 32 of List II of the
D Seventh Schedule of the Constitution of India, whereas ‘banking’ is
covered by Entry 45 of List I. Thus, aspect of ‘incorporation, regulation
and winding up’ would be covered under Entry 32 of List II. However,
banking activity of such co-operative societies/banks shall be governed
by Entry 45 of List I. The said banks are governed and regulated by
E legislation related to Entry 45 of List I, the BR Act, 1949 as well as the
Reserve Bank of India Act under Entry 38 of List I. In the matter of
licencing and doing business, a deep and pervasive control is carved out
under the provisions of the BR Act, 1949 and banking activity done by
any entity, primary credit societies, is a bank and is required to submit
the accounts to the Reserve Bank of India, and there is complete control
F under the aforesaid Act. For activity of banking, these banks are governed
by the legislation under Entry 45 of List I. Thus, recovery being an essential
part of the banking, no conflict has been created by providing additional
procedures under Section 13 of the SARFAESI Act. It is open to the
bank to adopt a procedure which it may so choose. When banking in pith
G and substance is covered under Entry 45 of List I, even incidental
trenching upon the field reserved for State under Entry 32 List II is
permissible.
59. There can be various aspects of an activity. The co-operative
societies may be formed under the provisions of the State Co-operative
H Acts. The State law provides for ‘incorporation, regulation and winding
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1131
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

up’ under Entry 32 of List II, a membership registration, and other matters A
can be governed by Entry 32 of List II, and, at the same time, the aspects
relating to the banking, licensing, accounts, etc. can be covered under
Entry 45 List I.
60. In State of W.B. v. Kesoram Industries Ltd. and Ors.36, a
Constitution Bench considered the aspects’ theory and considered the B
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 C
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 D
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 E
same transaction may 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.
In our opinion, there is no question of conflict solely on account of
two aspects of the same transaction being utilised by two
legislatures for two levies both of which may be taxes or fees or F
one of which may be a tax and the other a fee falling within two
fields of legislation respectively available to the two.”
The legislation and entries are to be considered in pith and
substance is the settled principles of law, and incidental trenching is
permissible. Thus, we are of the opinion that section 2(c)(iv)(a) of the G
SARFAESI Act and the notification dated 28.2.2003 cannot be said to
be ultra vires. They are within the ken of Entry 45 List I of the Seventh
Schedule to the Constitution of India.

36 (2004) 10 SCC 201 H
1132 SUPREME COURT REPORTS [2020] 5 S.C.R.

A EFFECT OF CONSTITUTIONAL PROVISIONS
61. Our aforesaid conclusion finds support by the Constitutional
provisions inserted by way of the Constitution (Ninety Seventh
Amendment) Act, 2011. Article 43B has been added concerning the
management of co-operative societies. Article 43B is extracted hereunder:
B “43B. Promotion of co-operative societies.— The State shall
endeavour to promote voluntary formation, autonomous
functioning, democratic control and professional management of
co-operative societies.”
62. Article 243ZI provides that the legislature of a State may, by
C law, make provisions with respect to ‘incorporation, regulation and winding
up’ of co-operative societies. Article 243ZI is extracted hereunder:
“243ZI. Incorporation of co-operative societies. — Subject to the
provisions of this Part, the Legislature of a State may, by law,
make provisions with respect to the incorporation, regulation and
D winding up of co-operative societies based on the principles of
voluntary formation, democratic member-control, member-
economic participation and autonomous functioning.”
63. The Ninety Seventh Amendment also incorporated Article
243ZL dealing with supersession and suspension of the board and interim
E management. Article 243ZL is extracted hereunder:
“243ZL.—Supersession and suspension of board and interim
management.— (1) Notwithstanding anything contained in any
law for the time being in force, no board shall be superseded or
kept under suspension for a period exceeding six months:
F
Provided that the board may be superseded or kept under
suspension in case—
(i) of its persistent default; or
(ii) of negligence in the performance of its duties; or
G (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

H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1133
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

(v) the authority or body as provided by the Legislature of a State, A
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 B
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 C
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 affairs of such co-operative society shall arrange D
for conduct of elections within the period specified in clause (1)
and handover the management to be elected board.
(3) The Legislature of a State may, by law, make provisions for
the conditions of service of the administrator.”
E
(emphasis supplied)
The third proviso to Article 243ZL(1) clarifies that in case of a
co-operative society carrying on the business of banking, the provisions
of the BR Act, 1949 shall also apply besides the State Act. The fourth
proviso to clause (1) of Article 243ZL also contains an exception with
F
respect to 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’, had been substituted by words ‘one year.’ Thus, the
constitutional provision itself makes a distinction between a co-operative
bank and other co-operative societies and applied law enacted under
Entry 45 of List I of the Seventh Schedule. It set at rest any controversy G
concerning the applicability of the BR Act, 1949 to banks run by
co-operative societies. It also makes it clear that such banks are governed
by Entry 45 of List I of the Seventh Schedule.

H
1134 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 64. A three-Judge Bench decision in Greater Bombay Coop. Bank
Ltd. (supra) is heavily relied upon by the appellants, and due to conflict
noted by a three-Judge Bench, the matter has been referred. In Greater
Bombay Coop. Bank Ltd. (supra) the question arose whether
co-operative banks constituted under the Co-operative Societies Act
would have the right to recover the amount from debtors under the Co-
B
operative Societies Act, or they could proceed under the RDB Act, 1993,
and whether pending proceedings were to be transferred to the Debt
Relief Tribunal. In other words, whether the tribunals and the authorities
constituted under the Maharashtra Co-operative Societies Act, 1960 and
the Multi-State Co-operative Societies Act, 2002, continue to have
C jurisdiction to entertain applications/disputes submitted before them by
the co-operative banks incorporated under the 1960 Act and 2002 Act
for recovery of debts after the establishment of a Debts Recovery
Tribunal under the RDB Act, 1993.The High Court opined that after the
establishment of Debts Recovery Tribunal under the 1993 Act, the courts
and authorities under the 1960 Act as well as the 2002 Act would cease
D
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.
65. In another matter, namely A.P. State Coop. Bank v. Samudra
E 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
F 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.
G 66. 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:
“88. Entry 43 of List I speaks of banking, insurance and financial
corporations, etc. but expressly excludes cooperative societies
H from its ambit. The constitutional intendment seems to be that the
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1135
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

