December 23, 2024
Constitutional Law 1DU LLBSemester 3

Prafulla Kumar Mukherjee v. Bank of Commerce, Limited, Khulna AIR 1947 PC 60

Case Summary

CitationPrafulla Kumar Mukherjee v. Bank of Commerce, Limited, Khulna AIR 1947 PC 60
Keywords
FactsThe Khulna Loan Bank, Ltd.’s assets were transferred to the respondents by order of the High Court of Calcutta dated May 12, 1941, which was issued in accordance with Section 153A of the Indian Companies Act. In some of the cases currently on appeal before their Lordships Board, the respondents sought to recoup loans and interest they claimed were owed on promissory notes signed by the appellant borrowers. In other cases, the appellant debtors sought a declaration that the Act’s provisions at least reduced their debt, and in some cases, that they were entitled to reimbursement for amounts that were overpaid.
The Khulna Loan Company or the Khulna Loan Bank, not the respondents, made loans at considerably earlier dates. The procedures started in 1941, 1942, and 1948, but the loans in question were made much earlier. Promissory notes signed concurrently with the transaction served as collateral for the loans in each case.
Section 30 of the Act, whose legality their Lordships had to decide, states that no borrower will be obligated to pay more than the amount specified in the agreement or in any law currently in effect after the Act’s start.
A borrower may bring a lawsuit about a loan covered by the Act’s provisions up to a particular amount in respect of principle and interest or more than a specific percentage of the amount provided as a defence to the moneylender’s claim.
IssuesWhether the Government of India Act of 1935 is invalid because of Schedule 7, List 1 Items 28 and 38?
Contentions
Law PointsThe Bengal Money Lender Act, 1940, which limited the amount a moneylender may recover on his debts for, was challenged in the case. Payments of principal and interest in excess of what the Act permits were forbidden. The Khulna Loan Bank, Ltd.’s assets were transferred to the respondents by judgement of the High Court of Calcutta dated May 12, 1941, in accordance with Section 153A of the Indian Companies Act. The respondents were an incorporated organisation.
The Act was deemed to be outside the authority of the Provincial Legislature by the High Court of Calcutta. However, the ruling of the High Court of Calcutta was overturned on appeal to the Federal Court. The law-making authority of the Bengal Legislature in India is to be limited, and the procedure to be used in deciding the subjects which are to be dealt with by 1935, and the three lists set forth the Seventh Schedule, it was decided that the Act was supra vires.
JudgementIt was held by the Privy Council that the act was in piths and substance and law with respect to ‘money lending and money lenders’ was a state matter and was valid even if incidental encroachment upon ‘Promissory notes’ which is Central matter was taking place.
Ratio Decidendi & Case Authority

Full Case Details

In this case, the validity of the Bengal Money Lenders Act, 1940 was challenged. The impugned
section 30 of the Act provided:
“Notwithstanding anything contained in any law for the time being in force, or in any
agreement (1) No borrower shall be liable to pay after the commencement of this Act” –
more than a limited sum in respect of principal and interest or more than a certain percentage
of the sum advanced by way of interest. Moreover, it is retrospective in its effect, and its
limitations can be relied upon by a borrower by way of defence to an action by the moneylender
or the borrower can himself institute a suit in respect of a loan to which the provisions of the
Act apply.
Section 100, Government of India Act, 1935, is in the following terms:
“100. (1) Notwithstanding anything in the two next succeeding subsections, the Federal
Legislature has, and a Provincial Legislature has not, power to make laws with respect to any
of the matters enumerated in List I in Sch. 7 to this Act (hereinafter ca1led the ‘Federal
Legislative List’).
(2) Notwithstanding anything in the next succeeding subsection, the Federal Legislature, and,
subject to the preceding subsection a Provincial Legislature also, have power to make laws with
respect to any of the matters enumerated in List III in the said Schedule (hereinafter called the
‘Concurrent Legislative List’).
(3) Subject to the two preceding subsections, the Provincial Legislature has, and the Federal
Legislature has not, power to make laws for a Province or any part thereof with respect to any
of the matters enumerated in List II in the said Schedule (hereinafter called the ‘Provincia1
Legislative List’}.
(4) The Federal Legislature has power to make laws with respect to matters enumerated in
the Provincial Legislative List except for a Province or any part thereof.
The Federal Legislative List referred to in this section assigned to the Federal Legislature
jurisdiction to make laws with respect to
“(28) Cheques, bills of exchange, promissory notes and other like instruments.”
“(33) Corporations, that is to say, the incorporation regulation and winding up of trading
corporations including banking…..”
“(38) Banking, that is to say, the conduct of banking business ….”
and denies that jurisdiction to Provincial Legislatures.
The Provincial Legislative List, however, empowered the Provincial Legislature in Item (27) to make
laws with respect to “Trade and Commerce within the Province;…. money lending and money lenders,”
and therefore no objection could be taken to the provisions of the Bengal Money-lenders Act, if they
were concerned only with the limitation of capital and interest recoverable.
[Entries 28, 33 and 38 are entries 46, 43 and 45 of List I and entry 27 is entry 30 of List II of the VII
Schedule to the Constitution of India.]

