Srinagar: In a landmark judgment upholding the sovereign character of the people of J&K, the state High Court on Wednesday ruled that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act cannot be extended to the state.
In a 76-page judgment, a division bench of Justices Muzaffar Hussain Attar and Ali Mohammad Magrey said the Act, which was enacted by the Indian parliament in 2002, adversely impacts the inalienable property rights of state subjects.
“The Act is made beyond legislative competence by the Parliament to the extent of Jammu and Kashmir, and thus cannot be extended to this State. Any law made by the Parliament which affects the laws made by the State legislature cannot be extended and applied to the State of J&K,” the bench ruled, observing the Act also modifies the state transfer of property Act, State Civil Procedure Code, Civil Courts Act and State Limitation Act.
“It also affects the rights of state subjects/citizens recognised by the Constitution of India and Constitution of the State of J&K,” the bench said, ruling that Parliament lacks competence to make laws regarding J&K, which would affect the interests of state subjects as defined by law and section 6 of the Constitution of J&K with regard to their immoveable properties.
“It is the State in terms of section 5 of the Constitution of J&K, which has the absolute sovereign power to legislate laws touching the rights of its state subjects/citizens qua their immoveable properties. The State legislature, in terms of section 140 of the Transfer of Property Act, 1882, has authorised for mortgage of property in favour of the Institutions mentioned therein. The sale of immoveable property in pursuance to a Civil Court Decree obtained by the bank/financial Institution in respect of the mortgaged property cannot be made in favour of non-state subjects.”
The court said laws made by the Maharaja to define state subjects and prohibition on alienation of immoveable property in favour of non-state subjects have been protected by constitutional laws including Section 76 of Act of 1939 and other statutory laws including that of section 140 of the Transfer of Property Act, 1882.
The J&K state, it said, is not only unique in view of having its own Constitution but has other special features.
The judgment also assumes significance given the raging debate over Article 35-A and voices of abrogation of Article 370, especially after the BJP assumed power in India, and in J&K in partnership with the PDP.
“Article 35(A) of the Constitution of India, 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 the state of J&K,” the court said, observing that Article 35-A was only a clarificatory provision to clear the issue of constitutional position obtaining in the rest of country in contrast to J&K.
“This provision clears the constitutional relationship between people of the rest of the country and the people of J&K. It is, in essence, information to the citizens of rest of country that on a constitutional and legal plank they in all respects do not constitute a class with citizens of the state of Jammu and Kashmir,” the court said and held that citizens of J&K have their own constitution and sovereign character which cannot be challenged, altered or abridged.
“The power of Parliament to make laws in respect of J&K is circumscribed and it can make laws for it only where permitted by the State and not otherwise, and that too in accordance with the mechanism prescribed by Article 370 of the Constitution of India,” the court said, emphasising that the Constitution of India could not apply, by its own force, to J&K.
“The Article 370 provides 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 unilaterally. Same could be done either with consultation with the Government of J&K or with its concurrence. The sovereignty 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 sovereign character of the State Constitution and state assembly, the court said, has sovereign power to make laws for its subjects. “The Parliament has been authorised to make laws in respect of those matters in the Union List and Concurrent List, which, in consultation with the Government of the State are declared by the President to correspond to matters specified in the Instrument of Accession, governing the accession of State to the dominion of India,” the court said, adding that other laws could be made by Parliament with concurrence of the Government of the State, which are to be specified by the President by an order.
After enacted by Parliament, the SARFAESI Act was enforced on 17 December, 2002 and it was aimed to regulate scrutinisation and reconstruction of financial assets and enforcement of security interests. The Act was amended in 2004 and 2012 to facilitate and ensure immediate recovery of finances or money which was due to financial institutions from borrowers. It empowers banks to seize immovable property of defaulters.
The court also rejected as “inconsequential and otiose” the amendment to Rules of 2002, which provide that a non-state subject cannot purchase immoveable property in consequence to a sale made in terms of section 13(4) of the Act of 2002. “Section 13(4) empowers the non-state subject to take possession of immoveable property which is not countenanced by State Constitution and State Laws. Furthermore, no redressal forum being available against action taken u/s 13 of the Act of 2002, it would not be applicable to the State of J&K. Section 34 takes away the jurisdiction of the civil courts and section 35 has over-riding effect on all other laws which include Transfer of Property Act of the State of J&K, more particularly, Section 140 thereof,” the court said, reemphasising that J&K citizens constitute a separate and distinct class in themselves.
Subsequently, the court disposed of the petition challenging issuance of notice by various banks, holding that the Union 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. It is also held that the Act cannot be enforced in the State of J&K.
“It is further held that the 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,” the court added.
The court also quashed the notices issued by banks in terms of section 13 or any other coercive method taken under section 13 of the SARFAESI Act. “The respondents Banks/Institutions are restrained from proceeding further in terms of action initiated on the basis of provisions of the Act against state subjects/ citizens of the state of Jammu and Kashmir.”
It said that banks are at liberty to recover the money due to them from the borrowers by having recourse to appropriate laws and by approaching the appropriate forums. “The State of J&K would be at liberty to enact a law similar to SARFAESI for securing the interests of the banks and financial Institutions.”
However, the court said the state, in the event of framing such a law, has to ensure that interests of state subjects and citizens of J&K qua their immoveable properties are not affected by transferring the same to non-state subjects.