cooperative movement was to be left to the States to promote A
and legislate upon and the banking activities of cooperative societies
were also not to be touched unless Parliament considered it
imperative. The BR Act deals with the regulation of the banking
business. There is no provision whatsoever relating to proceedings
for recovery by any bank of its dues. Recovery was initially
B
governed by the Code of Civil Procedure by way of civil suits and
after the RDB Act came into force, the recovery of the dues of
the banks and financial institutions was by filing applications to
the Tribunal. The Tribunal has been established with the sole object
to provide speedy remedy for recovery of debts of the banks and
financial institutions since there has been considerable difficulties C
experienced therefor from normal remedy of civil court.
89. In R.C. Cooper v. Union of India, (1970) 1 SCC 248, this
Court observed that power to legislate for setting up corporations
to carry on banking and other business and to acquire, hold and
dispose of property and to provide for administration of the D
corporations is conferred upon Parliament by Entries 43, 44 and
45 of the Constitution. Therefore, the express exclusion of
cooperative societies in Entry 43 of List I and the express inclusion
of cooperative 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 E
scheme was designed to treat cooperative societies as institutions
distinct from corporations. Cooperative societies, incorporation,
regulation and winding up are State subjects in the ambit of Entry
32 of List II of the Seventh Schedule to the Constitution of India.
Cooperatives form a specie of genus “corporation” and as such F
cooperative societies with objects not confined to one State are
read in with the Union List as provided in Entry 44 of List I of the
Seventh Schedule of the Constitution; the MSCS Act, 2002 governs
such multi-State cooperatives. Hence, the cooperative banks
performing functions for the public with a limited commercial
function as opposed to corporate banks cannot be covered by G
Entry 45 of List I dealing with “banking”. The subject of
cooperative 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.”
H
1136 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 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
B High Court of Andhra Pradesh, does not consider the issue of
cooperative banks’ adjudication and recovery provisions under
Entry 32 of List II. The Court was only considering Entry 45,
List I vis-à-vis Entry II-A, 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.”
C
67. In Greater Bombay Coop. Bank Ltd. (supra), the Court relied
upon the decisions in Sant Sadhu Singh v. State of Punjab37, and
Nagpur District Central Cooperative Bank Ltd. v. Divisional Joint
Registrar, Cooperative Societies38. In Sant Sadhu Singh (supra), the
amendment made to the Punjab Co-operative Societies Act, 1961, which
D curtailed the rights and powers of the shareholders in managing the
co-operative society, was under challenge. Thus, the question involved
was related to the management aspect of the bank governed by the
Co-operative Societies Act for which State had the exclusive legislative
competence under Entry 32 of List II. Whereas in Nagpur District
E Central Cooperative Bank Ltd. (supra), the question arose whether
Registrar had the power under Section 78 of the Maharashtra
Co-operative Societies Act to issue show cause notice to any committee
of the society or any member of such committee including the Directors
in respect of any default or negligence in the performance of the duties
imposed on it or him by the Act or the rule or the bye-laws and power of
F the Registrar to remove the Committee or the members thereof if any
such action is called for. The argument was rejected that the co-operative
societies indulged in the banking business, hence, the State did not have
the legislative competence under Entry 32 of List II, and only the
Parliament had the legislative competence under Entry 45 of List I. The
G question involved as to management was clearly covered under Entry
32 of List II. It was with respect to incorporation, management, and
winding up of a society. Thus, both the abovementioned decisions could
not be said to be applicable with regard to the aspect of banking and
37 AIR 1970 P&H 528
H
38 AIR 1971 Bom 365
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1137
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

were wrongly relied upon while forming an opinion in Greater Bombay A
Coop. Bank Ltd. (supra).
68. At the same time, we are unable to accept the argument raised
on behalf of the respondents. The SARFAESI Act is relatable to Entry
6 of List III considering the provisions contained in Sections 69 and 69A
of the Transfer of Property Act, 1882. We are of the opinion that it B
relates to Entry 45 of List I of the Seventh Schedule of the Constitution
of India.
69. Learned Counsel for the appellants has also placed reliance
on Virendra Pal Singh (supra), in which the provisions relating to the
recruitment, emoluments, terms, and conditions of service, including C
disciplinary control of employees working in the co-operative societies
involved in the banking were considered. Thus, the question of
management/regulation of the co-operative societies was involved. The
aspect of the banking business of the co-operative banks was not involved.
A question was 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. D
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 E
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 F
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 Money-Lenders Act fell within
Entry 27 in List II of the Seventh Schedule to the Government of
India Act, 1935, which was “money-lending”, in respect of which G
the provincial legislature was competent to legislate, or whether it
fell within Entries 28 and 38 in List I which were “promissory
notes” and “banking” which were within the competence of the
Central Legislature. The argument was that the Bengal Money-
Lenders Act was beyond the competence of the provincial H
1138 SUPREME COURT REPORTS [2020] 5 S.C.R.

A legislature insofar as it dealt with promissory notes and the business
of banking. The Privy Council upheld the vires of the whole of the
Act because it dealt, in pith and substance, with money-lending.
They observed:
Subjects must still overlap, and where they do the question
B must be asked what in pith and substance is the effect of the
enactment of which complaint is made, and in what list is its
true nature and character to be found. If these questions could
not be asked, much beneficent legislation would be stifled at
birth, and many of the subjects entrusted to provincial legislation
could never effectively be dealt with.
C
Examining the provisions of the U.P. Cooperative Societies Act in
the light of the observations of the Privy Council we do not have
the slightest doubt that in pith and substance the Act deals with
“cooperative societies”. That it trenches upon banking incidentally
does not take it beyond the competence of the State Legislature.
D It is obvious that for the proper financing and effective functioning
of cooperative societies there must also be cooperative societies
which do banking business to facilitate the working of other
cooperative societies. Merely because they do banking business
such cooperative societies do not cease to be cooperative societies,
E when otherwise they are registered under the Cooperative
Societies Act and are subject to the duties, liabilities and control
of the provisions of the Cooperative Societies Act. We do not
think that the question deserves any more consideration and, we,
therefore, hold that the U.P. Cooperative Societies Act was within
the competence of the State Legislature. This was also the view
F taken in Nagpur District Central Cooperative Bank Ltd. v.
Divisional Joint Registrar, Cooperative Societies, AIR 1971
Bom 365 and Sant Sadhu Singh v. State of Punjab, AIR 1970
P & H 528.”
In the aforesaid decision, it was held that under the U.P.
G Co-operative Societies Act, the State was competent under Entry 32 of
List II to deal with incorporation, regulation and winding up of co-operative
banks. However, the main aspect of the activity of 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
H and 38 of List I of the Seventh Schedule. The aspects of ‘incorporation,
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1139
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

regulation and winding up’ are covered under Entry 32 of List II of the A
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.
70. The concept of regulating non-banking affairs of society and B
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 C
corporation, company, or co-operative bank/co-operative society. It
provides for recovery of dues to banks, including co-operative banks,
which is an essential part of banking activity. The Act in no way trenches
on the field reserved under Entry 32 of List II and is a piece of legislation
traceable to Entry 45 of List I. The decision in Virendra Pal Singh D
(supra) has been rendered regarding service regulations. It does not
apply to the instant case concerning the regulation of ‘banking’ covered
under Entry 45 of List I. The Court did not deal with the aspect of the
regulation of banking in the said decision as it was not required to be
decided. Thus, the ratio of the decision operates in a different field.
Moreover, the U.P. Co-operative Services Act was saved on the ground E
of incidental trenching on the subject of another list, i.e., Entry 45 List I,
which is permissible.
IN REFERENCE QUESTION NO.2:
71. The next question is of the effect of Section 56(a) on the F
definition of ‘banking company’ as defined in Section 5(1)(b) of the BR
Act, 1949. It is necessary to consider the definition of ‘banking’ as
contained in the SARFAESI Act. The term ‘bank’ has been defined in
Section 2(1)(c) to mean ‘banking company’, a corresponding new bank,
a subsidiary bank or a multi-State co-operative bank or such other bank
which the Central Government may by notification specify for the Act. G
The term ‘banking company’ under Section 2(d) shall have the meaning
assigned to it in Section 5(c) of the BR Act, 1949. Thus, the definition of
‘banking company’ stands incorporated in Section 2(1)(d) of the
SARFAESI Act, which came into force on 21.6.2002. Section 56(a)
was incorporated in the BR Act, 1949 by Act No.23 of 1965, w.e.f. H
1140 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 1.3.1966. On that date, Section 56(a) became part of the statute. Section
5(c) of the BR Act, 1949 defines ‘banking company’ means any company
which transacts the business of banking. By virtue of Section 56(a), a
reference to a ‘banking company’ or ‘the company’ or ‘such company’
shall be construed as references to a co-operative bank for the application
of the Act to the co-operative banks. Section 5(c) was not amended,
B
and other provisions were also not amended where they were placed.
However, amendments were incorporated by a different Chapter V by
way of various provisions incorporated in Section 56 as it was necessary
to retain certain provisions in the existing form as they applied to other
banks and companies considering that the amendments and certain
C 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
D
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 subject-matter of Entry
32 of List II. Thus, when we apply the provisions of the Act of 1949 to
E 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 of Section 5(c),
as the full effect is required to be given.
F
72. The aspect of incorporation by reference of earlier Act into
later has been dealt with in the ‘Principles of Statutory Interpretation’,
12th Edition 2010 by Justice G.P. Singh at pages 318-320 thus:
“Incorporation of an earlier Act into a later Act is a legislative
G device adopted for the sake of convenience in order to avoid
verbatim reproduction of the provisions of the earlier Act into the
later.39 When an earlier Act or certain of its provisions are
incorporated by reference into a later Act, the provisions so
39
Mary Roy v. State of Kerala, (1986) 2 SCC 209, p. 216 : AIR 1986 SC 1011; Nagpur
H Improvement Trust v. Amrik Singh, AIR 2002 SC 3499, p. 3512 : (2002) 7 SCC 657.
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1141
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

