Judgement

Consolidated Appeals (No. 19 of 1946) from a judgment and three orders of the Federal Court of India (December 12, 1944) which reversed a judgment of the High Court at Calcutta in its revisional jurisdiction (February 24, 1944), which had affirmed judgments and decrees of the Subordinate Judge of Khulna (November 8, 1941) and of the Munsif of Khulna (January 31 and June 12, 1942).

[Two appeals. No. 19 of 1946, and No. 9 of 1946 (post p. 45), were heard together by the Board.]

The following facts and citation of the statutory provisions are taken from the judgment of the Judicial Committee. The question in dispute in this appeal was as to the validity of the Bengal Money Lenders Act, 1940. That Act limited the amount recoverable by a moneylender on his loans for principal and interest and prohibited the payment of sums larger than those permitted by the Act.

The respondent was an incorporated body to which, by an order of May 12, 1941, passed by the High Court of Calcutta under s. 153A of the Indian Companies Act, the assets of the Khulna Loan Bank, Ld. (earlier known as the Khulna Loan Co., Ld.) were transferred. Some of the cases now under appeal to their Lordships Board were brought by the respondent who claimed to recover loans and interest alleged to be due on promissory notes executed by appellant borrowers, and in other instances by appellant debtors claiming a declaration that their indebtedness was at least diminished by the provisions of the Act, and even in some instances that they were entitled to repayment of sums overpaid. The proceedings began in 1941, 1942 and 1943, but were concerned with loans made at a much earlier date not by the respondent, but by the Khulna Loan Co. or the Khulna Loan Bank. In every case the loans were secured by promissory notes executed contemporaneously with the transaction.

The Act, the validity of which their Lordships had to determine, by s. 30 provided that "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 was retrospective in its effect, and its limitations could be relied on by a borrower by way of defence to an action by the moneylender, or the borrower could himself institute a suit in respect of a loan to which the provisions of the Act applied. Section 100 of the Government of India Act, 1935, was in the following terms—

"100. (1) Notwithstanding anything in the two next succeeding sub-sections, 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 the Seventh Schedule to this Act (hereinafter called the Federal Legislative List).

"(2.) Notwithstanding anything in the next succeeding sub-section, the Federal Legislature, and, subject to the preceding sub-section, 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).

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"(3.) Subject to the two preceding sub-sections, 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 Provincial 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 that 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………corporations........."

"(38.) Banking, that is to say, the conduct of banking business………" and denied 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. But the Bengal Act went further Section 2 contained certain definitions in the following terms—

"(1.) ‘bank’ means a banking company as defined in s. 277F of the Indian Companies Act, 1913 . . . ."

"(2) ‘borrower’ means a person to whom a loan is advanced......"

“(9) ‘lender’ means a person who advances a loan and includes a money lender.”

“(12) loan means an advance, whether of money or in kind, made on condition of repayment with interest and includes any transaction which is in substance a loan, but does not include.........

"(d) a loan advanced before or after the commencement of this Act—

"(i) by a bank which was a scheduled bank on the first day of January, 1939, or by a bank which has been declared to be a notified bank under s. 3.............

"(e) An advance made on the basis of a negotiable instrument as defined by the Negotiable Instruments Act, 1881, other than a promissory note.”

"(13.) ‘Money lender’ means a person who carries on the business of money lending in Bengal or who has a place of such business in Bengal, and includes a Pawnee as defined in s. 172 of the Indian Contract Act, 1872.”

"(14.) ‘Money lending business’ and business of money lending mean the business of advancing loans either solely or in conjunction with any other business.”

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Section 277F of the Indian Companies Act defined a banking company as "A company which carries on as its principal business the accepting of deposits of money on current account or otherwise, subject to withdrawal by cheque draft or order notwithstanding that it engages in addition in any one or more of the following forms of business, namely—

"(1.) .... the lending or advancing of money either upon or without security…….." and s. 3 of the Bengal Money Lenders Act enacted that The provincial government may, by notification in the Official Gazette, declare any bank to be a notified bank for the "purposes of this Act.” Section 13 of the Act required a money lender to be licensed. Sections 24, 25 and 26 prescribed the form in which accounts were to be kept, and required the lender to furnish each borrower with a copy of his own account with certain penalties if he did not do so. Sections 28 and 29 of the Act imposed a duty on a money lender in assigning a loan to furnish full particulars to the assignee, but protected the position of a bona fide transferee without notice unless he himself was a money lender. Section 34 enabled the court to direct, payment by instalments, and s. 36 gave power to reopen transactions, subject, however, to the rights of a bona fide holder for value.

