In a significant verdict, the Supreme Court today held that the courts can scrutinise the rates of interest being charged by banks from farmers in states where debt relief laws are in place to deal with rural indebtedness. The verdict of the apex court came on a PIL challenging the constitutional validity of Section 21A of the Banking Regulation Act, 1949, which says that a transaction between a bank and debtor shall not be reopened by any court on ground that the rate of interest is excessive. The plea had claimed that a total of 2,56,913 farmers had committed suicide during 1995 to 2010 because of “usurious rates of interest being charged from them by banks” and which cannot be interfered with by the courts due to the provision in the banking law.
A bench of Justices R F Nariman and Navin Sinha, however, upheld the constitutional validity of the section on the ground that banking fell under the Union List of the Constitution. The bench gave a hope to the debtor farmers and power to the courts, saying the relief in agricultural indebtedness was a subject matter in the State List of the Constitution and the courts can intervene in cases relating to the interest rates if a state has a “Debt Relief Act which deals with the subject matter of relief” in farm loans. “However, 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.
“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 court, in its 102-page judgement, said. The plea, filed by activists including Jayant Verma in 2013, had assailed Section 21A which was introduced in the Banking Regulation Act with effect from February 15, 1984. The court examined the scope of Entry 45 (Banking) in the Union List of in relation to Entry 30 (relief of agricultural indebtedness) of the State List of the Seventh Schedule to the Constitution. It also mulled over the question whether Section 21A can be said to prevail over State Debt Reliefs Acts in the event of a clash between the two.
Referring to the clash between a central law provision and the states’ power to deal with issue of farm loan and reliefs, the top court said, “It can, thus, be seen that Article 246 only states that where two entries in the Union List and the State List, respectively, have a head-on collision and are irreconcilable, then, as a last resort, the entry in the State List is to give way to the entry in the Union List. “But, this is only as a last resort. First, it is incumbent upon the court to harmonise the entries, if possible, by giving effect to both and not rendering any one of them otiose.”
The bench said the two entries of banking and the relief to agricultural indebtedness, “are best harmonised by giving effect to both.” “This can only be done if the relief of agricultural indebtedness is to include banks, both cooperative and otherwise,” it said. The court said Entry 18, List II gave the States exclusive power to legislate on ‘land improvement and agricultural loans’. “Entry 45 (Banking), List I will remain intact and will have carved out of it the relief of agricultural indebtedness, which, as we have already seen, is a sub-sub-species of indebtedness, which itself is one of many aspects of banking,” Justice Nariman, who wrote the verdict, said.