incorporated become part and parcel of the later Act as if they A
had been “bodily transposed into it”.40 The effect of incorporation
is admirably stated by LORD ESHER, M.R.: “If a subsequent
Act brings into itself by reference some of the clauses of a former
Act, the legal effect of that, as has often been held, is to write
those sections into the new Act as if they had been actually written
B
in it with the pen, or printed in it.”41 The result is to constitute the
later Act along with the incorporated provisions of the earlier Act,
an independent legislation which is not modified or repealed by a
modification or repeal of the earlier Act.42 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 C
second.”43 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
D
to be incorporated in it, at all events if it is possible for the
subsequent Act to function, effectually without the addition.44
40 Ramsarup v. Munshi, AIR 1963 SC 553, p. 558 : 1963 (3) SCR 858 ; Nagpur
Improvement Trust v. Amrik Singh, AIR 2002 SC 3499, p. 3512 : (2002) 7 SCC 657.
41 Re, Wood’s Estate, Ex parte, Works and Buildings Commrs., (1886) 31 Ch D 607, p.

615; Ram Kripal Bhagat v. State of Bihar, AIR 1970 SC 951, p. 957 : (1969) 3 SCC 471; E
Bolani Ores Ltd. v. State of Orissa, AIR 1975 SC 17, p. 29 : 1975 (2) SCR 138 : (1974)
2 SCC 777 ; Mahindra and Mahindra Ltd. v. Union of India, AIR 1979 SC 798, pp. 810,
811 : (1979) 2 SCC 529 ; Onkarlal Nandlal v. State of Rajasthan, (1985) 4 SCC 404, p.
415 : AIR 1986 SC 2146; Surana Steels Pvt. Ltd. v. Dy. Commissioner of Income-tax,
AIR 1999 SC 1455, p. 1459 : (1999) 4 SCC 306 (p. 233 of 7th edition of this book is
approvingly quoted).
42 Narottamdas v. State of M.P., AIR 1964 SC 1667, p. 1670 : (1964) 7 SCR 820; Bolani F
Ores Ltd. v. State of Orissa, supra; Mahindra and Mahindra Ltd. v. Union of India,
supra; Nagpur Improvement Trust v. Amrik Singh, supra ; Sneh Enterprises 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).
43 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 G
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.
44 Secretary of State v. Hindustan Co-operative Insurance Society Ltd., AIR 1931 PC

149, p. 152. Referred to in Chairman of the Municipal Commrs. of Howrah v. Shalimar
Wood Products (Private) Ltd., AIR 1962 SC 1691, p. 1694 : 1963 (1) SCR 47; Bolani H
1142 SUPREME COURT REPORTS [2020] 5 S.C.R.

A Ordinarily if an Act is incorporated in a later Act, the intention is
to incorporate the earlier Act, with all the amendments made in it
up to the date of incorporation.45 The rule that the repeal or
amendment of the Act which is incorporated by reference in a
later Act is not applicable for purposes of the later Act is subject
to qualifications and exceptions.46 A distinction is in this context
B
drawn between incorporation and mere reference of an earlier
Act into a later Act.47 Further, a distinction is also drawn when
what is referred to is not an earlier Act or any provision from it
but law on a subject in general.48 There is, however, no controversy
on the point that when any Act or rules are adopted in any later
C Act or rules, such adoption normally whether by incorporation or
mere reference takes in all the amendments in the earlier Act or
rules till the date of adoption.49
The present one is a case of incorporation by reference in the
same Act by a subsequent amendment in the application to co-operative
D banks. When we apply the provisions of Section 5(c) to the co-operative
banks, we have to read the co-operative banks as part and parcel of said
definition as mandated statutorily. In case a company is not taken as a
reference to the co-operative societies/banks in Section 5(c), several
problems as to the interpretation of Section 56 would arise. It would
have become necessary to amend all the provisions wherever words
E ‘banking company’ occur in the BR Act, 1949 in the application to co-
operative banks.
73. With respect to legislative device of incorporation by reference
in Mary Roy, etc. v. State of Kerala and Ors.50, the Court held:

F “7. … The legislative device of incorporation by reference is a
well-known device where the legislature instead of repeating the

Ores Ltd. v. State of Orissa, AIR 1975 SC 17, p. 29 : 1974 (2) SCC 777 ; Mahindra and
Mahindra Ltd. v. Union of India, AIR 1979 SC 798, pp. 810, 811 : (1979) 2 SCC 529.
45 State of Maharashtra v. Madhavrao Damodar Patil, AIR 1968 SC 1395, p. 1400 :

1968 (3) SCR 712.
G 46 See text and notes 9-41, pp. 324-332.

47 See text and notes 14-21, pp. 326-328.

48 See text and notes 10-13, pp. 325, 326.
49
Rajasthan State Road Transport Corporation Jaipur v. Poonam Pahwa, AIR 1997 SC
2951, p. 2957 : 1997 (6) SCC 100. Also see text and note 80, supra.
[For convenience, citations have been renumbered.]
50 AIR 1986 SC 1011: (1986) 2 SCC 209
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1143
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

provisions of a particular statute in another statute incorporates A
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
B
distinct and different from the one employed in S.29 sub-sec.(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.” C
74. In U.P. Avas Evam Vikas Parishad v. Jainul Islam and
Anr.51, it was observed:
“The determination if a legislation was by way of incorporation or
reference is more a matter of construction by the Courts keeping
in view the language employed by the Act, the purpose of referring D
or incorporating provision of an existing Act and the effect of it on
the day-to-day working. Reason for it is the Courts prime duty to
assume that any law made by the Legislature is enacted to serve
public interest.”
75. In Portsmouth Corporation v. Smith52, it was opined: E

“Where a single section of an Act of Parliament is introduced
into another Act, I think, it must be read in the sense which it
bore in the original Act from which it is taken, and that
consequently it is perfectly legitimate to refer to all the rest of
that Act in order to ascertain what the section meant, though F
those other sections are not incorporated in the new Act.”
Lord Blackburn further observed thus:
“I do not mean that if there was in the original Act a section
not incorporated, which came by way of a proviso or exception
G
on that which is incorporated, that should be referred to, but all
others, including the interpretation clause, if there be one, may
be referred to. It is dangerous mode of draftsmanship to
incorporate a section from a former Act, for unless the
51 AIR 1998 SC 1028
52 (1885) 10 AC 364 H
1144 SUPREME COURT REPORTS [2020] 5 S.C.R.

