Venkatachaliah, J.:— In these writ petitions, petitioners who are money-lenders and pawn-brokers, challenge the vires of the Karnataka Debt Relief Act, 1976 (Act 25 of 1978).
The Karnataka Debt Relief Act, 1976 (hereinafter referred to as the ‘Act’) was enacted by the State Legislature with a view to providing relief from indebtedness to “small farmers”, “landless agricultural labourers” and “persons belonging to the weaker sections of the people” in the State of Karnatrka. It replaced the Karnataka Debt Relief Ordinance 1975 (Ordinance 15 of 1975) as amended by the Karnataka Ordinance Nos. 19 and 21 of 1975.
By sub-section (3) of Section 1 of the Act, it is provided that Section 3. 4, 7 and 8 shall be deemed to have come into force on the twenty-first day of October 1975; Sections 5 and 6 be deemed to have come into force on eleventh day of November 1975 and Section 9 on the twenty-eighth day of November 1975.
Section 4 of the ‘Act’, inter-alia, provides that notwithstanding anything in any law for the time being in force or in any contract or instrument having force with effect from 21st October 1975 every ‘debt’ advanced before the said date viz., 21st October 1975, including the amount of interest, if any, payable by any ‘debtor’ to the creditor shall be deemed to be wholly discharged; that no civil court, shall entertain any suit or proceeding against the ‘debtor’ for the recovery of any amount of such ‘debt’ after the said date viz., 21st October 1975; that all suits and proceedings pending on the said date against any ‘debtor’ for the recovery of any such ‘debt’ shall abate; that every ‘debtor’ undergoing detention in a civil prison in execution of any decree for money passed against him by a Civil Court shall be released; that every movable property pledged by a ‘debtor’ shall stand released from the pledge and that every mortgage executed by the ‘debtor’ in favour of the ‘creditor’ shall stand redeemed.
The expressions ‘debt’ and ‘debtor’ are defined in Section 3(b) and (c) of the ‘Act’ respectively in terms following:—
“3. (b) “debt” means any liability in cash or in kind, whether decreed or not and includes any amount which is in subtance a debt; but does not include arrears of taxes due to the Central or the State Government or a local authority:’
3. (c) “debtor” means,
(i) a small farmer; or
(ii) a landless agricultural labourer; or
(iii) a person belonging to the weaker sections of the people:”
The expression ‘landless agricultural labourer’, ‘small farmer’ add ‘weaker sections of the people’ obtaining in clauses (d), (e) and (g) respectively of that Section to mean:
“(d) “landless agricultural labourer” means a person who does not hold any land and whose principal means of livelihood is manual labour on land”;
(e) “small farmer” means a person who holds whether as owner, tenant, or mortgagee with possession or partly in one capacity and partly in another not more than one unit of and who has no income from any source other than agriculture;.”
(g) “weaker sections of the people” means persons not being small farmers or landless agricultural labourers, whose annual income from all sources does not exceed two thousand and four-hundred rupees.”
Sub-Section (1) of Section 5 enjoins upon every creditor referred to in clause (e) of Section 4 the obligation to furnish a statement containing the names of all the ‘debtors’ who have pledged articles with him; the nature and description of the articles pledged, the amount advanced and due as on 21st October, 1975 and such other particulars as may be prescribed.
sub-section (5) of Section 5 imposes a similar obligation on every creditor referred to in sub-section (f) of section 4 to furnish a list of ‘debtors’ who have mortgaged properties to him.
Section 6 provides for penalty for non-compliance with the provision of Section 5.
Section 7 provides for a special rule of evidence and casts the burden of proving that the debtor is not entitled to protection of the ‘Act’ on the creditor.
Section, 8 exempts certain debts and liabilities from the operation of the ‘Act’. Items so exempted include, any rent due in respect of any property let out to such debtor; any amount due under a hire purchase agreement any amount recoverable as arrears of land revenue; any liability arising out of breach of trust or any tortious liability, any liability in respect of wages or remuneration due as salary or otherwise for services rendered; any liability in respect of maintenance, and any ‘debt’ due to the Central Government or any State Government; any local authority; a credit agency as defined in the Karnataka Agricultural Credit Operation and Miscellaneous Provisions Act, 1974 (Karnataka Act No. 2 of 1975), any Government company within the meaning of the Companies Act, 1956, the Life Insurance Corporation of India; Co-operative Society; and any debt which represents the price of goods purchased.
2. As the questions involved in these writ petitions being common to a number of other writ petitions pending before this Court, we gave an opportunity to all those concerned to address arguments on the validity of the ‘Act’.
3. The arguments addressed by the learned counsel on both sides admit, in the ultimate analysis, of being formulated thus:
(a) Whether the ‘Act” which is traceable to and enacted in exertion of the legislative power under Entry 30 of List II of the Seventh-Schedule of the Constitution, is beyond the legislative competence of the State legislature trenching upon and seeking to affect, “non-money-lending, non-agricultural indebtedness” also;
(b) Whether the restrictions imposed by the “Act” are excessive, too drastic and unduly harsh and result in the very extinction of petitioners' pawn-broking and money-lending business which is a lawful business regulated by the Karnataka Pawn Brokers Act, 1961, and the Karnataka Money-Lenders Act, 1961, and are therefore violative of Article 19(1)(g);
(c) Whether the provisions of the ‘Act’ are violative of the constitutional pledge of equality and offend Art. 14 of the Constitution;
(d) and, that in view of the legislative declaration, incorporated in Section 2 of the ‘Act’, that the ‘Act’ is for giving effect to the policy of the State towards securing the principles specified in article 46 of the Constitution of India, whether the ‘Act’ attracts the protection under Art. 31C of the Constitution and is immune from attack.
