SARFAESI Act, 2002 cannot be enforced in the State of Jammu and Kashmir

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Case Law: Bhupinder Singh Sodhi v. Union of India, decided on 16.07.2015

The Court observed that the Constitution of Jammu and Kashmir is sovereign in character and the State Assembly exercises sovereign power to legislate laws. Referring to Prem Nath Koul vs. State of J&K, 1959 Supp (2) SCR 270:AIR 1959 SC 749, the Court also held that the State of Jammu and Kashmir occupies a distinct, unique and special position and constitutes a class in itself, thus cannot be compared to other states in the country. The Court further explained that the constitutional provisions and laws extended to the State of Jammu and Kashmir in accordance with the mechanism and procedure under Article 370 and those constitutional provisions and laws which have been made applicable to the State with modifications make the distinct and special position of the State more clear. The Court also gave liberty to the State to enact law similar to SARFAESI Act for securing the interest of banks or financial institutions. The court quashed the notices issued by the banks in terms of section 13 of the SARFAESI Act and 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 ruling comes against the backdrop of an RSS-backed think tank, the Jammu & Kashmir Study Centre, planning to challenge the constitutional validity of Article 35 (A), which bars non-residents of J&K from buying land or property in the state. It also bars non-residents from getting a government job or voting rights in the state assembly. The J&K court gave its verdict on a petition regarding the applicability of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) in the state. The SARFAESI Act, 2002, enacted and enforced by the Indian Parliament in 2002, empowers banks and financial institutions to recover their non-performing assets without the court’s intervention.

A division bench of M.H. Attar and A.M. Magrey JJ, held that the SARFAESI Act, 2002 cannot be enforced in the State as the Union Parliament does not have legislative competence to enact laws contained in Sections 13, 17(A), 18(B), 34, 35 and 36 so far they relate to the State. Giving reasons, the Court observed that the SARFAESI Act modifies the State transfer of property Act, State Civil Procedure Code, Civil Courts Act, State Limitation Act and adversely impacts the inalienable property rights of State Subjects, hence is beyond legislative competence of the Parliament to the extent of State of Jammu and Kashmir. “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 immovable properties are not affected by transferring the same to non state subjects,” the court said.

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