A draftsman has a much clearer recollection of the whole of the
former Act than can always be excepted, there is great risk
that something may be expressed which was not intended.””
76. In Surana Steels Pvt. Ltd. v. Dy. Commissioner of Income
Tax and Ors.53, it was held that provision is bodily listed and stands
B incorporated and plain rule of interpretation to be applied:
“12. Once we have ascertained the object behind the legislation
and held that the provisions of Section 205 quoted hereinabove
stand bodily lifted and incorporated into the body of Section 115J
of the Income Tax Act, all that we have to do is to read the
C provisions plainly and apply rules of interpretation if any ambiguity
survives. Section 205(1) first proviso Clause (b), of the Companies
Act brings out the unabsorbed portion of the amount of depreciation
already provided for computing the loss for the year. The words
“the amount provided for depreciation” and “arrived at in both
cases after providing for depreciation” make it abundantly clear
D that in this clause “loss” refers to the amount of loss arrived at
after taking into account the amount of depreciation provided in
the profit and loss account.”
(emphasis supplied)

E 77. In Secretary of State v. Hindustan Cooperative Insurance
Society Ltd.54, 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
F “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
G
or referred to;”
The independent existence of the two Acts is therefore
recognized, despite the death of the parent Act, its offspring
53 (1999) 4 SCC 306
H
54 AIR 1931 PC 149
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1145
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

survives in the incorporating Act. Though no such saving clause A
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 B
subsequent 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
effectually without the addition.”
78. In Ram Sarup and Ors. v. Munshi and Ors.55, it was opined: C
“(11) The problem here raised is dependent upon the construction
which the several provisions which we have set out earlier would
bear after the repeal of the Punjab Alienation of Land Act, 1900.
One thing is clear and that is that the authority which enacted the
repeal of the Punjab Alienation of Land Act did not consider that D
Punjab Act 1 of 1913 had itself to be repealed. We shall now
consider the effect of the repeal of the Punjab Alienation of Land
Act with reference to each of the provisions:—
(1) Definition of ‘agricultural land’ under S. 3(1):
Where the provisions of an Act are incorporated by E
reference in a later Act the repeal of the earlier Act has, in general,
no effect upon the construction or effect of the Act in which its
provisions have been incorporated. The effect of incorporation is
stated by Brett, L.J. in Clarke v Bradlugh, (1881) 8 QBD 63:
“Where a statute is incorporated, by reference, into a second F
statute the repeal of the first statute by a third does not affect the
second.”
In the circumstances, therefore, the repeal of the Punjab Alienation
of Land Act of 1900 has no effect on the continued operation of
the Pre-emption Act and the expression ‘agricultural land’ in the G
later Act has to be read as if the definition in the Alienation of
Land Act had been bodily transposed into it. Section 2 of the
Punjab Alienation of Land Act, 1900, as amended by Act 1 of
1907 defined ‘land’ as follows:
55 AIR 1963 SC 553 H
1146 SUPREME COURT REPORTS [2020] 5 S.C.R.

A “The expression ‘land’ means land which is not occupied as the
site of any building in a town or village and is occupied or let for
agricultural purposes or for purposes subservient to agriculture or
for pasture, and includes
..................................................………………………..”
B It is not in dispute that the land concerned in the claim for pre-
emption made in the appeal satisfies this definition.”
79. It is apparent that in order to avoid verbatim reproduction of
the earlier provisions, which did not apply to a co-operative bank, a device
was carved out in Section 56(a) to read ‘company’ as ‘banking company’
C or ‘the company’ or ‘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
D provisions were required to be retained, and such matters concerning
co-operative societies/banks, relatable subject-matter 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
E 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 full
F effect. Merely because the procedure for recovery of dues is provided
in the Co-operative Societies Act, could not have come in the way of
interpretation of that expression ‘co-operative bank’ which was included
in the definition and interpretation clause of Section 5 of the BR Act,
1949. It was open to the Parliament to deal with the subject of ‘banking’
G in Entry 45 of List I and this Court in Greater Bombay Coop. Bank
Ltd. (supra) itself opined that the BR Act, 1949 applies to co-operative
banks which is the enactment related to Entry 45 of List I and third
proviso to Article 243-ZL(1) of the Constitution of India also provides
that the BR Act shall also apply. Thus, the Parliament considered it
appropriate to provide additional remedy for speedy recovery which is
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1147
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

an alternative even if there is an incidental encroachment on the field A
reserved for the State under Entry 32 of List II, as in pith and substance,
the ‘banking’ is part of Entry 45 of List I and recovery procedure is
covered within the ken of Entry 45 of List I. Thus, considering the
Doctrine of Pith and Substance and incorporation by amendment made,
we are of the considered opinion that co-operative banks are included in
B
the definition of ‘bank’ and ‘banking company’ under Section 2(1)(c)
and 2(1)(d) of the SARFAESI Act.
80. In Greater Bombay Coop. Bank Ltd. (supra) concerning the
BR Act, 1949, it was held:
“39. Chapter V of the BR Act was inserted by Act 23 of 1965 C
w.e.f. 1-3-1966. Section 56 of the Act provides that the provisions
of this Act, as in force for the time being, shall apply to, or in
relation to, banking companies subject to the following
modifications, namely:
“56. (a) throughout this Act, unless the context otherwise, D
requires,—
(i) references to a ‘banking company’ or ‘the company’ or ‘such
company’ shall be construed as references to a cooperative bank;
(ii) * * *”
E
The purpose and object of modifications were to regulate the
functioning of the cooperative banks in the matter of their business
in banking. The provisions of Section 56 itself start with the usual
phrase “unless the context otherwise requires” is to make the
regulatory machinery provided by the BR Act to apply to
cooperative banks also. The object was not to define a cooperative F
bank to mean a banking company, in terms of Section 5(c) of the
BR Act. This is apparent from the fact that instead of amending
the original clause (c) of Section 5 separate clause (cci) was added
to cover the “cooperative bank” to mean “a State cooperative
bank, a Central cooperative bank and a primary cooperative bank”.
G
In clause (ccv) “primary cooperative bank” means “a cooperative
society, other than a primary agricultural credit society”. The
primary object or principal business of the “cooperative bank”
should be the transaction of banking business.

H
1148 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 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 cooperative banks also in the process of
bringing the cooperative banks under the discipline of Reserve
Bank of India and other authorities. A cooperative bank shall be
construed as a banking company in terms of Section 56 of the
B
Act. This is because the various provisions for regulating the
banking companies were to be made applicable to cooperative
banks also. Accordingly, Section 56 brought cooperative 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
C reading of every clause of Section 56 of the BR Act, it becomes
clear that what is contained therein is only for the purpose of
application of provisions that regulate banking companies to
cooperative societies. According to the expression “cooperative
societies” used in Section 56 means a “cooperative society”, the
primary object or principal business of which is the transaction of
D
banking business. In other words, first it is a cooperative society,
but carrying on banking business having the specified paid-up share
capital. Other definitions also make it clear that the entities are
basically cooperative societies.”
(a) Concerning the SARFAESI Act, following observations were
E made:
“41. Parliament had enacted the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act,
2002 (“the Securitisation Act”) which shall be deemed to have
come into force on 21-6-2002. In Section 2(d) of the Securitisation
F Act same meaning is given to the words “banking company” as is
assigned to it in clause (e) of Section 5 of the BR Act. Again the
definition of “banking company” was lifted from the BR Act but
while defining “bank”, Parliament gave five meanings to it under
Section 2(c) and one of which is “banking company”. The Central
G Government is authorised by Section 2(c)(v) of the Act to specify
any other bank for the purpose of the Act. In exercise of this
power, the Central Government by notification dated 28-1-2003,
has specified “cooperative bank” as defined in Section 5(cci) of
the BR Act as a “bank” by lifting the definition of “cooperative
bank” and “primary cooperative bank” respectively from Section
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1149
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

56, clauses 5(cci) and (ccv) of Part V. Parliament has thus A
consistently made the meaning of “banking company” clear
beyond doubt to mean “a company engaged in banking, and not a
cooperative society engaged in banking” and in Act 23 of 1965,
while amending the BR Act, it did not change the definition in
Section 5(c) or even in Section 5(d) to include cooperative banks;
B
on the other hand, it added a separate definition of “cooperative
bank” in Section 5(cci) and “primary cooperative bank” in Section
5(ccv) of Section 56 of Part V of the BR Act. Parliament while
enacting the Securitisation Act created a residuary power in
Section 2(c)(v) to specify any other bank as a bank for the purpose
of that Act and in fact did specify “cooperative banks” by C
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 cooperative bank for three reasons: firstly, Section 5
is an interpretation clause; secondly, substitution of “cooperative D
bank” for “banking company” in the definition in Section 5(c)
would result in an absurdity because then Section 5(c) would read
thus: “cooperative bank” means any company, which transacts
the business of banking in India; thirdly, Section 56(c) does define
“cooperative bank” separately by expressly deleting/inserting
clause (cci) in Section 5. Parliament in its wisdom had not altered E
or modified the definition of “banking company” in Section 5(c)
of the BR Act by Act 23 of 1965.
43. As noticed above, “cooperative bank” was separately defined
by the newly inserted clause (cci) and “primary cooperative bank”
was similarly separately defined by clause (ccv). The meaning of F
“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 “cooperative bank” as “banking
company”, it would have been the easiest way for Parliament to
say that “banking company” shall mean “banking company” as G
defined in Section 5(c) and shall include “cooperative bank” and
“primary cooperative bank” as inserted in clauses (cci) and (ccv)
in Section 5 of Act 23 of 1965.”
(b) Concerning incorporation by reference to Section 56 (a) of
the BR Act, 1949, it was opined: H
1150 SUPREME COURT REPORTS [2020] 5 S.C.R.

