Section 21A of the Banking Regulation Act, 1949 cannot override State Debt Relief Acts on subject of relief from agricultural indebtedness

Supreme Court: Upholding the constitutional validity of Section 21A of the Banking Regulation Act, 1949, the Bench of RF Nariman and Navin Sinha, JJ held that Section 21A of the Banking Regulation Act is 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.

The Bench, however, said that where Section 21A of the Banking Regulation Act incidentally trenches upon the State Debt Relief Acts, enacted under Entry 30, List II, so far as relief of agricultural indebtedness is concerned, where there is State legislation on the same subject matter which directly clashes with Section 21A, Section 21A will have to give way to the State Debt Relief Acts insofar as relief from agricultural indebtedness due to banks is concerned.

It said:

“The non-obstante clause in Section 21A cannot override a State Debt Relief Act in this situation, as Parliament cannot give itself supremacy over State legislation where none exists under the Constitution. If this were not the case, the exclusive power of the States to make laws within List II would become illusory, and “Parliamentary paramountcy” would trap many a beneficent State legislation made within its exclusive domain.”

Hence, the bench said that insofar as Section 21A incidentally encroaches upon the field of relief of agricultural indebtedness, set out in Entry 30, List II, 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”, as defined in those Acts.

It was further held that 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.

The said Section that deals with “Rates of interest charged by banking companies not to be subject to scrutiny by courts”, was introduced into the Banking Regulation Act by the Banking Laws (Amendment) Act of 1983 with effect from 15.2.1984. Section 21A interdicts the reopening by courts of a debt between a banking company and its debtor, on the ground that the rate of interest charged by the banking company, in respect of a loan transaction, is excessive. [Jayant Verma v. Union of India, 2018 SCC OnLine SC 124, decided on 16.02.2018]

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