The trial judge held that the case of each of the three appellants in this first consolidated appeal came within the remedial sections of the impugned Act, and he granted the relief claimed by them in their suits. The respondent appealed unsuccessfully to the High Court at Calcutta (Syed Nasim Ali, Mitter and Akram JJ.), but a further appeal to the Federal Court of India (Spens C.J., Varadachariar and Zafrulla Khan JJ.) was allowed. The Federal Court held that in so far as the impugned Act affected promissory notes it trespassed into the Federal legislative field and was, therefore, ultra vires.

1946. Nov. 14, 15, 18, 19, 21. Sir Walter Monckton K.C. and B. MacKenna for the appellants and the intervener, the Advocate-General of Bengal. The main attack by the respondent on the validity of the impugned Act is that the provincial legislature have no power to affect promissory notes. The Act is further attacked on the ground that it affects banking business. There is a further point which arises under the Provincial Debt Laws (Temporary Validation) Ordinance, 1945, promulgated by the Governor-General under s. 72 of the ninth schedule to the Government of India Act, 1935, after the decision in this case by the Federal Court. That temporary Ordinance provides that the impugned Act here in question, so far as it affects transactions based on promissory notes, shall be deemed to be and always to have been as valid as if it had been enacted by the central legislature. The constitutional point turns on the construction of the Constitution Act, which gives to the Federal legislature a power to make laws with respect to, inter alia, " cheques, bills of exchange, promissory " notes and other like instruments,” and also with respect to "the conduct of banking business," and to the provincial legislatures the power to make laws with respect to, inter alia, " money lending and money lenders." It also gives concurrently to both legislatures the power of making laws with respect to contracts. A further point is whether, assuming that the impugned Act is intra vires the province, it is repugnant to an existing law of the central legislature, namely, the Negotiable Instruments Act, 1881.

On the problem whether the impugned Act is in any sense a law made with respect to promissory notes within the meaning of s.100 of the Constitution Act and item 28 of List I, or whether its provisions, so far as they affect the immediate parties to the note, are those of a law made with respect to money lenders and money lending, the argument may be developed under three heads, which are, to some extent alternative, and all supported by some authority (A) It is submitted that the power to make laws with respect to money lending necessarily imports the power to affect the borrowers rights against the lender on a promissory note given in the course of a money lending transaction. I am seeking to reconcile

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item 28 of List I and item 27 of List II, and to read them together so as to avoid a conflict if possible. If they are read together in that way item 27 in List II is an exception from the general powers given by item 28 in List I in relation to negotiable instruments. (B) On its true construction item 28 is confined to that part of the law relating to negotiable instruments which deals with their negotiability. It does not extend to that part of the law which governs the contractual relations between the immediate parties to a bill or promissory note; that part is in the field of contract. (C) The impugned Act is in pith and substance an Act with respect to money lending and money lenders. The validity of such an Act is not affected if incidentally it touches on matters outside the authorized field. This proposition involves considering the possibility of repugnancy. If outside the authorized field the impugned Act conflicts with a Federal law—in the sense in which the words are used in s. 107 of the Constitution Act—it may be that its provisions would be ineffective. The answer to the suggestion that there is any such conflict here is threefold (i.) There is no conflict or inconsistency between the impugned Act and the Negotiable Instruments Act. (ii.) If there is a conflict, then the Negotiable Instruments Act is not a Federal law within the meaning of s. 107 of the Constitution Act. (iii.) If there is a conflict, and if the Negotiable Instruments Act is a Federal law, then the conflict is with that part of the Federal law which is in the field of contract, which is within the power conferred by List III, the Concurrent List, and the conflict is cured by the provisions of s. 107, sub-s. 2, of the Constitution Act, because this is a case where the Act was reserved for the consideration of the Governor-General, and therefore the provincial law in the province would prevail.