LORD PORTER – 11. Having regard to these provisions the respondents say that whilst it
is true that they are money-lenders, yet they are engaged in banking and are holders of
promissory notes, matters which are solely within the Federal jurisdiction and that a Provincial
Act such as the Bengal Money-lenders Act is ultra vires in that it deals withFederal matters.
These matters, they say, are so intertwined with the rest of the Act that they cannot be
disassociated and therefore the Act is wholly void. But whether this be so or not theparticular
loans, the subject matter of the actions under review, are secured by promissory notes and in
addition are matters of banking; accordingly they say that the Act is void at any rate so far as
concerns promissory notes or banking.

  1. In the present cases the Judges of the High Court found in favour of the appellants on
    the ground that though the Federal List prevails over the Provincial List where the two lists
    come in conflict, yet the Act being a Money-lenders Act, deals with what is in one aspect at
    least a Provincial matter and is not rendered void in whole or in part by reason of its effect upon
    promissory notes. In their view the jurisdiction of the Provincial Legislature is not ousted by
    the inclusion of provisions dealing with promissory notes though that subject- matter is to be
    found in Item 28 of the Federal List. The reference to Bills of Exchange and promissory notes
    in that item, they held, only applies to those matters in their aspect of negotiability and not in
    their contractual aspect. In their contractual aspect the appropriate item, as they considered, was
    entry (10) of List 111 “contract”. “Interest on promissory notes,” they say,
    (I)s a matter with respect to contracts, a subject to be found in the Concurrent Legislative List.
    The Bengal Act has received the assent of the Governor-General and in view of the provisions
    of S 107 (2), Constitution Act, Ss. 29 (2) and 30, Bengal Money-lenders Act, 1940 must prevail.
    I5. Section 107, Constitution Act (identical with Article 254 of the Constitution of India),
    is in the following terms:
  2. (1) If any provision of a Provincial law is repugnant to any provision of a Federal Law
    which the Federal Legislature is competent to enact or to any provision of an existing Indian
    law with respect to one of the matters enumerated in the Concurrent Legislative List, then,
    subject to the provisions of this section, the Federal law, whether passed before or after the
    Provincial law, or, as the case may be, the existing Indian law, shall prevail and the provincial
    law shall, to the extent of the repugnancy, be void.
    (2) Where a Provincial law with respect to one of the matters enumerated in the Concurrent
    Legislative List contains any provision repugnant to the provisions of an earlier Federal law or
    an existing Indian law with respect to that matter, then, if the Provincial law, having been
    reserved for the consideration of the Governor-General or for the signification of His Majesty’s
    pleasure, has received the assent of the Governor-General or of His Majesty, theProvincial law
    shall in that Province prevail, but nevertheless the Federal Legislature may at any time enact
    further legislation with respect to the same matter:
    Provided that no Bill or amendment for making any provision repugnant to any Provincial
    law, which, having been so reserved, has received the assent of the Governor-General or of His
    Majesty, shall be introduced or moved in either Chamber of the Federal Legislature without the
    previous sanction of the Governor-General in his discretion

(3) If any provision of a law of a Federated State is repugnant to a Federal law which
extends to that State, the Federal law, whether passed before or after the law of the State, shall
prevail and the law of the State shall, to the extent of the repugnancy, be void.
I6. The High Court’s conclusion would no doubt be true, if they are right in saying that
interest on promissory notes is a matter with respect to contracts and therefore an item contained
in the Concurrent List. The Act to which it was said to be repugnant was the Negotiable
Instruments Act, 1881, which no doubt applied to the whole of India, but, as the High Court
points out this Act is not a Federal but an existing Indian Act, and under the provisions of S.
107 (2) would give place to the Bengal Money-lenders Act (which had received the assent of
the Governor-General) provided that Act does not deal with mattersover which the Federal
Legislature alone has jurisdiction. This opinion, however, was reversed in the Federal Court
which thought the Act a clear interference with the subjects set out in Item 28 in the Federal
List and declared the Bengal Act to be ultra vires in so far as it dealt with those subjects. It was
not, however, in their opinion totally void.

