SARFAESI Act, 2002 is unenforceable in the state of Jammu & Kashmir

Jammu and Kashmir High Court– Giving a landmark judgment regarding the applicability of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) in the State of Jammu and Kashmir (hereinafter State), a division bench of M.H. Attar and A.M. Magrey JJ, held that the SARFAESI Act, 2002 cannot be enforced in the State as the Union Parliament does not have legislative competence to enact laws contained in Sections 13, 17(A), 18(B), 34, 35 and 36 so far they relate to the State. Giving reasons, the Court observed that the SARFAESI Act modifies the State transfer of property Act, State Civil Procedure Code, Civil Courts Act, State Limitation Act and adversely impacts the inalienable property rights of State Subjects, hence is beyond legislative competence of the Parliament to the extent of State of Jammu and Kashmir.

The petition is in the backdrop of SARFAESI Act wherein banks can seize property of the borrowers and dispose it off. Learned Counsel, A. Haqani, on behalf of the petitioners argued that the authority created and mechanism prescribed by the SARFAESI Act is covered by the expression “administration of justice” and the Parliament has no power to legislate any law on this subject. While Zafar A. Shah, learned Senior Advocate, appearing for respondent Bank, argued that in view of Entry 45 of List I, (Union List) of 7th Schedule of the Constitution of India, the Parliament is competent to legislate the SARFAESI Act.

The Court pointed out that Parliament has no power to legislate law on the subjects of administration of justice, the land and other immovable properties. The Court further observed that the Constitution of Jammu and Kashmir is sovereign in character and the State Assembly exercises sovereign power to legislate laws. Referring to Prem Nath Koul vs. State of J&K, 1959 Supp (2) SCR 270:AIR 1959 SC 749, the Court also held that the State of Jammu and Kashmir occupies a distinct, unique and special position and constitutes a class in itself, thus cannot be compared to other states in the country. The Court further explained that the constitutional provisions and laws extended to the State of Jammu and Kashmir in accordance with the mechanism and procedure under Article 370 and those constitutional provisions and laws which have been made applicable to the State with modifications make the distinct and special position of the State more clear. The Court also gave liberty to the State to enact law similar to SARFAESI Act for securing the interest of banks or financial institutions. Bhupinder Singh Sodhi v. Union of India, decided on 16.07.2015

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