A “70. The dues of cooperatives and recovery proceedings in
connection therewith are covered by specific Acts, such as the
MCS Act, 1960 and the APCS Act, 1964, which are comprehensive
and self-contained legislations. Similarly, for multi-State
cooperatives there is a specific enactment in the form of the MSCS
Act, 2002 comprehensively providing the legal framework in
B
respect to issues pertaining to such cooperatives. Therefore, when
there is an admittedly existing legal framework specifically dealing
with issues pertaining to cooperatives and especially when the
cooperative banks are, in any case, not covered by the provisions
of the RDB Act specifically, there is no justification of covering
C the cooperative banks under the provisions of the RDB Act by
invoking the doctrine of incorporation.”
(c) Regarding the definition of ‘banking company’ in the BR Act,
1949, it was observed:
“73. The RDB Act was passed in 1993 when Parliament had
D before it the provisions of the BR Act as amended by Act 23 of
1965 by addition of some more clauses in Section 56 of the Act.
Parliament was fully aware that the provisions of the BR Act
apply to cooperative societies as they apply to banking companies.
Parliament was also aware that the definition of “banking
E company” in Section 5(c) had not been altered by Act 23 of 1965
and it was kept intact, and in fact additional definitions were added
by Section 56(c). “Cooperative bank” was separately defined by
the newly inserted clause (cci) and “primary cooperative bank”
was similarly separately defined by clause (ccv). Parliament was
simply assigning a meaning to words; it was not incorporating or
F even referring to the substantive provisions of the BR Act. The
meaning of “banking company” must, therefore, necessarily be
strictly confined to the words used in Section 5(c) of the BR Act.
It would have been the easiest thing for Parliament to say that
“banking company” shall mean “banking company” as defined in
G Section 5(c) and shall include “cooperative bank” as defined in
Section 5(cci) and “primary cooperative bank” as defined in
Section 5(ccv). However, Parliament did not do so. There was
thus a conscious exclusion and deliberate omission of cooperative
banks from the purview of the RDB Act. The reason for excluding
cooperative banks seems to be that cooperative banks have
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1151
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

comprehensive, self-contained and less expensive remedies A
available to them under the State Cooperative 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 B
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 C
that the language of the statutes is to be properly understood. The
usual presumption is that the legislature does not waste its words
and it does not commit a mistake. It is presumed to know the law,
judicial decisions and general principles of law. The elementary
rule of interpretation of the statute is that the words used in the D
section must be given their plain grammatical meaning. Therefore,
we cannot afford to add any words to read something into the
section, which the legislature had not intended.
81. Finally, it could not be said that amendments in Chapter V,
Section 56 of the BR Act by Act 23 of 1965 inserting “cooperative E
bank” in clause (cci) and “primary cooperative bank” in clause
(ccv) either expressly or by necessary intendment (sic make the
RDB Act) apply to the cooperative banks transacting business of
banking.”
(d) The questions were answered thus: F
“97. For the reasons stated above and adopting pervasive and
meaningful interpretation of the provisions of the relevant statutes
and Entries 43, 44 and 45 of List I and Entry 32 of List II of the
Seventh Schedule of the Constitution, we answer the reference
as under: G
“Cooperative banks” established under the Maharashtra
Cooperative Societies Act, 1960 (the MCS Act, 1960), the Andhra
Pradesh Cooperative Societies Act, 1964 (the APCS Act, 1964),
and the Multi-State Cooperative Societies Act, 2002 (the MSCS
Act, 2002) transacting the business of banking, do not fall within
H
1152 SUPREME COURT REPORTS [2020] 5 S.C.R.

A the meaning of “banking company” as defined in Section 5(c) of
the Banking Regulation Act, 1949 (the BR Act). Therefore, the
provisions of the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 (the RDB Act) by invoking the doctrine of
incorporation are not applicable to the recovery of dues by the
cooperatives from their members.”
B
No doubt about it that certain observations made in the aforesaid
decision support the case set up by the appellants.
81. Before we deal with the decision, in Greater Bombay Coop.
Bank Ltd. (supra), it was noted that ‘co-operative bank’ was defined in
C Section 56(cci) of the BR Act, 1949; thus, the object was not to define
co-operative bank to mean banking company; that is why the original
Section 5(c) was not amended. Another ground employed concerning
the definition of the ‘co-operative bank’ was that the modifications made
by way of Section 56 were apparently suitable to make the regulatory
machinery provided by the BR Act, 1949, to apply to co-operative banks
D also. It was opined 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
E 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
F 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
G transfer of ‘every suit or other proceeding pending before any court.’
The word ‘court’ in the context of the RDB Act, 1993, signifies ‘civil
court.’ It is clear that the Registrar or an officer designated by him or an
arbitrator under Sections 61, 62, 70, and 71 of the Andhra Pradesh
Co-operative Societies Act, 1964 and under Section 91 and other
provisions of Maharashtra Co-operative Societies Act, 1960 are not ‘civil
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1153
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

courts.’ Thus, it was opined that the RDB Act, 1993 is consistent with A
the general banks and their creditors/loaners where the Maharashtra
Co-operative Societies Act, 1960; the Andhra Pradesh Co-operative
Societies Act, 1964 and the MSCS Act are concerned with the regulation
of co-operative societies only. Due to the amendments in Chapter V of
the BR Act, 1949 inserting ‘co-operative bank’ in clause (cci) to Section
B
56 and ‘primary co-operative bank’ in clause (ccv) to Section 56 it could
not be said that RDB Act, 1993 applies to the co-operative banks
transacting the business of banking.
82. In Greater Bombay Coop. Bank Ltd. (supra), the provisions
of the BR Act, 1949 were simply noted; there was no in-depth
consideration of the various provisions and, more particularly of those C
contained in Section 56 of the Act. The main issue was whether the
court had jurisdiction or Debts Recovery Tribunal to recover the amount
from the debtor. In that connection, the question of application of RDB
Act, 1993 to the co-operative societies constituted under MSCS Act as
well as State Co-operative Acts arose and also whether the State D
legislature was competent to enact legislation concerning co-operative
societies incidentally transacting the business of banking in the light of
Entry 32 of List II. The findings were recorded on various aspects with
which we are unable to agree. The discussion on various issues was not
in-depth, could not be said to be binding. We have dealt with the various
questions with the help of various decisions of this Court, and we find E
ourselves unable to agree with the conclusions recorded therein. The
co-operative banks are doing the banking business, it could not be said to
be an incidental activity but main and only activity. We are unable to
subscribe to the view taken in Greater Bombay Coop. Bank Ltd. (supra)
as the provisions were not correctly appreciated. F
83. The reason is given in Greater Bombay Coop. Bank Ltd.
(supra) that comprehensive machinery 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 G
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
H
1154 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 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
B
forthwith.
84. 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 from the public, repayable on demand
or otherwise and withdrawal by cheque, draft, order or otherwise. Merely
C by the fact that lending of money is limited to members, they cannot be
said to be out of the purview of banking. They perform commercial
functions. A society shall receive deposits and loans from members and
other persons. They give loans also, and it is their primary function.
Thus, they are covered under ‘banking’ in Entry 45 of List I.
D IN REFERENCE QUESTION NOS. 3(a) AND 3(b)
85. Learned Counsel appearing on behalf of appellants argued
that securitisation is not a banking business. The SARFAESI Act is to
regulate securitisation and reconstruction of financial assets. Emphasis
was laid on the financial assets and financial assistance. The definition
E of ‘debt’ in Section 2(1)(ha) of the SARFAESI Act is the same as defined
in Section 2(g) of the RDB Act, 1993, the ‘debt’ is defined as any liability
which is claimed as due during any business activity undertaken by the
bank or the financial institution. In our opinion, the submission ignores
and overlooks the purpose of the SARFAESI Act, i.e., enforcement of
F security interest, and that is precisely sought to be achieved by
Section 13 without the intervention of the court. Since the activity of a
co-operative bank is banking regulated by the law enacted within the
relatable Entry 45 of List I, we find no reason as to why the Parliament
lacked the competence to enact the SARFAESI Act and to provide a
procedure for the speedy recovery of dues. The SARFAESI Act also
G covers the activities undertaken by the co-operative banks. The co-
operative banks are doing banking business under Section 5(b) of the
BR Act, 1949, and the exclusion of the co-operative societies from Entry
43 of List I, does not have any bearing regarding the interpretation of
Entry 45 of List I.
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1155
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