  1. The Federal Court had in fact already given the matter some consideration in two
    previous cases, viz: (1) 1940 FCR 188 (1) a case in which the Madras Agriculturists’ Relief Act
    of 1938 was impugned. That Act did not specifically mention promissory notes but it did
    contain provisions limiting the liability and diminishing the debts of agriculturists in terms wide
    enough to include debts due on promissory notes. In that case, however, judgment had been
    obtained upon the promissory note and the Court held that inasmuch as the debt had passed into
    a claim Under a decree, before the Agriculturists’ Relief Act had been enacted, there was
    nothing to preclude it from being scaled down under the terms of that Act. Accordingly the
    Court found it unnecessary to deal with a matter in which a claim on promissory notes as such
    was involved. (2) A similar result was reached in 1944 FCR 126 (2) a case upon which their
    Lordships have to pronounce at a later stage.
  2. All the courts in India have considered the Bengal Money-lenders Act, to deal in pith
    and substance with money-lenders and money lending and with this view their Lordships agree.
    But such a view is not necessarily conclusive of the question in India and indeed, as the
    respondents contend, is not decisive of the matter even in Canada or Australia. With these and
    the other questions arising in the case their Lordships must now grapple.
  3. The appellants set out their contentions under four heads. Firstly, they said that power
    to make laws with respect to money-lending necessarily imports the power to affect the lender’s
    rights against the borrower upon a promissory note given in the course of a money- lending
    transaction. The Constitution Act they said must be read as a whole so as to reconcile item 28
    of List I with Item 27 of List II, and so read Item 27 is a particular exception from the general
    provisions of Item 28.
  4. Secondly, they argued that the impugned Act is in pith and substance an Act with
    respect to money-lenders and money-lending and is not rendered void in whole or in part
    because it incidentally touches upon matters outside the authorized field.
  5. Thirdly, they maintained that upon its true construction, item 28 is confined to that part
    of the law relating to negotiable instruments which has reference to their negotiabilityand
    does not extend to that part which governs the contractual relationship existing between

the immediate parties to a bill of exchange or promissory note. That part, they said, lay in the
field of contract.

  1. If then the subject matter of the Act lay in contract, which is one of the items within the
    concurrent List, it was, it was true, in conflict with an existing Indian Law viz : the Negotiable
    Instruments Act, 1881 within the meaning of S.31 (1), Constitution Act, but inasmuch as the
    impugned Act had received the assent of the Governor-General, it must prevail over the
    Negotiable Instruments Act as a result of the provision of S. 107 (2),Constitution Act.
  2. The Respondents on the other hand pointed out in the first place that the Constitution
    Act differs in form from the British North America Act and the Australian Commonwealth Act.
    Those Acts, they said, contain no concurrent list and therefore recognize, as the Constitution
    Act does not, that there must be some overlapping of powers. Moreover, the Indian Act contains
    a strict hierarchy of powers since under the terms of S. 100, Federal List prevails over both the
    Concurrent and the Provincial List, and the Concurrent List in its turn prevails over the
    Provincial List. “The Provincial Legislature”, as it enacts, “has not power to make laws with
    respect to any of the matters enumerated in List 1″, and this prohibition, they contend, extends
    to any matter whatsoever set out in the Federal List, however incidental to a matter contained
    in the Provincial List. No question could arise, they maintained, as to pith and substance, The
    Constitution Act directly prohibits any interference by a Province withany matter set out in
    List I.
  3. For the same reasons they said that there could be no question of an exception out of
    the generality of expressions used in List I on the ground that a matter dealt with in List II was
    particularly described whereas it was only referred to generally in List I under a wider heading.
  4. In any case they said the expression “Money Lending” was no more particular than
    the expression “Bills of Exchange, promissory notes, and other instruments of the like kind”.
    Finally, they contended that if money-lending was to be regarded as an incidence of contract,
    then the Negotiable Instruments Act being an Act of the Government of India had precedence
    over the’ impugned Act, in those subjects with which they both dealt.
  5. For instance it is no doubt true, as has been pointed out above, and has been accepted
    in the Courts in India that in the case of a matter contained in the Concurrent List, the Act of a
    Provincial Legislature which has been approved by the Governor-General prevails over an
    existing Indian Law (See S. 107 (2), Government of India Act, 1935). If then the impugned Act
    is to be considered as a matter of contract, it would prevail over the Negotiable Instruments Act
    if that Act or the part of it in respect of which repugnancy is alleged is also tobe regarded as
    contractual and therefore coming within List III.
  6. But this result depends upon two assumptions viz.: (1) that the impugned Act in
    dealing with promissory notes, or for that matter with banking, is concerned with contract and
    (2) that the reference to negotiable instruments, promissory notes and the like instruments in
    List I Item 28 is a reference to them in their capacity of negotiability only.
  7. The point was raised in the Federal Court in 1940 FCR 188 but that Court did not find
    it necessary finally to decide it, though Sulaiman J. in his dissenting judgment inferentially