These then are the points that call for examination in these writ petitions.
4. Before we proceed to consider the merits of the first three submissions made by the learned counsel for the petitioners, it is necessary to dispose of the contentions urged for the State-which we have set out above as points (d)—that the ‘Act’ is immune from attack having regard to the provisions of Art. 31C of the Constitution, in view of the Legislative declaration contained in Section 2 of the Act.
5. Point (d):
Section 2 of the ‘Act’ incorporates a declaration that this Act is for giving effect to the policy of the State towards securing the principles specified in Art. 46 of the Constitution. Art. 31C was for the first time introduced in the Constitution with effect from 20th of April 1972 by the Constitution (Twenty-fifth Amendment) Act, 1971. The said Article as it then stood provided as follows:
“31C. Notwithstanding anything contained in article 13, no law giving effect to the policy of the State towards securing the principles specified in clause (b) or clause (c) of article 39 shall be deemed to be void on the ground that it is inconsistent with, or takes away or abridges any of the rights conferred by article 14, article 19 or article 31; and no law containing a declaration that it is for giving effect to such policy shall be called in question in any court on the ground that it does not give effect to such policy:
Provided that where such law is made by the Legislature of a State, the provisions of this article shall not apply there to unless such law, having been reserved for the consideration of the President, has received his assent”.
The validity of the above Article 31C was challenged before the Supreme Court in Kesavananda v. State of Kerala,(1) and the Supreme Court has struck down the following portion of the said article.
“and no law containing a declaration that it is for giving effect to such policy shall be called in question in any court on the ground that it does not give effect to such policy:
By the Constitution (Forty Second Amendment) Act, 1976 which came into force with effect from 3rd January, 1977, the following amendment was made to above article 31C:
“In article 31C of the Constitution, for the words, brackets, letters and figures, the principles specified in clause (b) clause (c) of article 39, the words and figures all or any of the principles laid down in part IV” shall be substituted.”
By this amendments, the protective umbrella of article 31C was extended not only to laws which give effect to the policy underlying articles 39(b) and (c) but also to all laws which give effect to policy of all or any of the principles laid down in part IV of the Constitution.
6. The Act with which we are concerned, no doubt, contains a declaration of the Legislature that the Act is for giving effect to the policy of the State towards securing the principles specified an article 46 of Constitution. But the Act was brought into force with effect from 21st October, 1975 and on that day, as per the then provisions of article 31C, only the laws giving effect to policy of the State towards securing the principles specified in clause (b) or clause (c) of article 39 were protected from being questioned on the ground that they were inconsistent with rights conferred by articles 14, 19 and article 31. Such immunity was not then available to laws giving effect to the policy of the State towards securing the principles specified in article 46. That immunity cannot, therefore apparently be extended to the Act in question unless the Constitution (Forty Second Amendment) Act, 1976 has retrospective operation.
7. It was for this reason, Mr. Kale Grow, a urged that the amendment to article 31C by the Constitution (Forty Second Amendment) Act has retrospective operation. In support of this contention, he placed reliance on the following observation of the Supreme Court in Shamrao v. District Magistrate, Thana:(2)
“…………The rule is that when a subsequent Act amends an earlier one in such a way as to incorporate itself, or a part of itself, into the earlier, then the earlier Act must there after be read and construed (except where that would lead to a repugnancy, inconsistency or absurdity) as if the altered words had been written into the earlier Act with pen and ink and the old words scored out so that thereafter there is no need to refer to the amending Act at all….”
We do not find from the above observations anything helpful to the contention urged. The Supreme Court was only clarifying the effect of any amendment to an existing Act, and not the retrospective operation of any amendment. The decision next referred to us in this context, is the decision of this Court in Sha Chunnilal Sohanraj v. T. Gurushanthappa(3). In this case, this Court while considering the scope of an amendment by substitution, has observed that when the Amending Act states that the existing section is substituted by a new section, the inference is that the Legislature intended that the substituted provision should be deemed to be part of the Act from the very inception. On the strength of this observation it was urged that the words substituted by the Constitution (Forty Second Amendment) Act, 1976 in article 31C shall be deemed to have retrospective operation from the date on which article 31C was first introduced.
8. We are unable to agree with this contention. We are not dealing with an ordinary statute “which is designed to meet the fugitive exigencies of the hour.” We are dealing with a provision in the Constitution which “states or ought to state not rules for the passing hour, but principles for an expanding future(4).” Therefore, the constitutional provision, unless it is expressly stated to be retrospective in operation, should not ordinarily be construed as such and that too a provision which has the effect of impairing the fundamental rights guaranteed to the citizens. Secondly, the amendment of the Constitution which came was unconstitutional when it was passed. In Saghir Ahmed v. State of Uttar Pradesh(5)’ the Supreme Court while considering the effect of the Constitution (First Amendment) Act upon an earlier legislation observed:
“Amendment of the Constitution, which came later, cannot be invoked to validate an earlier legislation which must be regarded as unconstitutional when it was passed” and the observation of Prof. Cooley in his work on Constitutional limitations to the effect that
‘a statute void for unconstitutionality is dead and cannot be vitialised by a subsequent amendment of the Constitution removing the constitutional objection but must be re-enacted.”