The above three propositions, A, B and C, are the substance of the argument. If a transaction is regulated the legislature must also be able to regulate the instrument by which the transaction is carried out. The judgment in Stock Motor Ploughs, Ld.

v. Forsyth (( 1932) 48 C. L. R. 128.) is apposite and of assistance in this case. Great West Saddlery Co. v. The King ([ 1921] 2 A. C. 91, 116.) contains a statement of the principle applicable when it is sought to reconcile two lists. The general language about negotiable instruments in item 28 of List I must yield in this matter to the more particular language to be found in item 27 of List II. [Reference was also made to Nagaratnam v. Seshayya (I. L. R. [ 1939] M. 151, 165, 168.).] The main point in the decision of the Federal Court in the present case is where they said that "the decision of these appeals will therefore depend upon the determination of the question whether the provisions of the impugned Act encroach upon List I subjects to any substantial extent or whether the interference is only incidental in the sense above explained." That suggested distinction which is drawn between an Act which affects promissory notes to a substantial extent and one which affects them to a less extent is unsound, and based on a misunderstanding of what was said in Attorney-General for Alberta

v. Attorney-General for Canada ([ 1943] A. C. 356, 369-71.) on which the Chief Justice in the present case apparently relied, and that throws one back to Attorney-General for Ontario

v. Attorney-General for the Dominion of Canada ([ 1894] A. C. 189, 198, 200.). There is, however, nothing in the earlier of those two cases to suggest that the antithesis in the mind of the Board was "substantial” or "not substantial"; the distinction they made was between pith and substance and incidental or ancillary. They were not measuring the degree of interference. What really vitiates the decision of the Federal Court in this case was that they assumed that that was the test—substantial or not—and applied it mutatis mutandis to the impugned Act. It is submitted that, applying what is found in the two last cited cases, if the impugned Act is in pith and substance a money lending Act, and the Federal Court have so held, and if the provincial legislature had power to deal with promissory notes, then no objection can be taken on the ground that the provincial legislature has dealt with them substantially. On the meaning of "incidental" see Amalgamated Society of Railway Servants v. Osborne ([ 1910] A. C. 87, 97.). The impugned legislation is in pith and substance money lending, and it follows that the province is entitled to deal to some extent

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with promissory notes, and the quantity of the invasion matters not. Subrahmanyan Chettiar v. Muttuswami Goundan ([ 1940] F. C. R. 188, 197, 233, 241.) is a direct authority on the second appeal (P. C. No. 9 of 1946, post p. 45).

With regard to the repugnancy provisions, if the first head of my argument is right, that is, that the province has the exclusive power to regulate the rights and duties of the parties to a money lending transaction, including the money lenders rights on a promissory note given by the borrower, no question can arise under s. 107 of the Constitution Act. Section 107, sub-s.1, provides two things (a) If the provincial law is repugnant to a Federal law it is to that extent void; and (b) if the provincial law is repugnant to an existing Indian law with respect to one of the matters in List III, then the provincial law is void unless the repugnancy is cured by sub-s.2 of s. 107. The impugned Bengal Act is not repugnant to the Negotiable Instruments Act, but if it is, then it is submitted that the Negotiable Instruments Act is not a Federal law see s. 316. "Federal law" in s. 107 means a law which was passed in the transitional period. [Reference was made to Nagaratnam v. Seshayya (I. L. R. [ 1939] M. 151, 175.), Deo Nandan Prasad

v. Ram Prasad (( 1944) I. L. R. 23 Pat. 618, 622) and the decision of the Federal Court in the second appeal.] It all comes back to the question whether this power is ancillary, and there is no question in this case of occupied field, because the only suggestion of occupation is by an Act which is not a Federal law within the meaning of s. 107.

As to the objection which has been taken in respect of " banking "—item 38 of List I, and s. 2, sub-s.12 (d), and s.3 of the impugned Act—no point was taken before the trial judge based on the suggested invalidity of this Act on the ground that it trespassed on the field covered by item 38 of List I. There is no sign in the record of any evidence that the Khulna Loan Company did carry on a banking business. It is submitted on this banking point, (1.) the materials are not sufficient for it to be raised; (ii.) the point was not taken until the second appellate court was reached; and (iii.) in these circumstances it cannot avail the respondent unless it can show that the whole Act is made invalid by the inclusion of pro visions about banks. That raises the question of severability, and that can be effected without difficulty in the circumstances of this case. There is no reason to suppose that the province has not power to make laws in respect of the matters in chs.3 and 4 of the impugned Act as ancillary to money lenders and money lending.