rejected it. Like the Federal Court, their Lordships in the present case do not find it necessary
to express a final opinion upon these points, but it is, they think, essential to determine to what
extent under the Indian Constitution Act of 1935 the jurisdiction of the several legislatures is
affected by ascertaining what is the pith and substance of an impugned Act.

  1. The two remaining points taken on behalf of the appellant can in their Lordships’
    opinion and indeed must be considered together since to say that power to make laws in respect
    to money-lending necessarily imparts power to affect the lender’s rights in respect of promissory
    notes given as security in money-lending transactions is in their view to maintain that if the pith
    and substance of the Act, the validity of which is challenged, is money-lending,it comes within
    the Provincial jurisdiction. Three questions therefore arise, viz:
    (1) Does the Act in question deal in pith and substance with money-lending ?
    (2) If it does is it valid though it incidentally trenches upon matters reserved for the Federal
    Legislature?
    (3) Once it is determined whether the pith and substance is money-lending, is the extent to
    which the Federal field is invaded a material matter?
  2. (1) All the Courts in India have held that the transactions in question are in pith and
    substance money-lending transactions and their Lordships are of the same opinion. To take
    promissory note as security for a loan is the common practice of money-lenders and if a
    legislature cannot limit the liability of a borrower in respect of a promissory note given by
    him it cannot in any real sense deal with money-lending. All the lender would have to do in
    order to oust its jurisdiction would be to continue his normal practice of taking the security of
    a promissory note and he would then be free from any restrictions imposed by the Provincial
    Legislature. In truth, however, the substance is money-lending and the promissory note is but
    the instrument for securing the loan.
  3. (2) The second is a more difficult question and was put with great force by Counsel
    for the respondents. The principles, it was said, which obtain in Canada and Australia have no
    application to India. In the former instance either the Dominions and Provinces or the
    Commonwealth and States divide the jurisdiction between them, the ominion or as the case may
    be the States retaining the power not specifically given to the Provinces or the Commonwealth.
    In such cases it is recognized that there must be a considerable overlappingof powers. But in
    India, it is asserted, the difficulty in dividing the powers has been foreseen. Accordingly three,
    not two lists, have been prepared in order to cover the whole field and these lists have a definite
    order of priority attributed to them so that anything contained in ListI is reserved solely for the
    Federal Legislature, and however incidentally it may be touched upon in an Act of the
    Provincial Legislature, that Act is ultra vires in whole or at any rate where in any place it affects
    an entry in the Federal List.
  4. Similarly, any item in the Concurrent List if dealt with by the Federal Legislature is
    outside the power of the Provinces and it is only the matters specifically mentioned in List II
    over which the Province has complete jurisdiction, although so long as any item in the
    Concurrent List has not been dealt with by the Federal Legislature the Provincial Legislature
    is binding.
  1. In their Lordships’ opinion this argument should not prevail. To take such a view is to
    simplify unduly the task of distinguishing between the powers of divided jurisdictions. It is
    not possible to make so clean a cut between the Powers of the various legislatures: they are
    bound to overlap from time to time.
  2. Moreover, the British Parliament when enacting the Indian Constitution Act had a long
    experience of the working of the British North America Act and the Australian Commonwealth
    Act and must have known that it is not in practice possible to ensure that the powers entrusted
    to the several legislatures will never overlap. As Sir Maurice Gwyer C. J. said in 1940 FCR
    188, 201:
    It must inevitably happen from time to time that legislation though purporting to deal with a
    subject in one list, touches also upon a subject in another list, and the different provisions of the
    enactment may be so closely intertwined that blind adherence to a strictly verbal interpretation
    would result in a large number of statutes being declared invalid because the Legislature
    enacting them may appear to have legislated in a forbidden sphere. Hence the rule which has
    been evolved by the .Judicial Committee, whereby the impugned statute is examined to
    ascertain its pith and substance or its true nature and character-for the purpose of determining
    whether it is legislation with respect to matters in this list or in that.
  3. Their Lordships agree that this passage correctly describes the grounds upon which
    the rule is founded, and that it applies to Indian as well as to Dominion legislation. No doubt
    experience of past difficulties has made the provisions of the Indian Act more exact in some
    particulars and the existence of the Concurrent List has made it easier to distinguish between
    those matters which are essential in determining to which list particular provisions should be
    attributed and those which are merely incidental. But the overlapping of subject-matter is not
    avoided by substituting three lists for two or even by arranging for a hierarchy of jurisdictions.
  4. Subjects must still overlap and where they do the question must be asked what in pith
    and substance is the effect of the enactment of which complaint is made and in what list is its
    true nature and character to be found. If these questions could not be asked, much beneficent
    legislation would be stifled at birth, and many of the subjects entrusted to Provincial Legislation
    could never effectively be dealt with.
  5. (3) Thirdly, the extent of the invasion by the Provinces into subjects enumerated in the
    Federal List has to be considered. No doubt it is an important matter, not, as their Lordships
    think, because the validity of an Act can be determined by discriminating between degrees of
    invasion, but for the purpose of determining what is the pith and substance of the impugned
    Act. Its provisions may advance so far into Federal territory as to show that its true nature is
    not concerned with Provincial matters, but the question is not, has it trespassed more or less,
    but is the trespass, whatever it be, such as to show that the pith and substance of the impugned
    Act is not money-lending but promissory notes or banking? Once that question is determined
    the Act falls on one or the other side of the line and can be seen as valid or invalid according to
    its true content.
  6. This view places the precedence accorded to the three lists in its proper perspective. No
    doubt where they come in conflict List I has priority over Lists III and II and List III has priority
    over List II, but, the question still remains, priority in what respect ? Does the priority