under article 13(2), there is a prohibition against the State to make law taking away the rights conferred by Part III of the Constitution and any law made in contravention of article 13(2) shall, to the extent of contravention, be void. The said prohibition goes to the root of the matter and limits the State's power to make law: and the law made in spit of the prohibitions is still born law. The doctrine of eclipse has no application to post-constitutional law. It is applicable only to pre-constitutional law See: Deep Chand v. State of Uttar Pradesh(6) and Mahendra Lal Jaini v. State of Uttar Pradesh.(7)
9. There is in our opinion yet another good reason for holding that article 31C has no retrospective operation. The proviso to article 31C requires that the law made by the Legislature of a State with a declaration as provided under article 31C shall not apply unless such law having been reserved for consideration of the President and has received his assent. When a law has been reserved for consideration of the President, the President has to consider whether it is necessary to give his assent to an Act which has the drastic effect of taking away the fundamental rights of the citizen. The action of the President in assenting or withholding an assent to a Bill postulates, as observed by the Supreme Court in Raja Bhairebendra Narayan Bhup v. State Of Assam.(8) “a conscious and positive declaration that the assent is so given or withheld”. No doubt, the President has given assent to the Act in question and also the Ordinance. But on that day when he gave the assent, article 31C did not protect the Act which gave effect to the policy underlying article 46 of the Constitution and accordingly it was necessary for the State to take away the fundamental rights of the citizen in order to give effect to the policy of the State specified under article 46. Therefore, mere assent of the President without a protection from article 31C cannot save the Act from being challenged on the ground that it takes away or abridges the fundamental rights of citizens. Our view finds support from a Full Bench decision of the Allahabad High Court in Sheo Kumar v. State of Uttar Pradesh.(9) The decision of the Patna High Court relied upon for the State in Madho Singh v. The State of Bihar(10) is not helpful since that case depended upon the observations in Sundaramiter and Co. v. State of Andhra Pradesh(11) without referring to the subsequent two decisions of the Supreme Court in Deepchand's and Mahendra Lal Jaini's case on the scope of articles 13(1) and 13(2) of the constitution.
We, accordingly, answer point (d) in the negative.
10. Having thus cleared the ground, we now turn to the contentions urged in support of the petitions. As noticed earlier, the law is attacked both on grounds of want of legislative competence as well as on other grounds including the ground of unreasonableness. The stage for considering the reasonableness of a direct or indirect restriction of a fundamental right arises only where the restriction is otherwise valid. We may therefore examine the attack on legislative competence first.
11. Point (a):
The main arguments on this point were addressed by Sri Venugopal. The substance of the contention is that the impugned legislation, in its sweep and amplitide, goes beyond the field earmarked for the State legislature under Entry 30 of List II of Seventh Schedule to the Constitution. That entry reads:
“30. Money-lending and moneylenders; relief of agricultural indebtedness.”
The first contention is that having regard to the language of Entry 30 in List II and its legislative history, the ambit of money-lending and ‘money-lender's occurring in the first limb of the entry must be understood to have been restricted by its second limb viz., “Relief of Agricultural Indebtedness”. Support for this argument was sought from the language of Entry 27 in the List II of the Government of India Act, 1935, which read:
“27. Trade and commerce within the Province; markets and fairs; money lending and money-lenders.”
to point out that if the expressions ‘money-lenders and money-lending’ were judicially held to take within its ambit a legislation for the relief of agricultural indebtedness, the introduction of the second limb in Entry 30 of List II could only be intended to restrict the scope of the first-limb. This argument, bereft of its rather extravagant build-up, turns upon—and, in our opinion, fails—on the well settled principles of construction of such legislative entries. In demarcating legislative powers between the Union and the States, the framers of the Constitution have selected broad and comprehensive categories and have described them by words of broad and general import. When such general words are followed by other expressions, the former are not curtailed, the principle being that in interpreting the entries widest possible and the most liberal construction be put on them. An expression of general import in an entry should be so construed as to extend to all ancillary, incidental and instrumental matters which an fairly and reasonably be said to be included in the power. The entries are not sources of power, but are only fields of legislation demanding the widest amplitude to the language employed in them. In State Of Madras v. Gannon Dunkerley & Co., (Madras) Ltd,(12) the Supreme Court observed:—
“The scheme of the drafting is that there is in the beginning of the Entry words of general import, and they are followed by words having reference to particular aspect thereof. The operation of the general words, however, is not cut down by reason of the fact that there are subhands dealing with specific aspects. In Manikkasundaram v. R.S Nayadu occur the following observations pertinent to the present question.
“The subsequent words and phrases are not intended to limit the ambit of the opening general term or phrase but rather to illustrate the scope and objects of the legislation envisaged as comprised in the opening term or phrase.”
Having regard to the settled principles of construction of the legislative entries, it is not possible to accept the contention for the petitioners that the second-limb of Entry 30 controlled in a restrictive and limiting way the scope of the first-limb. On the contrary the second-limb of Entry 30 was clearly intended to and does enlarge the scope of the entry. It may well be that the addition was to place beyond controversy the includibility of agricultural indebtedness of a non-money-lending origin.