The only remaining matter is the validating Ordinance of. 1945. It is still in force, and the argument is that any court, including this Board, must give effect to it while it is still law, for an appeal court has to give effect to a retrospective Act on the hearing of an appeal. If effect is given to the Ordinance, the no objection can be taken to the impugned Act so far as its provisions relate to promissory notes. On retrospective effect see Performing Right Society v. Bray Urban District Council ([ 1930] A. C. 377.) and Renula Bose v. Rai Manmatha Nath Bose (( 1945) L. R. 72 I. A. 156, 162.).

Sir Herbert Cunliffe K.C., Khambatta K.C. and P. C. Basu for the respondent. These appeals have nothing to do with the doctrine of the occupied field, or with the question of repugnancy. The question is, what is the true construction of the Constitution Act of 1935, and the extent and limitation of the powers that were then given to the respective legislatures. The Australian and Canadian Constitution Acts are quite different from the Indian Act, and it is obvious that the Imperial legislature, being aware of the difficulties and differences of litigation which had resulted from the Australian and Canadian Constitution Acts, set itself to produce a clearer provision to avoid those difficulties, and it is submitted that it succeeded. The Bengal legislature by the impugned Act has attempted to legislate on subjects expressly forbidden to it, and expressly and exclusively reserved to the Federal legislature; that is to say, in this case in relation to promissory notes and banking. It is further submitted that the provisions of the

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impugned Act so offending are null and void, and so extensive and so mixed up with the rest of the Act that they cannot be severed, and the whole Act is ultra vires. The real problem is the construction of the Constitution Act, and particularly s. 100, which sets out the distribution of the powers of legislation as between the Federal and the provincial legislatures. The effect of s. 100 is; (a) The subjects in List I—the Federal list—are completely and exclusively given to the Federal legislature, and expressly denied to the provincial legislature, (b) The subjects in List III —the Concurrent List—are given to both the Federal and provincial legislatures, but, and this is important, as an addition to the Federal legislative powers and in diminution of the provincial powers; that is, the Federal legislature by the Concurrent List gets something more, the provincial legislature takes them subject to the concurrent power given to the Federal legislature in List III. That is the only area in which the question of repugnancy can arise. Lists II and III are subject to the complete and exclusive powers of the Federal legislature in List I. If List III is an addition to the powers of the Federal legislature, and in diminution of those of the provincial legislature, then (c), the subjects in List II are given to the province, but less all that has been given to the Federal legislature completely and exclusively. The dominating point is that the subjects in List I cannot be infringed on at all by the provincial legislature, which cannot legislate on promissory notes and banking because those are exclusively reserved to the Federal legislature. It cannot get inside that area, and by the impugned Act it has attempted to do something which it has no power to do, and it is a nullity; there cannot be repugnancy between nothing and something positive. Section 107 of the Constitution Act is the only place where there may be repugnancy.

With regard to the cases cited to show that before 1935 the Bengal legislature had legislated with regard to promissory notes, it had power to do so before the Constitution Act, but when that Act came into force the redistribution of powers took place, and the cases cited are of no assistance in determining this matter. The Australian and Canadian cases also do not help, because they were dealing with different statutes, and the cases cited were mainly on questions where both the Dominion and provincial legislatures had concurrent powers, and no help is to be got in construing the present Act by referring to ambiguities in other Acts. As to the validation Ordinance, the question in these appeals is whether the decision of the Federal Court was right at the time it was made. The decision was of December 12, 1944; leave to appeal was given on the same day; the order for consolidation of the appeals was made on February 6, 1945, and it was not until May 5, 1945, that this Ordinance was promulgated. The Ordinance purports to be made under s. 72 of the ninth schedule to the Constitution Act giving the Governor-General power to make Ordinances having the force of law in the case of an emergency. What was the emergency with regard to promissory notes? Further, the Ordinance making power under s. 72 is subject to the same restrictions as the power of the Indian legislature to make laws. The Federal legislature has no power to make laws except on subjects within List I and List III. Money lending is within List II, and is reserved to the province exclusively. Section 102, sub-s.1, limits the power of the Federal legislature to legislate for a province to matters enumerated in the Provincial List, List II, and promissory notes are not in that list. The validating Ordinance cannot therefore have any effect on promissory notes, and still less on banking, to which it is not directed.