86. Even assuming for the time being that definition of ‘bank’ in A
Section 5(c) of the BR Act, 1949 did not cover the co-operative banks;
the expression ‘bank’ has been defined in the SARFAESI Act under
Section 2(1)(c), and the provisions contained in Section 2(1)(c)(v)
authorises the Central Government to specify ‘such other bank’ for that
Act. Thus, the notification issued on 28.1.2003 notifying ‘co-operative
B
bank’ as the ‘bank’ is covered by Entry 45 of List I as they are regulated
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 C
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.
D
87. 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 E
summary procedure under the Co-operative Societies Act, was sought
to be redressed. Apart from that, it is permissible for the Parliament to
enact the law to provide recovery procedures for bank dues that have
been done by providing speedy recovery of secured interest without
intervention of the court/tribunal. F
88. In Soma Suresh Kumar v. Government of Andhra Pradesh
and Ors.56, it was observed that there were several occasions when
the laws enacted by the State as well as by the banking regulation carved
out by Central Government acted in their field. This Court considered
the Andhra Pradesh Protection of Depositors of Financial Establishments G
Act, 1999, and the effects of the BR Act, 1949. It was held that ambit of
respective Acts and field covered is required to be considered and it
was permissible for the State legislature also to enact the provisions
notwithstanding the BR Act, 1949 with respect to the matters which
56 (2013) 10 SCC 677 H
1156 SUPREME COURT REPORTS [2020] 5 S.C.R.

A were not covered by the said Act to protect the interest of the investors.
It was held that Andhra Pradesh Protection of Depositors of Financial
Establishments Act, 1999, did not create any repugnancy to any Central
law. It was observed:
“6. Further, it is also pointed out that the Banking Regulations
B Act, enacted by the Central Government, to regulate the operation
of banking companies or organisations, enables RBI to give licence
to banking companies to carry out the functions of the Bank. It
was pointed out that it covered different areas which are not
common to the area covered by the Andhra Act. Further, it was
pointed out that both the Acts have applicability to different aspects
C of refund to the depositors. The Banking Regulations Act, it is
pointed out, was enacted to regulate the functioning of the banking
companies, including Vasavi Cooperative Urban Bank Ltd. and
that the petitioners have approached this Court challenging the
validity of the Act so as to wriggle out of the clutches of law.”
D 89. In K.K. Baskaran v. State Represented by its Secretary,
Tamil Nadu, and Ors.57, the question arose concerning T.N. Protection
of Interests of Depositors (in Financial establishments) Act, 1997. The
said Act provided for a remedy to evils caused by fraudulent activities of
financial establishments for which no redressal mechanism was provided
E in Central enactments. It was held that T.N. Protection of Interests of
Depositors (in Financial establishments) Act, 1997, did not entrench the
field occupied by Section 58-A 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
F 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
G 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

H 57 (2011) 3 SCC 793
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1157
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

Constitution Bench decision of this Court in State of W.B. v. A
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
B
legislation as a whole and there is a presumption that the legislature
does not exceed its constitutional limits.
21. The doctrine of pith and substance means that an enactment
which substantially falls within the powers expressly conferred
by the Constitution upon a legislature which enacted it cannot be
held to be invalid merely because it incidentally encroaches on C
matters assigned to another legislature. The Court must consider
what constitutes in pith and substance the true subject-matter of
the legislation. If on such examination it is found that the legislation
is in substance one on a matter assigned to the legislature then it
must be held to be valid even though it incidentally trenches on D
matters beyond its legislative competence, vide Union of India
v. Shah Goverdhan L. Kabra Teachers’ College, (2002) 8 SCC
228 (SCC para 7).
22. For applying the doctrine of pith and substance regard is to be
had to the enactment as a whole, its main objects and the scope E
and effect of its provisions vide Special Reference No. 1 of 2001,
In re, (2004) 4 SCC 489 (SCC para 15). For this purpose the
language of the entries in the Seventh Schedule should be given
the widest scope of which the meaning is fairly capable, vide
State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201,
[SCC para 31(4)], Union of India v. Shah Goverdhan L. Kabra F
Teachers’ College, (2002) 8 SCC 228 (SCC para 6) and ITC
Ltd. v. State of Karnataka, 1985 Supp SCC 476 (SCC para 17).”
90. In M/s. Ujagar Prints and Ors. (II) v. Union of India and
Ors.58, it was laid down that entries in the State legislature should be
liberally construed and the Doctrine of Pith and Substance was considered G
thus:
48. Entries to the legislative lists, it must be recalled, are not sources
of the legislative power but are merely topics or fields of legislation

58 (1989) 3 SCC 488 H
1158 SUPREME COURT REPORTS [2020] 5 S.C.R.

A and must receive a liberal construction inspired by a broad and
generous spirit and not in a narrow pedantic sense. The expression
“with respect to” in Article 246 brings in the doctrine of “Pith and
Substance” in the understanding of the exertion of the legislative
power and wherever the question of legislative competence is
raised the test is whether the legislation, looked at as a whole, is
B
substantially “with respect to” the particular topic of legislation. If
the legislation has a substantial and not merely a remote connection
with the entry, the matter may well be taken to be legislation on
the topic.”
91. In Keshavlal Khemchand and Sons Private Limited and
C Ors. v. Union of India and Ors.59, 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
D 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.
E 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
F 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 the
specified period and, in the absence of any express provision or
implication to the contrary, no further demand for repayment is
G necessary.”
— Chitty on Contracts, Vol. II, 30th Edn., p. 913.
In other words, such loans are repayable in instalments over a
period of time the terms of which are evidenced by a written

H
59 (2015) 4 SCC 770
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1159
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