12. It was next contended by Sri Venugopal that the impugned Act being under—and not sought to be supporter) under any entry other than-entry 30, the legislation could only be on the topic ‘of Money-lending and Money-lenders’ and Agricultural indebtedness'. It is urged that to constitute a business of a money-lender “It is not sufficient to prove that he has occassionally lent money at a remunerative rate of interest; it is necessary to prove some degree of system and continuity in his money lending transactions and something more than loans to friends or relatives.” (13) It was urged that in the statutory definition of ‘debtor’ three categories, viz., ‘a small farmer’ “a landless agricultural labourer” and “a person belonging to the weaker sections of the people “have come to be included and that while it may be conceded that a ‘small farmer’ and ‘landless agricultural labourer’ could be persons whose indebtedness could, subject to the other condition of validity of the legislation, be relieved by legislature under entry 30, there, is, however, in the Scheme of the present Act, what the learned, counsel described as a “third area”, which, in relation to a ‘person belonging to the weaker sections of the people” seeks to affect a “non-money-lending, non-agricultural indebtedness” of such a person. A liability or indebtedness of a “parson belonging to the weaker sections of the people”, it is urged, may arise out of a non-money-lending transaction, which may not also be a case of agricultural indebted-ness and a Legislation affecting such a transaction is outside of and foreign to Entry 30.
Sri Venugopal sought to demonstrate this proposition from the history of the Maharashtra legislation. He pointed out that in the preamble of the Maharashtra Ordinance (No. VII of 1975) the scope and objects of the legislation were set out thus:
“And Whereas the Governor of Maharashtra is satisfied that circumstances exist which render it necessary for him to take immediate action to provide for relief from indebtedness to certain farmers, rural artisans, rural labourers and workers in the State of Maharashtra.”
The expression ‘debt’ in the Maharashtra Ordinance was defined in the following terms:
2. “(e). “debt” with its grammatical variations and cognate expressions, means any liability is cash or kind, whether secured or unsecured, due from a debtor whether payable under a decree or order of any civil court or otherwise;”
However, in the Maharashtra Act (Act No. III of 1976) the legislature found the need to cut down the scope of the legislation in the following manner:
And Whereas it is now considered that relief from indebtedness should be Restricted to liabilities arising out of loans only, and debts of workers who hold immovable property the market value of which does not exceed twenty thousand rupees should stand liquidated…”
Consequently debt was defined in the Maharashtra Act as:
2. (e) “debt” means any liability in cash or kind, outstanding on the appointed day, being a liability arising out of a loan with interest if the loan is taken by a worker, and with or without interest in any other case), whether secured or unsecured, due from a debtor whether payable under a decree or order of any court or otherwise.”
Relying on the above statement and also the definition of the word “debt” thereunder, it was urged that the conscious exercise or the part of Maharashtra Legislature was the result of the clear recognition of the constitutional limitation under Entry 30 to legislate insofar as “non-money-lending, non-agricultural indebtedness”, was concerned. The point that was emphasised was that the indebtedness of “a person belonging to the weaker sections of the people” could be either money-lending in origin or could be a case of agricultural indebtedness or could conceivably be “non-money-lending, and non-agricultural” and that the last mentioned species of indebtedness would be clearly outside Entry 30.
The learned counsel also pointed out that several liabilities which the Act seeks to relieve the ‘debtor’ against are neither money-lending nor cases of agricultural indebtedness. He gave several illustrative examples. A claim for contribution by person against another for money paid on latter's behalf is said to fall within the definition of ‘debt’ in the Act. It was also pointed out the case of the liability of a landlord to his tenant in respect of taxes paid by the latter on farmers behalf would also constitute ‘debt’ within the meaning of the Act.
It is also urged that the impugned legislation not only goes beyond entry 30 in List II, but trenches upon other subjects such as the negotiable instruments etc., which are outside the legislative competence of the State Legislature.
13. It is true that it belongs to the rudiments of the subject, that the legislature, as a constitutional grantee, cannot determine the nature of its act merely by choosing for it a name which corresponds to the grant. But the question has to be determined having regard to the plenitude of legislative power over the fields exclusively earmarked for the legislature. Import of the scheme of distribution of powers is that the State Legislature shall, in matters assigned to it, have all the incidental and instrumental powers. In order that there be the requisite degree of effectiveness and flexibility in the legislative entry, it is held to extend to all ancillary and subsidiary matters which can fairly and reasonably be said to be comprehended in it. The validity of a legislation which is challenged for want of legislative competence has to be examined from the wide and liberal amplitude of the expressions employed by the Constitution to describe the fields of legislation and by looking at the “pith and substance’ of the legislation. A statute is not a mere assemblage of hetrogenous sections. It is and has to be looked at as an organic whole, “If on the view of the statute as a whole, you find that the substance of the legislation is within the expressed powers, then it is not invalidated if incidentally it affects matters which are outside the authorised field. Legislation must not under the guise of dealing one matter in fact encroach upon forbidden field.(14)”
14. We cannot accept the argument about the Act being invalid as trenching upon a forbidden field, namely, law of negotiable instruments etc., in view of the judicial pronouncements of high authority. In South Australia v. The Common Wealth,(15) Latham C.J said:
“A law may produce an effect in relation to a subject-matter without being a law with respect to the subject-matter…Similarly a State law may prohibit the carrying on of occupations with the result that they are necessarily abandoned, with perhaps great consequential loss to the commonwealth in customs duties or income-tax receipts. But the State low does not for this ireeson become a law with respect to customs duties or income tax.”
In A.L.S.P.P.L Subramanyan Chettiar v. Muttuswami Gundan(16A), Sir Maurice Gwyer C.J observed:
“It must inevitably happen from 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 inter wined 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”.
The contention, therefore, that the impugned legislation trenches on fields other than the one under Entry 30 and is therefore bad cannot be accepted.