There are two appeals before the Board in No. 19 of 1946 the Federal Court has held the impugned Act ultra vires in suits on promissory notes; in the other case, No. 9 of 1946, the Federal Court held that the impugned Act was intra vires in so far as it provides relief after decrees. That distinction cannot stand; a decree which is based on a promissory note does not differ from the suit itself—it is a decree in respect of a promissory note. A decree in respect of a suit on a promissory note is just as much a decree in respect of a promissory note and is subject to the same rule as the suit Reference as to Validity of The Debt Adjustment Act, Alberta ([ 1942] S. C. R. (Can.) 31, 36.). In seeking to legislate with regard to decrees in

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suits on promissory notes the Bengal legislature was in fact seeking to make laws not only with respect to promissory notes themselves, but, under item 53 of List I, with respect to the jurisdiction and power of courts with respect of any of the matters in that list, namely, promissory notes, banking, and so forth. The impugned Act was an attempt to legislate in the field from which the province was completely excluded. It is not possible to sever the ultra vires provisions in that respect, and the whole Act is ultra vires.

Khambatta K.C. followed. With regard to the Canadian cases, ss. 91 and 92 of the British North America Act, 1867, do not attempt to give an exhaustive enumeration of the legislative fields Attorney-General for Alberta v. Attorney-General for Canada ([ 1943] A. C. 356, 370,); Union Colliery Company of British Columbia v. Bryden ([ 1899] A. C. 580, 587.). In the Indian Constitution Act, however, there is an exhaustive enumeration of the three fields. Governor- General in Council v. Province of Madras (( 1945) L. R. 72 I.

A. 91,98.) answers the first head of the appellants argument—that the power to make laws with respect to item 27 necessarily imports the power to affect the lenders right against the borrower on a promissory note given in the course of a money lending transaction, and therefore item 28 could be reconciled with item 27 inasmuch as 27 is an exception to the general power given in 28. That is reading into 28 something which is not there. Item 28 includes both negotiable and non-negotiable instruments—it covers the entire field. The entry bills of exchange and promissory notes is a class of contract taken away from the general head in the Concurrent List, No. 10. Stock Motor Ploughs, Ld. v. Forsyth (48 C. L. R. 128.) was relied on by the appellants as showing that the State, notwithstanding the power of the Commonwealth, could legislate on some other aspects of promissory notes, but that is not a case of the scope and meaning to be given to the entry promissory note,” because under the Australian Constitution Act " promissory note is within the concurrent powers of Commonwealth and State. [Reference was made to Wyness Legislative and Executive Powers in Australia, pp. 139-40.] Bearing in mind that it was a concurrent field, not an exclusive one, all that was said in the Stock Motor Ploughs case (48 C. L. R. 128.) was that part of the concurrent field has been occupied by the Commonwealth, and they find that the part occupied by the State was that left unoccupied by the Commonwealth. [Reference was also made to Attorney-General for Alberta and Winstanley v. Atlas Lumber Co., Ld. ([ 1941]

S. C. R.(Can.) 87, 93, 102.).] The Negotiable Instruments Act, 1881, covers not only the negotiable aspect of promissory notes, but also the non-negotiable aspect. [Reference was made to Bhashyams Negotiable Instruments Act, 1881, 6th ed., p. 82.]

