Constitutional validity of Section 21A of the Banking Regulation Act upheld by Supreme Court

Constitutional validity of Section 21A of the Banking Regulation Act upheld by Supreme Court. PIL challenged it on the ground large suicide by farmers 

ABCAUS Case Law Citation:
ABCAUS 2204 (2018) (02) SC

A Public Interest Litigation (PIL) was filed in the Hon’ble Supreme Court challenging the constitutional validity of Section 21A of the Banking Regulation Act, 1949 (the Act).

The said section 21A provides that rates of interest charged by banking companies can not be the subject to scrutiny by courts, the section reads as under:

“Notwithstanding anything contained in the Usurious Loans Act, 1918 (10 of 1918), or any other law relating to indebtedness in force in any State, a transaction between a banking company and its debtor shall not be reopened by any court on the ground that the rate of interest charged by the banking company in respect of such transaction is excessive.”

Constitutional validity of Section 21A of the Banking Regulation Act upheld by SC

The petitioners submitted that large number of farmers had committed suicide between the years 1995 to 2010 because, and directly linked to, usurious rates of interest being charged from them by banks, which cannot be interfered with by courts.

The Hon’ble Supreme Court framed the following questions:

(i) What is the scope of Entry 45, List I vis-à-vis Entry 30, List II of the Seventh Schedule to the Constitution?

(ii) Whether Section 21A can be said to prevail over State Debt Reliefs Acts in the event of a clash between the two?

The Hon’ble Supreme Court opined that in pith and substance, the Banking Regulation Act does fall within Entry 45, List I, but in view of Entry 45, List I and Entry 30, List II of the Seventh Schedule, insofar as relief of agricultural indebtedness is concerned, Section 21A certainly trenches upon Entry 30, List II.

The Hon’ble Supreme Court observed that certain provisions in a particular Act enacted by one legislature may incidentally trench upon a forbidden field exclusively given to another legislature.

The Hon’ble Supreme Court opined that incidental encroachment by Parliament cannot be tolerated when the exclusive field allotted to the State legislature is not unoccupied. The paramountcy principle contained in Article 246, is only taken as a last resort after harmonious construction fails, and, that too, qua entries in competing lists. Once legislation is referable to one list or the other, the doctrine of incidental trenching and unoccupied field would apply equally to both Parliamentary and State legislations.

The Hon’ble Supreme Court declared Section 21A of the Banking Regulation Act to be valid as it is part of an enactment which, in pith and substance, is relatable to Entry 45, List I of the Seventh Schedule to the Constitution.

However, it was held that insofar as Section 21A incidentally encroaches upon the field of relief of agricultural indebtedness, it will not operate only in States where there is a State Debt Relief Act which deals with the subject matter of relief of agricultural indebtedness, where the State Debt Relief Act covers debts due to “banks”. In States where the State Debt Relief Act does not apply to banks at all, or applies only to certain specified banks, Section 21A will, in the former situation, apply in such States, and, in the latter situation, apply only in respect of loans made to agriculturists where such loans are given by banks other than the banks specified or covered by the concerned State Debt Relief Act, as the case may be.

Section 21A of the Banking Regulation Act

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