15. Adverting to the challenge to the Maharashtra Debt Relief Act, 1976, on grounds of want of legislative competence, the Supreme Court in Fatechand v. State of Maharashtra(17) observed:
“54. What then is the incompetence of the State Legislature? Shri B. Sen urged that the wiping out of private debts which formed the capital assets of the money-lenders-one of the main things done by the Debt Act-was not in any of the legislative Lists and even if Parliament had residuary power under Entry 97 of List I, the State had none. Entry 30 in List II is money-lending and money-lenders, relief of agricultural indebtedness. If commonsense and common English are components of constitutional construction relief against loans by scaling down, discharging, reducing interest and principal, and staying the realisation of debts will, among other things, fall squarely within the topic. And that in a country of hereditary indebtedness on a colossal scale. It is common place to state that legislative heads must receive large and liberal meanings and the sweep of the sense of the rubrics must embranoe the widest range. Even incidental and cognate matters come within their purview. The whole gamut of money-lending and debt-liquidation is thus within the State's legislative competence. The reference to Rajahmundry Electricity case 1954 SCR 779 : (AIR 1954 SC 251) is of no relevance. Nor is the absence of the expression ‘relief in Entry 30, List II of any moment when relief from money-lenders is eloquently implicit in the topic. Sometimes, arguments have only stated to be rejected.”
The scheme of the impugned Act (except for the inclusion of what the learned counsel for the petitioners classified as the “third area” in the legislation) is substantially similar to the Maharashtra Act. There is therefore no good reason to take a different view in this case.
16. Apart from that, there is yet one more reason which comes in the way of the acceptability of this contention urged for the petitioners. The subject matter covered by the legislation should rationally be capable of being considered as falling within ‘money-lending’ in a broad and liberal sense of that expression and not necessarily in its traditional and orthodox sense.
In Navnit Lal C. Javeri v. K.K Sen(18), the Supreme Court while considering the question whether a loan advanced to the share-holder of a private limited company could legitimately be deemed to be income for the purpose of taxation in the hands of the recipient under the provisions of the Income-tax Act, 1922, and whether such a receipt could be considered as income within the meaning of relevant Entry in List I, observed:
“8. But in considering the question as to whether a particular item in the hands of a citizen can be regarded as his income or not, it would be inappropriate to apply the tests traditionally prescribed by the Income-tax Act as such.”
The decision of the Supreme Court in Navinchandra v. Commissioner of I.T, Bombay(19) considering the nature of capital gains is also in point. It seems to us, therefore, the expression ‘money-lending’ cannot be restricted to its technical connotation implying a systematic activity but must be understood as including any transaction in which the liabilities similar to those arising out of the lending of money are involved. We must remember that the enumeration of entries in the list is not to define or delimit the descriptions of law that the legislature may make upon any of the subjects assigned to it. The purpose of enumeration is only to name a subject or subjects for legislation. The names or description employed are usually of the briefest kind and must be supplied to the varying conditions which the development of the community must involve.
That apart, regulation of the transactions in, what counsel described as, the ‘third area’ would, at all events, not be impermissible if such regulation is incidental to, concomitant of or necessary for the effectiveness of the provisions relating to the main subject.
We, however, express no opinion whether the expression ‘Debt advanced’ occurring in Section 4 cuts down the ambit of what otherwise would conveys from a combined reading of ‘debtor and debt’ as this matter bears upon interpretation of the provisions and not on the validity of the Act.
We, therefore, answer point (a) against petitioners.
17. Point (b): Sri A.K Sen, learned counsel who argued this point after analysing the provisions of the scheme of the Act, urged that the drastic nature of the measures ushered in by the Act, virtually wipe out the “stock-in-trade” of and would spell a death-knell to petitioners' business. Petitioners' business, it was urged being a lawful business and not being an inherently dangerous or immoral business or res-extra-commercium, the State cannot, consistent with the constitutional protection under Art. 19(1)(g), wholly prohibit or extirpate such a lawful business. Sri Sen also urged that the burden of showing that the restrictions are reasonable being upon the State, the State had placed before the Court no material by way of sociol-economic investigations in justification of the severity of the measures. It was further contended that there was already on the statute book measures regulatory of the business of petitioners, such as the Karnataka Pawn-Brokers Act, 1961 and the Karnataka Money-Lenders Act, 1961, and that the State had; not made out any case to show that those measures were ineffective and the present drastic measures were indeed necessary and justified.
18. The problem presented must be examined with reference to the well accepted principles. It is, of course, well settled, that if the trade is inherently dangerous or immoral, restrictive measure can include a prohibition also. But, if the trade or business is a legitimate one, the burden is on the State to show that a law imposing restrictions on the exercise of that right is absolutely necessary to achieve the objects of the legislation. “Greater the restrictions” it is said “more the need for strict scrutiny by courts”. It is however not as if the liberty of the individual to do as he pleases even in innocent matters is absolute. That liberty frequently must and is very often made to yield to the common good. The striking of the right balance between the individual liberty on the one hand and the common good as the State conceives it on the other, is a perennial and continuing exercise be-set with recurring difficulty. The restraints on liberty should be judged not only subjectively as applied to a few individuals who come within their operation, but also objectively as securing the liberty of a greater number. This stems from the theory that “the whole is greater than the some total of all the parts”. The concept of public welfare is a broad and inclusive concept, the social, economic, moral and physical well being of the community, as well as its political well-being coming within its content.