Turning to the scope and meaning of items 33 and 38 of List I, emphasis is placed on " regulation," because the provisions of the impugned Act deal with how accounts have to be kept. Item 38 brings in the conduct of banking business not only by banking corporations, but by all corporations; it is wider than the entry in the British North America Act. The respondent is a corporation carrying on a banking business, and the whole case was argued in the High Court on that hypothesis. The legislative practice under the unitary government before the Constitution Act has no bearing on what was conferred by the Imperial Parliament under the Act of 1935 In re The Central Provinces and Berar Act, No. XIV of 1938 ([ 1939] F. C. R. 18, 54, 110.). The Government of India (Adaptation of Indian Laws) Order, 1937, promulgated under s. 293 of the Constitution Act, which modified the provisions of the Bengal Money Lenders Act, 1933, by adding the following sub-section at the end of the Act— " The powers conferred by the sub-section on the Provincial " Government shall, in relation to banking business carried on " by a corporation, be powers of the Central Government "— makes it quite clear what was the scope of the entries both of banking business by a corporation and money lenders and money lending. Banking business of a corporation is right outside the scope of money lending in the Provincial List. [Reference was made to Tennant v. Union Bank of Canada ([ 1894] A. C. 31, 45); Attorney-General for

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Canada v. Attorney-General for Alberta ([ 1916] 1 A. C. 588, 596.); Reference as to Validity of The Debt Adjustment Act, Alberta ([ 1942] S. C. R.(Can.) 31, 36-7); Attorney-General for Canada v. Attorney-General for Quebec ([ 1947] A. C. 33.); and Great West Saddlery Co. v. The King ([ 1921] 2 A. C.91, 120-1.).] The impugned Act encroaches on the field of promissory notes and the regulation of banks and the conduct of banking business, and by s. 4 takes away from the courts powers which only the Federal legislature can take away under item 53 of List I. Section 4 takes away the jurisdiction of the ordinary courts over banking corporations and invests jurisdiction in the Small Causes and District Courts. On the question of severability, the submission is that by cutting out the definition of bank and loan and s. 3, the court would be amending the impugned Act, and presuming that the legilature intended to pass it in its truncated form Owners of s.s. Kalibia v. Wilson (( 1910) 11 C. L. R. 689, 699.); Reference as to Validity of The Debt Adjustment Act, Alberta ([ 1942] S. C. R. (Can.) 40-1.); Punjab Province v. Daulat Singh (( 1946) L. R. 73 I.

A. 59, 75).

Sir Walter Monckton K.C. replied. The cases show that the principle to be applied is to treat these lists as intended to be exhaustive so far as they can be, and, if possible, to reconcile them. That can be done in this case in one of three ways. First, the subject-matter of money lending in the Provincial List necessarily imports promissory note instruments in a money lending transaction, and accordingly it would be said that although promissory notes as a whole fall within item 28 in List I, yet, since List II gives money lending and money lenders to the province, it necessarily gives it the ability to regulate the normal instruments of a money lending transaction. The second way, which commended itself to the High Court, is that when these two items are read together they can be reconciled by saying that the Federal item is limited to a particular aspect, namely, negotiability. The third way is that one should say that this impugned Act is in pith and substance dealing with money lending, and that in so far as it deals with promissory notes that is necessarily incidental to the effective use of its admitted legislative powers of dealing with money lending. On this last point reliance is particularly placed on the reasoning in Stock Motor Ploughs, Ld. v. Forsyth (48 C. L. R. 143-44), not to say that the constitutions are the same or that the same question will arise, but that the judgment there says this is not promissory note legislation.

1947. Feb. 11. The judgment of their Lordships was delivered by LORD PORTER. This group of cases and those which immediately follow necessitate a consideration of the principle on which the respective jurisdictions of the Federal and provincial legislatures in India are to be delimited, and of the method to be adopted in determining the subjects which are to be dealt with by the one or the other under the pro visions of ss. 99 and 100 of the Government of India Act, 1935, and the three lists set out in the seventh schedule thereto. [His Lordship then set out the facts and statutory provisions as stated above, and continued] Having regard to these provisions the respondent says that whilst it is true that it is a money lender, yet it is engaged in banking and is the holder 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 with Federal matters. These matters, it says, 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, the particular loans, the subject-matter of the actions under review, are secured by promissory notes and, in addition, are matters of banking; accordingly it says that the Act is void at any rate so far as concerns promissory notes or banking.