of the Federal Legislature prevent the Provincial Legislature from dealing with any matter
which may incidentally affect any item in its list or in each case has one to consider what the
substance of an Act is and, whatever its ancillary effect, attribute it to the appropriate list
according to its true character? In their Lordships’ opinion the latter is the true view.

  1. If this be correct it is unnecessary to determine whether the jurisdiction as to
    promissory notes given to the Federal Legislature is or is not confined to negotiability. The
    Bengal Money-lenders Act is valid because it deals in pith and substance with money-lending,
    not because legislation in respect of promissory notes by the Federal Legislature is confined to
    legislation affecting their negotiability– a matter as to which their Lordships express no opinion.
  2. It will be observed that in considering the principles involved their Lordships have dealt
    mainly with the alleged invalidity of the Act, based upon its invasion of the Federal entry,
    “promissory notes” Item (25) in List I. They have taken this course, because the case was so
    argued in the Courts in India.
  3. But the same considerations apply in the case of banking, Whether it be urged that the
    Act trenches upon the Federal List by making regulations for banking or promissory notes, it is
    still an answer that neither of those matters is its substance and this view is supported by its
    provisions exempting scheduled and notified banks from compliance with its requirements.
  4. In the result their Lordships are of opinion that the Act is not void either in whole or
    in part as being ultra vires the Provincial Legislature. This opinion renders it unnecessary to
    pronounce upon the effect of the Ordinance No.11 of 1945, purporting to validate, inter alia,
    the impugned Act and their Lordships express no opinion upon it. But having regard to their
    views expressed in this judgment they will humbly advise His Majesty that the appeal be
    allowed.

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Constitutional Law – I DU LL.B. Semester III Term Paper LB – 301 course contents - Laws Forum November 18, 2024 at 6:37 pm

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