19. We may here notice the judgment of the Supreme Court reversing the decision of this Court in D.M Thippeswamy & Others… v. State Of Mysore…..(19A) This Court struck down the provisions of the Mysore Agricultural Debtors Relief Act (27 of 1966) but the Supreme Court reversed that decision following the decision in Pathumma v. State of Kerala.(20) In the Pathumma's case, the Supreme Court stated that one of the tests of reasonableness of restrictions is the prevailing social values whose needs are satisfied by restrictions meant to protect social welfare.
The Supreme Court further observed:
“24. Another important test which has been enunciated by this Court is that so far as the nature of reasonableness is concerned it has to be viewed not only from the point of view of the citizen but the problem before the legislature and the object which is sought to be achieved by the statute. In other words, the Courts much see whether the social control envisaged in clause (6) of Art. 19 is being effectuated by the restrictions imposed on the fundamental right. It is obvious that if the Courts look at the restrictions only from the point of view of the citizen who is affected it will not be a correct or safe approach inasmuch as restriction is bound to be irksome and painful to the citizen even though it may be for the public good. Therefore, a just balance must be struct in relation to the restriction and the public good that is done to the people at large—”
20. Sri Sen however, contended that the choses-in-action and money being the stock-in-trade of the money-lending business, dissolution of the capital itself would necessarily lead to and result in an annihilation of the business itself. The provisions of the impugned Act, according to the learned counsel, made it impossible, in a commersial sense, for the petitioners to continue their business. As an illustration in point, the affidavit filed by second petitioner in W.P 5525 of 1975 has been read to us. It discloses the Profit and Loss Account of the accounting year ended on 3-11-1975. It was stated therein that in order to carry on his pawn-broking business, which was licenced under the provisions of the Karnataka Pawn Brokers Act, 1961, he had borrowed from various sources, including commercial banks, a sum of Rs. 2,20,000/- so as to be able to invest on his pawn broking business and that a sum of Rs. 2,42,262/- was due to him against: the articles pledged. It was further stated that is whole credits of lending would wiped out as a result of the Act and he stood exposed to and continued to be liabe for all the liabilities. It was urged that restrictions of this nature must be and have always been held; to be unreasonable. Reliance was placed on several pronouncements of the Supreme Court right from Mohd Yasin's Case(21) upto Cooper's case(22).
21. We do not think that we could accept these contentions. First, the aforesaid affidavit was filed at a very late stage and therefore, there was no opportunity for the State to controvert averments therein.
Secondly, in Fatechand's case itself a similar question arose for consideration and the following observations of the Supreme-Court on this aspect are instructive:
“19. Is anti-social, usurious, unscrupulous money-lending to economically weaker sections, eligible for legal recognition as ‘trade’ within the meaning of Art. 301? Secondly, assuming that even such activities have title to be termed ‘trade’, are the provisions of the Debt Act reasonable, regulatory and in the public interest? We have no hesitation in our hearts and our heads, to hold that every systematic profit-oriented activity, however sinister, suppressive or socially diabolic, cannot ipso facto, exalt itself into a trade. Incorporation of Directive Principles of State Policy casting the high duty upon the State to strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice-social, economic and political-shall inform all the institutions of the national life, is not idle print but command to action. We can never forget, except at our peril, that the Constitution obligates the State to ensure an adequate means of livelihod to its citizens and to see that the health and strength of workers, men and women are not abused, that exploitation, moral and material shall be extradited. In short, State action defending the weaker sections from social in justice and all forms of exploitation and raising the imply that economic activities, attired as trade or business or commerce, can be derecognised as trade or business”
Concluding, the Supreme Court observed:
“28. The grave stone on the old “money-lender’ system and the cornerstone of the new liberated order are thus the programme for the Administration. The Debt Act is part of the package.
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“38. A meaningful, yet minimal analysis of the Debt Act, read in the light of the times and circumstances which compelled its enactment, will bring out the human setting of the statute. The bulk of the beneficiaries are rural indigents and the rest urban workers. These are weaker sections for whom constitutional concern is shown because institutional credit instrumentalities have ignored them. Money-lending may be ancillary to commercial activity and benignant in its effects, but money-lending may also be ghastly when it facilities no flow of trade, no movement of commerce, no promotion of intercourse, no servicing of business, but merely stagnates rural economy, strangulates the borrowing community and turns malignant in its repercussions. The former may surely be trade, but the latter—the law may well say-is not trade. In this view we are more inclined to the view that this narrow, deleterious pattern of ‘money-lending’ cannot be classed as ‘trade:’……
22. It was, however, urged by Sri Sen that the decision in Fatechand's case is not helpful to this case because in the writ petitions from which the appeals were taken to the Supreme Court in that case, the grounds of attack based on Articles 14 and 19 of the Constitution were not available to the petitioners therein.
Secondly, it was urged that the Maharashtra Statute was based on a socio-economic survey conducted by a High Power Committee appointed by the Government of Maharashtra to make recommendations for the relief of rural and urban indebtedness, and the study of that Committee was at once revealing and grim, whereas no such survey have been conducted in the State of Karnataka.
23. In our opinion, both these arguments are somewhat tenuous.
So far as the first submission is concerned, it may be relevant to note that in Fatechand's case, the legislation was attacked; on the ground that it was repugnant to and violative of Article 301 of the Constitution. Both article 19(1)(g) and Article 301 envisage the freedom of trade of business. They have overlaping areas between them. The test of reasonableness of restriction would also be common, as observed by the Supreme Court in Vrajlal v. State of M.P(23) in Syed Ahmed Aga v. The State of Mysore,(24) the Supreme Court again observed:
“6…In other words, individuals affected by the violation of the guarantees under Articles 301 and 304 could also complain, 11 the same time, of infringement of their right guaranteed under Article 19(1)(g) of the Constitution provided a breach of the former involves violation of the latter also as it would ordinarily do…………………………………”
So also, so far as the question of the reasonableness of restrictions under Article 19(6) are concerned, the same tests are also applicable to determine the reasonableness under Article 304(b). (See: Vrajlal Manilal Co. v. State of Madhya Pradesh. As the question of reasonableness of restrictions under the Maharashtra Act fell for consideration under Article 304 (b) of the Constitution in Fatechand's case, the principles enunciated in Fatechand's case equally apply to the case before us.