The cases under review originally came before the subordinate judge at Khulna, where the only points which appear to have been taken were, not that the Act was wholly void, but only that it was void in so far as it affected promissory notes and that its provisions remained suspended until the Government decided what banks should become

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notified banks under s. 2 of the Act. The latter contention is plainly untenable and, indeed, was not persisted in in the Federal Court or before their Lordships Board. Moreover, it is to be observed that in the Subordinate Court no reliance appears to have been placed on the contention that banking rights were interfered with. The point, however, seems to have been taken in the High Court, but no decision on it was given there or in the Federal Court. In these circumstances their Lordships do not think that the respondent is entitled to argue that it carries on the business of banking. No proof has been given that it does so and the facts cannot be assumed without proof. The respondent is, however, entitled to say that the Act deals with banks and banking and is, therefore, void in whole or in so far as it deals with banking matters.

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 on 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 III "contracts.” "Interest on promissory notes,” they say, is 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, sub-s.2, of the Constitution Act, s. 29, sub-s.2, and s. 30 of the Bengal Money Lenders Act, 1940, must prevail."

Section 107 of the Constitution Act is in the following terms

107.—(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 Majestys pleasure, has received the assent of the Governor-General or of His Majesty, the Provincial 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."

The High Courts conclusion would, no doubt, be true if they are right in saying that interest on

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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, sub-s.2, would give place to the Bengal Money Lenders Act (which had received the assent of the Governor-General) provided that that Act does not deal with matters over 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. The Federal Court had in fact already given the matter some consideration in two previous cases, namely, (1) Subramanyan Chettiar v. Muttuswami Goundan ([ 1940] F. C. R. 188.), 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 on 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 Bank of Commerce, Ld. v. Amulya Krishna Basu Roy ([ 1944] F. C. R. 126.), a case on which their Lordships have to pronounce at a later stage.

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 respondent contends, 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. 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 lenders rights against the borrower on 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. 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 on matters outside the authorized field. Thirdly, they maintained that on its true construction item 28 is confined to that part of the law relating to negotiable instruments which has reference to their negotiability and 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. 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—namely, the Negotiable Instruments Act, 1881—within the meaning of s. 31, sub-s. 1, of the 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, sub-s.2, of the Constitution Act.

The respondent, 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, it 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 con tains a strict hierarchy of powers, since under the terms of s. 100, the Federal List prevails over both

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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 I," and this prohibition, the respondent contends, 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, it maintained, as to pith and substance. The Constitution Act directly prohibits any interference by a province with any matter set out in List I. For the same reasons it 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. In any case it 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, it 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.

From the facts stated and the arguments presented to their Lordships it is apparent that the discussion ranged over a wide field, but in reaching their conclusion the Board do not think it necessary to determine all the issues presented to them. 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, sub-s. 2, of the 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 to be regarded as contractual and therefore coming within List III. But this result depends on two assumptions, namely, (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. The point was raised in the Federal Court in Subramanyan Chettiars case ([ 1940] F. C. R. 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 on 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.

The two remaining points taken on behalf of the appellants 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 lenders 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, namely—(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 on 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?

(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 a 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

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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.

(2.) The second is a more difficult question and was put with great force by counsel for the respondent. The principles, it was said, which obtain in Canada and Australia have no application to India. In the former instances either the Dominions and provinces or the Commonwealth and States divide the jurisdiction between them, the Dominion, 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 overlapping of 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 List I is reserved solely for the Federal legislature, and however incidentally it may be touched on 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. 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.

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. 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 the Subramanyan Chettiar case ([ 1940] F. C. R. 201.) "It must inevitably happen from time to time that legislation, though purporting to deal with a subject in one list, touches also on a subject in another list, and the different provisions of the enactment may be so closely intertwined that blind observance 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. Their Lordships agree that this passage correctly describes the grounds on 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. 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.

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(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. 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. 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.

It will be observed that in considering the principles involved their Lordships have dealt mainly with the alleged invalidity of the Act, based on its invasion of the Federal entry, "promissory notes," item (27.) in List I. They have taken this course because the case was so argued in the courts in India, but the same considerations apply in the case of banking. Whether it be urged that the Act trenches on 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.

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 on the effect of the Ordinance No. XI of 1945, purporting to validate, inter alia, the impugned Act, and their Lordships express no opinion on it. But having regard to their views expressed in this judgment they will humbly advise His Majesty that the appeal be allowed. The respondent must bear the costs throughout.