agreement between the parties. A default in the repayment (in A
terms of the agreed schedule) generally provides a cause of action
for the creditor to initiate legal proceedings for the recovery of
the entire amount due and outstanding from the borrower.
Normally such term loans are also accompanied by some “security
interest” in a “secured asset” of the borrower. Such a recovery is
B
to be made normally by instituting a suit for recovery of the
amounts by enforcing the “security interest”. The Recovery of
Debts Due to Banks and Financial Institutions Act, 1993 created
an exclusive forum for a speedy ascertainment of the amounts
actually due from the defaulting borrower and also provided for a
mechanism for speedy recovery of the amounts so ascertained C
from such borrowers.
32. Since such a system was also found to be inadequate for the
speedy recovery of the monies due from the borrowers to the
creditors, Parliament made the Act under which the process of
ascertainment of the amounts due from a borrower by an D
independent adjudicatory body is dispensed with. The secured
creditor is made the sole judge of the amount due and outstanding
from a borrower subject to an appeal under Section 17 of the Act.
Be that as it may, such an ascertainment of amount due and
outstanding is not the only criterion on the basis of which the
secured creditor is entitled to initiate proceedings under E
Section 13(4) of the Act, but the secured creditor is also required
to classify the account of the borrower (asset of the creditor) as
an NPA. Dehors the Act, when the borrower of a term loan
defaults in the repayment, the creditor can initiate legal proceeding
straightaway for recovery of the amounts due and outstanding F
from the borrower. The Act places an additional legal obligation
on the creditor to examine and decide whether the account of the
borrower has become an NPA before initiating action under the
Act.”
92. The Bombay High Court in The Majoor Sahakari Bank G
Ltd. (supra) considered the question whether co-operative society
carrying on the banking business, considering 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
H
1160 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 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
B
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
C 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 language of the notification what is urged
by Mr. Parpia is that the notification only contemplates the Indian
Companies Act and Acts similar to that Act. In our opinion, there
D is no reason why such a limited interpretation should be put upon
the general words used in the notification. If the intention of the
State Government was, that the notification should only apply to
the companies registered under the Indian Companies Act or Acts
corresponding to Indian Companies Act nothing was easier than
for the Government to have stated so. If the intention was to
E exclude the banking companies registered under the Co-operative
Societies Act that also could have been set out in the notification
itself. Neither counsel has been able to draw our attention to any
Indian Legislation under which an association doing banking
business can be registered other than the Indian Companies Act
F and the Co-operative Societies Act. Therefore, nothing was simpler
or easier than for the State Government to have stated “doing
business of Banking Companies registered under enactments other
than the Co-operative Societies Act”. When a Court is called
upon to interpret a notification which is capable of more than one
meaning it is not amiss to consider the reason and principle
G underlying the notification. There is no reason or principle why a
co-operative society doing banking business should be put on a
different footing with regard to industrial law from other companies
doing identical business. There is no reason why a co-operative
banking society should treat its employees otherwise than as laid
H down under the industrial law. If we were satisfied that there was
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1161
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

some reason or principle which would lead us to put upon this A
notification the interpretation which Mr. Parpia suggests we might
have put such an interpretation on the notification, but all the
considerations are in favour of the interpretation suggested by
Mr. Rane. There is nothing in the notification which prevents us
from giving the interpretation which we have ultimately decided
B
to give to this notification. Therefore, we are of the opinion that
the petitioners are doing business of Banking and are registered
under an enactment relating to companies, which is the
Co-operative Societies Act. The learned Judge was right in taking
the view that he had jurisdiction to deal with the matter. The petition
fails and is dismissed with costs.” C
93. In Jayant Verma and Ors. v. Union of India and Ors.60, 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: D
“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 cooperative banks, and seeks to regulate them.
Section 21-A, though by way of amendment, is undoubtedly an
integral part of the aforesaid Act relating to the interdict on the E
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 F
to the business of banking. We must not forget that the entries in
the Lists to the Seventh Schedule have to be read in the widest
possible manner, and we have seen from the judgments quoted by
us above that the expression “banking” contained in List I Entry
45 is to be given a wide meaning. There can be no doubt that the G
statute as a whole and the aforesaid section does fall within List I
Entry 45.”
(emphasis supplied)

60 (2018) 4 SCC 743 H
1162 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 94. In Federation of Hotel & Restaurant Association of India,
etc. v. Union of India and Ors.61, the question of overlapping of the
law was considered with respect to a subject which might incidentally
affect another subject in some way or the other and held that that is not
the same thing as the law being on the latter subject. The same transaction
may involve two or more taxable events in its different aspects.
B
95. In Apex Cooperative Bank of Urban Bank of Maharashtra
& Goa Ltd. (supra) the question arose concerning licensing of
co-operative societies by the Reserve Bank of India to carry on banking
business under the provisions of the BR Act, 1949. It was held that
co-operative banks, which are not State co-operative banks or Central
C co-operative banks or primary co-operative banks as defined in Section
56(cci) of B.R. Act, 1949, were not eligible for licensing. The grant of
licence by Reserve Bank of India to co-operative banks, which were
not registered under the Multi-State Co-operative Societies Act, 1984,
was not justified. The powers of Reserve Bank of India under the
D Multi-State Co-operative Societies Act were exercisable only for co-
operative banks, not to any other co-operative societies not doing business
of banking. It was opined:
“25. Another aspect which must be noticed is that in the
Constitution of India, the subject pertaining to co-operative societies
E is in the State List i.e. Entry 32 of List II of Schedule VII. The
Union List has Entry 44 of List I of Schedule VII which deals
with corporations. In this case we are not concerned with the
validity of a Central legislation and thus do not deal with that aspect.
For purpose of the judgment we will take it that a co-operative
society with objects not confined to one State would fall within
F the term corporation, and thus a Central legislation may be saved.
However, from the constitutional provisions it is clear that matters
pertaining to co-operative societies are in the State List. Thus
many States have enacted laws relating to co-operative societies.
We have not seen other Acts. However, as this case concerns a
G society in Maharashtra, the Maharashtra Cooperative 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

H 61 (1989) 3 SCC 634
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1163
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

not cover all co-operative societies and thus needs to indicate to A
which society it applies.”
96. In Bharat Coop. Bank (Mumbai) Ltd. v. Coop. Bank
Employees Union62, 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 B
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 C
was not dependent on the BR Act, 1949.
97. In Reserve Bank of India v. M. Hanumaiah and Ors.63, the
question arose of supersession of the Committee of the management of
Co-operative Bank. There was a written requisition from the Reserve
Bank of India to the Registrar, Co-operative Societies, to supersede the D
management under Section 30(5) of the Karnataka Co-operative
Societies Act, 1959. It was held that principles of natural justice were
not applicable, and the Committee of the management had no right of
hearing. Thus, there are various instances where the Central legislation
has controlled co-operative societies’ aspects relating to banking. E
98. In State of Gujarat and Anr. v. Shri Ambica Mills Ltd.,
Ahmedabad, and Anr.64, the definition clause in a provision when it is
under inclusion and over-inclusive was considered, thus:
“54. A reasonable classification is one which includes all who are
similarly situated and none who are not. The question then is: F
what does the phrase “similarly situated” mean? The answer to
the question is that we must look beyond the classification to the
purpose of the law. A reasonable classification is one which
includes all persons who are similarly situated with respect to the
purpose of the law. The purpose of a law may be either the G
elimination of a public mischief or the achievement of some positive
public good.

62 (2007) 4 SCC 685
63 (2008) 1 SCC 770
64 (1974) 4 SCC 656
H
1164 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 55. A classification is under-inclusive when all who are included
in the class are tainted with the mischief but there are others also
tainted whom the classification does not include. In other words,
a classification is bad as under-inclusive when a State benefits or
burdens persons in a manner that furthers a legitimate purpose
but does not confer the same benefit or place the same burden on
B
others who are similarly situated. A classification is over-inclusive
when it includes not only those who are similarly situated with
respect to the purpose but others who are not so situated as well.
In other words, this type of classification imposes a burden upon
a wider range of individuals than are included in the class of those
C attended with mischief at which the law aims. Herod ordering the
death of all male children born on a particular day because one of
them would some day bring about his downfall employed such a
classification.”
99. In Girnar Traders (3) v. State of Maharashtra and Ors.65,
D 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
E 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
F 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
G legislation by incorporation. General reference, ordinarily, will imply
exclusion of specific reference and this is precisely the fine line
of distinction between these two doctrines. Both are referential
legislations, one merely by way of reference and the other by
incorporation. It, normally, will depend on the language used in

H 65 (2011) 3 SCC 1
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1165
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

the later law and other relevant considerations. While the principle A
of legislation by incorporation has well-defined exceptions, the
law enunciated as of now provides for no exceptions to the principle
of legislation by reference. Furthermore, despite strict application
of doctrine of incorporation, it may still not operate in certain
legislations and such legislation may fall within one of the stated
B
exceptions.
88. In this regard, the judgment of this Court in M.V. Narasimhan,
(1975) 2 SCC 377, can be usefully noticed where the Court after
analysing various judgments, summed up the exceptions to this
rule as follows: (SCC p. 385, para 15)
C
“(a) where the subsequent Act and the previous Act are
supplemental to each other;
(b) where the two Acts are in pari materia;
(c) where the amendment in the previous Act, if not imported
into the subsequent Act also, would render the subsequent Act D
wholly unworkable and ineffectual; and
(d) where the amendment of the previous Act, either expressly
or by necessary intendment, applies the said provisions to the
subsequent Act.”
E
148. Having perused and analysed the various judgments cited at
the Bar we are of the considered view that this rule is bound to
have exceptions and it cannot be stated as an absolute proposition
of law that wherever legislation by reference exists, subsequent
amendments to the earlier law shall stand implanted into the later
law without analysing the impact of such incorporation on the F
object and effectuality of the later law. The later law being the
principal law, its object, legislative intent and effective
implementation shall always be of paramount consideration while
determining the compatibility of the amended prior law with the
later law as on relevant date.
G
173. The doctrine of pith and substance can be applied to examine
the validity or otherwise of a legislation for want of legislative
competence as well as where two legislations are embodied
together for achieving the purpose of the principal Act. Keeping
in view that we are construing a federal Constitution, distribution
H
1166 SUPREME COURT REPORTS [2020] 5 S.C.R.