24. Nor can we accept the second contention that the drastic measures provided under the impugned Act are not justified or prima facie unreasonable without a recommendation for relief from a fact finding Commission like the one in the Maharashtra State. The urges for a law against usury and the evils and depravity of economic exploitation connected therewith have been long and compelling, of which no Government could have remained complacent. In Fatechand's case, the Supreme Court after an “extensive tour of the economic scene”, with special reference to agricultural indebtedness and the lot of industrial labour, presented vividly “how the predatory money-lender has had a strangehold on rural and urban proletarians, by resort to methods which are scandalizingly calamitous and unshakably resistant to legislative policing.” The Supreme Court after a review of the literature on the subject which indeed is disturbing in its expose of the economic realistics, has observed:
“The economic literature, official and other, on agricultural and working class indebtedness is escalating and disturbing. Indeed, the ‘money-lender’ is an oppressive component of the scheme…………”
It is against this background of socio economic realities, we have to understand the legislative judgement and policy underlining the impugned Act. The legislature, is to be credited with an awareness of these stark realities, and with the ability to form its own judgement. As Ray C.J, said in the State of Kerala v. N.M Thomas(25)” The legislature understand and appreciates the need of its own people, that its laws are directed to problems made manifest by experience and that its discrimination are based upon adequate grounds”. Law makers, it is said, should have liberty to strike the evil where it is felt most. A legislative measure of any considerable importance is seldom introduced without a great deal of preparation and research of which the general public is scarcely aware. Numerous experts and representative interests are usually consulted; many data assembled—often over a long period of time. Such law—making is the result of action and reaction between the constitutionally authorised initiative on the one hand and social forces on the other.
The wide range of economic literature on the subject surveyed by the Supreme Court in Fatechand's case and its revealing and grim implications are something no legislation could afford to ignore or be complacent about except at deep peril. The economic phenomena described in the literature is not insular but reflects a country-wide pattern. We are, therefore, unable to agree with Sri Sen that the provisions of the Act must be held to be prima facie unreasonable without there being a socio-economic survey preceding the introduction of this legislative measure.
25. The other contentions urged by Sri Sen that several measures built-in-in the impugned Act are too drastic, unduly excessive and are wholly disproportionate to the objects sought to be achieved also have no merit in view of the pronouncement of the Supreme Court in Fatechand's case.
It was in particular urged by Sri Sen:
(1) That the Act in defining a person belonging to the “weaker sections of the people” with reference only to such person's annual income irrespective of his total wealth is arbitrary and unreasonable; and
(2) that unreasonableness is writ large on the face of the provisions which have indiscriminately affected not only the unscrupulous money-lenders but also the honest ones.
So far as the first of the above points is concerned, the aspect has been fully answered by the Supreme Court, It was observed:
“……It was urged by Sri Chitale that the definitional deficiency in ignoring the movable wealth of debtors make the scheme arbitrary and unreasonable. A romantic view of the debtors being considerable owners of costly art pieces and sophisticated gadgets and yet eligible for relief is good rhetoric but unrealistic. A pathetie picture of the money-lender being deprieved of his Joan assests while being forced to repay his lender was drawn but that cannot affect the reasonableness of the relief to the grass-roots borrower. Nor is it valid to attack the Act on the score that the whole debt i.e, the very capital of the business, has been dissolved. More often that not the money-lender would have, over the longlived debts and repeated renewals, realized more than the principal if economic studies tell the tale truly. The injustice of today if often the handover of the injustice of yesterday, as spelt out by history. The business of money-lending has not been prohibited. The Act is a temporary measure limited to grimy levels of society. Existing debts of some classes of incidents alone have been liquidated. If impossible burdens on huge human numbers are not lifted, social orderliness will be threatened and as a regulatory measure this limited step has been taken by the Legislature Regulation, if the situation is necessitous, may reach the limit of prohibition.”
So far as the second point is concerned, the Supreme Court noticed a similar contention in Fatechand's case
“………With persuasive pressure he invited us to look at the horror of procrustean infliction of equal hostility by the legislature in dealing with the asuric shylock and the dharmic lender. The law which brands the good and the bad alike and indiscriminately discharges all debts, just and unjust, lacks sense, conscience and reasonableness.”
Answering, it was held:
“42. May be, some stray money-lenders may be good souls and to stigmatic the lovely and unlovely is simplistic betise. But the legislature cannot easily make meticulous exceptions and has to proceed on broad categorisations not singular individualisations. So viewed, pragmatics overrule puncitilios and unconscionable money-lenders fall into a defined group……Since nice distinctions to suit very kindly creditor is beyond the law-making process, we have to uphold the grouping as reasonable and the restrictions as justified in the circumstances of the case………………
“44. Every cause claims its martyr and if the law, necessitated by practical considerations, makes generalisations which hurt a few, it cannot be helped by the Court. Otherwise, the enforcement of the Debt Relief Act will turn into an enquiry into scruplous and unscrupulous creditors, frustrating through endless litigation, the instant relief to the indebted which is the promise of the legislature.’”
