SARFAESI Act cannot be enforced in Jammu and Kashmir, rules the J&K High Court

In a landmark judgment, the Jammu & Kashmir High Court has held recently that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, enacted by Parliament in 2002, cannot be enforced in the state.

A division bench of the Court comprised of Justice Muzaffar Hussain Attar and Ali Muhammad Magrey underlined how the SARFAESI Act is not applicable to Jammu and Kashmir owing to its unique constitutional position.

“Provisions of the Act can be availed of by the banks, which originate from the State of J&K, for securing the monies which are due to them and which have been advanced to the borrowers, who are not State subjects and residents of the State of J&K and who are non State subjects/non citizens of the State of J&K and residents of any other State of India excepting the State of J&K,” ruled the court in the judgment.

The judgment underlines that Parliament does not have legislative competence to make laws contained in section 13, section 17(A), section 18(B) section 34, 35 and section 36, so far as they relate to the State of J&K.

While quashing the notices issued by the banks in terms of section 13 of the SARFAESI Act, the court restrained the banks and other financial institutions from proceeding further in keeping with the Act against the State Subjects or citizens of Jammu and Kashmir.

The court, however, put the banks at liberty to recover the money due to them from the borrowers by having recourse to the appropriate laws and by approaching the appropriate forums.

The J&K state would be at liberty, the court said, to enact law similar to that of the SARFAESI Act 2002 for securing the interests of the banks/financial Institutions.

“The State of J&K, in the event of framing such a law, has to ensure that interests of State subjects/citizens of J&K regarding their immoveable properties are not affected by transferring the same to non State subjects,” the court said.

Citing the Constitution of India, the Court held that “Article 35(A) which has been applied to the State of J&K, clarifies the already existing constitutional and legal position and does not extend something new to state.”

“This provision clears the constitutional relationship between people of rest of country with people of J&K. The citizens of State of Jammu and Kashmir have their own constitution and their sovereign character which cannot be challenged, altered or abridged,” the court said.

The power of Parliament to make laws in respect of State of Jammu and Kashmir, the court said, is circumscribed and it can make laws for it only where permitted by State and not other side, and that too in accordance with mechanism prescribed by Article 370 of Constitution of India.

Underling that Constitution of India could not apply, by its own force, to the State of J&K, the court held that Article 370 of the Constitution of India, provided mechanism and procedure for applying constitutional provisions and statutes to the State of J&K.

“The dominion Government, however, could not extend provisions of the Constitution or other laws to the State of J&K unilaterally. Same could be done either with consultation with the Government of J&K or with its concurrence,” the bench added.

While the Court pointed out that Parliament has power to legislate laws in respect of banking as “Entry 45 of List (I) of Schedule 7th of Constitution of India has been extended to the State of J&K in accordance with the mechanism and procedure prescribed by article 370, it said the Parliament, however, has no power to legislate law about the subject administration of justice, the land & the other immoveable properties.”

“Amendment to Rules of 2002, which provide that a non State subject cannot purchase the immoveable property in consequence to sale made in terms of section 13(4) of the Act of 2002 is rendered inconsequential. Section 13(4) empowers the non State subject to take possession of immoveable property which is not countenanced by State Constitution and State Laws,” the court held.

“Since the field of legislation as prescribed in List I, Entries of some of which have been extended to the State of J&K, do not authorize the Union Parliament to legislate law, as already stated, which affects the interests of the State subjects/citizens of J&K and their immoveable property, the competence of the Parliament to legislate section 13 (1) and (4) is held to be beyond its legislative competence to the extent of State of J&K.”

Referring to the Judgment of the apex court in Prem Nath Koul’s s case, the J&K High Court said, “It has been authoritatively ruled by the Supreme Court that signing of Instrument of Accession did not affect the sovereignty of Maharaja over his State.”

Citing the view of law laid down by the Supreme Court in Prem Nath Koul and Sampat Prakash cases, the court held, “State of J&K occupies a distinct, unique and special position. Thus, in law, the State of J&K constitutes a class in itself and cannot be compared to the other states of the country. The constitutional provisions and laws, which have been extended to the State of J&K in accordance with the mechanism and procedure prescribed by article 370 and which constitutional provisions and laws have been made applicable to the State of J&K with modifications etc make the distinct, unique & special position of the State of J&K more clear.”

“The sovereignty of the State of J&K under the rule of Maharaja, even after signing of Instrument of Accession and in view of framing of its own Constitution, thus “legally and constitutionally remained intact and untampered,” the court said.

“The SARFAESI Act, 2002, modifies the State transfer of property Act, State Civil Procedure Code, Civil Courts Act, State Limitation Act and above all the adversely impacts the inalienable property rights of State Subjects.  The Act is made beyond legislative competence by Parliament to the extent of State of Jammu and Kashmir, thus cannot be extended to this State.  Any law made by Parliament which affects the laws made by State legislature cannot be extended and applied to State of J&K,” it said.

“The laws made by the Maharaja are protected by the Constitution of 1939 AD and the subsequent Constitution framed by the Constituent Assembly of the State of J&K, which includes protection given to the State subjects and non transferring of immoveable properties to non State subjects. The Act of 2002, which, in view of discussion made in this judgment, affects these laws and rights of the State subjects, thus cannot be extended to the State of J&K,” the court added.