A of legislative powers between the Centre and the State is of great
significance. Serious attempt was made to convince the Court
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.
B
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
C
Prafulla Kumar Mukherjee v. Bank of Commerce Ltd.,
(1946-47) 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
D on source of legislation.”
100. 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 over-inclusion on the anvil
E of the principles laid down by this Court.
101. Learned Counsel on behalf of appellants argued that
notification dated 28.1.2003 is ultra vires and beyond the purview of the
parent statute, i.e., the SARFAESI Act.The amendment is colourable
legislation, and it encroaches upon a field outside its scope and is also an
F indirect method of achieving the result of bringing ‘co-operative banks’
within the purview of the SARFAESI Act and RDB Act, 1993 and is an
attempt to regulate entities expressly excluded by Entry 43 of List I.
Reliance has been placed on K.C. Gajapati Narayan Deo (supra), in
which it was held:

G “(9) It may be made clear at the outset that the doctrine of
colourable legislation does not involve any question of ‘bona fides’
or ‘mala fides’ on the part of the legislature. The whole doctrine
resolves itself into the question of competency of a particular
legislature to enact a particular law. If the legislature is competent
to pass a particular law, the motives which impelled it to act are
H
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1167
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

really irrelevant. On the other hand, if the legislature lacks A
competency, the question of motive does not arise at all. Whether
a statute is constitutional or not is thus always a question of power
Vide Cooley’s Constitutional Limitations, Vol. 1, p.379. A distinction,
however, exists between a legislature which is legally omnipotent
like the British Parliament and the laws promulgated by which
B
could not be challenged on the ground of incompetence, and a
legislature which enjoys only a limited or a qualified jurisdiction.
If the Constitution of a State distributes the legislative
powers amongst different bodies, which have to act within their
respective spheres marked out by specific legislative entries, or if
C
there are limitations on the legislative authority in the shape of
fundamental rights, questions do arise as to whether the legislature
in a particular case has or has not, in respect to the subject-matter
of the statute or in the method of enacting it, transgressed the
limits of its constitutional powers. Such transgression may be patent,
manifest or direct, but it may also be disguised, covert and indirect D
and it is to this latter class of cases that the expression “colourable
legislation” has been applied in certain judicial pronouncements.
The idea conveyed by the expression is that although apparently
a legislature in passing a statute purported to act within the limits
of its powers, yet in substance and in reality it transgressed these
E
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 F
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 G
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 H
1168 SUPREME COURT REPORTS [2020] 5 S.C.R.

A 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 power of the legislative
authority — ‘Vide 1924 A C 328 p. 337 (B)’. For the purpose
of this investigation the court could certainly examine the effect
of the legislation and take into consideration its object, purpose
B
or design — ‘Vide Attorney-General for Alberta v. Attorney-
General for Canada’, 1939 A C 117 at p. 130 (C). But these
are only relevant for the purpose of ascertaining the true
character and substance of the enactment and the class of
subjects of legislation to which it really belongs and not for
C finding out the motives which induced the legislature to exercise
its powers.
It is said by Lefroy in his well-known work on Canadian
Constitution that even if the legislature avow on the face of an
Act that it intends thereby to legislate in reference to a subject
D over which it has no jurisdiction, yet if the enacting clauses of
the Act bring the legislation within its powers, the Act cannot
be considered ‘ultra vires’ See Lefroy on Canadian Constitution
page 75.”
(emphasis supplied)
E By applying the aforesaid principle, the provision in question/
notification cannot be said to be colourable legislation.
102. In State of Tamil Nadu and Ors. v. K. Shyam Sunder and
66
Ors. , the concept of colourable legislation was considered and it was
observed that the doctrine of malafides does not involve any question of
F bonafide or malafide on the part of the legislature, and the Court is
concerned with a limited issue of competence of the particular legislature
to enact a particular law. The motive of the legislature while enacting a
law is inconsequential. It was observed:
“37. It has consistently been held by this Court that the doctrine
G of mala fides does not involve any question of bona fide or mala
fide on the part of legislature as in such a case, the Court is
concerned to a limited issue of competence of the particular
legislature to enact a particular law. If the legislature is competent
to pass a particular enactment, the motives which impelled it to an
H 66 (2011) 8 SCC 737
PANDURANG GANPATI CHAUGULE v. VISHWASRAO PATIL 1169
MURGUD SAHAKARI BANK LIMITED [ARUN MISHRA, J.]

act are really irrelevant. On the other hand, if the legislature lacks A
competence, the question of motive does not arrive at all. Therefore,
whether a statute is constitutional or not is, thus, always a question
of power of the legislature to enact that statute. Motive of the
legislature while enacting a statute is inconsequential: “Malice or
motive is beside the point, and it is not permissible to suggest
B
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 C
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 D
piece or over-inclusive or beyond the competence of the Parliament.
103. 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 E
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 the State legislation with respect to the aspects
of ‘incorporation, regulation and winding up’, in particular, with F
respect to the matters which are outside the purview of Entry 45
of List I of the Seventh Schedule of the Constitution of India, are
governed by the said legislation relatable to Entry 32 of List II of
the Seventh Schedule of the Constitution of India.
(2) The co-operative banks involved in the activities related to G
banking are covered within the meaning of ‘Banking Company’
defined under Section 5(c) read with Section 56(a) of the Banking
Regulation Act, 1949,which is a legislation relatable to Entry 45 of
List I. It governs the aspect of ‘banking’ of co-operative banks
run by the co-operative societies. The co-operative banks cannot
H
1170 SUPREME COURT REPORTS [2020] 5 S.C.R.

A carry on any activity without compliance of the provisions of the
Banking Regulation Act, 1949 and any other legislation applicable
to such banks relatable to ‘Banking’ in Entry 45 of List I and the
RBI Act relatable to Entry 38 of List I of the Seventh Schedule of
the Constitution of India.
B (3)(a) The co-operative banks under the State legislation and multi-
State co-operative banks are ‘banks’ under section 2(1)(c) of
Securitisation and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002. The recovery is an essential part of
banking; as such, the recovery procedure prescribed under section 13 of
the SARFAESI Act, a legislation relatable to Entry 45 List I of the Seventh
C
Schedule to the Constitution of India, is applicable.
(3)(b) The Parliament has legislative competence under Entry 45
of List I of the Seventh Schedule of the Constitution of India to provide
additional procedures for recovery under section 13 of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security
D
Interest Act, 2002 with respect to co-operative banks. The provisions of
Section 2(1)(c)(iva), of Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002, adding “ex
abundanti cautela”,‘a multi-State co-operative bank’ is not ultra vires
as well as the notification dated 28.1.2003 issued with respect to the
E co-operative banks registered under the State legislation.
The civil appeals, writ petitions and the pending applications, if
any, are disposed of accordingly. No costs.

F Divya Pandey Reference answered.

G

H