We, accordingly, answer point (b) against the petitioners.
26. Point (c): This question relates to the alleged violation of Art. 14 and in particular with regard to certain liabilities or exemptions provided under Section 8. Sri Venugopal, relying upon the decision of the Supreme Court in State of Rajasthan v. Mukan Chand(26) urged that the exclusion of certain debts due to the creditors would offend Article 14 of the Constitution of India. But it must be noticed that similar exemptions as are contained in Section 3 of the impugned Act were considered by the Supreme Court in Fatechand's case. The Supreme Court noticed the submission thus:
“40… Secondly, ‘How is it fair’, asks Shri Nariman, ‘that, if the object of the legislation is to save the victims of the rural indebtedness and working class burdens that credit institutions should be exempted while non-institutionalised lenders should be picked out for hostile treatment?”
Repelling this contention, it was held:
“41. There is no merit in the plea. Liabilities due to Government or local authorities are not tainted with exploitation of the debtor. Likewise debts due to banking companies do not ordinarily suffer from over-reaching unscrupulousness or harsh treatment. Moreover financial institutions have, until recently, treated the village and urban worker and petty farmer as untouchables and so do not figure in the picture. To exempt the categories above referred to is reasonable. Many debt relief laws adopt this classification and those familiar with the lowest layers of economic life will agree that this is as it should be. Money-lenders of the type we are concerned with in the Debt Act are, by and large, heartless in their lending tactics, and the borrowers are anaemic-mostly members of the Scheduled Castes and Scheduled Tribes, nomadic groups, artisans, workers and the like…….
In view of this clear statement of law, the attack on the provisions of Section 8 based on Article 14 must fail.
27. That, however, is not the end of the matter. We have still to consider one other contention which, according to the learned counsel, brings about a hostile discrimination, unjustified by any criteria reasonably related to the objects of the Act. We will now examine this contention in detail.
Section 5(1) enjoins upon every creditor to furnish to the Sub-Divisional Magistrate having jurisdiction over the area a statement containing the names of all the debtors who have pledged articles with, him, the amount advanced and such other particulars as may be prescribed. Section 5(2) states that upon receipt of that statement the Sub-Divisional Magistrate after such summary inquiry as he thinks fit shall, by order, determine which of the debtors are entitled to relief and direst the creditor to produce the articles pledged by such debtors. Section 5(4) confers power on the Sub-Divisional Magistrate to deliver the article pledged to the debtor. Section 5(5) enjoins upon every creditor to furnish to the Sub-Divisional Magistrate having jurisdiction over the area the names of all the debtors who have mortgaged properties to him with the full description of such properties and the amount advanced and due as on 21st October, 1975. It also confers power on the Sub-Divisional Magistrate to determine which of the debtors are entitled to relief under Section 4 and also direct the creditor to make an endorsement of discharge on the mortgage deed and deliver the same to the debtor. Every order of the Sub-Divisional Magistrate above referred to has been made final under Section 5(6). A statutory finality imparted to the determination by the Sub-Divisional Magistrate has been assailed on the ground that it violates the equality of protection guaranteed under Article 14 of the Constitution. It was urged that the unsecured creditors have the benefit of having the question whether a debtor is a debtor or not decided by the ordinary Courts of the land, whereas the secured creditors referred to in clauses (e) and (f) of Section 4 have no such rights. They cannot find fault with the order of the Sub-Divisional Magistrate however erroneous it might be on the status of the debtor.
28. There is a good deal of substance in this contention. Article 14 forbids any discrimination either in the privileges conferred or in the liabilities imposed, without reference to inherent distinctions of nature, attainment or circumstances which may justify separate classifications. The principle of equality does not prevent a classification for legitimate purposes and every classification is in some degree likely to be productive of inequality. If law deals with members of a well-defined class equally amongst themselves, it would not be open to challenge provided the differentia on the basis of which classification is sought to be justified are both intelligible and reasonably related to the objects. It is, however, to be noticed that constitutional code of equality is a charter for equals and it follows, as a corollary, that treating unequals may also be a source and productive of denial of equality.
The classifications for differential treatment must be reasonable; it must have a rational basis; it must have a close nexus with the object sought to be achieved and that no one who shares the common characteristics should be excluded from the classification; and no one who does not share the common-characteristic should be included. One aspect bearing upon constitutionally permissible classifications that assumes importance in the context of question under consideration is whether separate classification and treatment of secured creditors and unsecured creditors—though justifiable as on rational differentia…. has any nexus with the object sought to be achieved.
29. It was urged that the basis of differentia between secured creditors and unsecured creditors made by the Act is really unrelated to the objects sought to be achieved, namely, affording of relief to the debtors as defined in the Act. Indeed the distinction brought about is inversely proportional to the extent and quality of the rights held between them. It was further urged that if sub-section (6) of Section 5 is struck down, the anomaly would be removed and even a secured creditor would be entitled to access to the ordinary Courts of the land for adjudication of the question between him and a person who claims to be a ‘debtor’, petitioners contend that the hostile discrimination is the result of importing a statutory finality as envisaged in Sub-Section (6) of Section (5).
29a. The contention appears to be not without substance. There is, in our opinion, no justifiable reason why, even after the hypotheca is restored to the ‘debtor’, the secured creditor should be in a worse position than an unsecured creditor. We, accordingly find that sub-section (6) of Section 5 offends Article 14 and requires to be struck down. However, it is to be pointed out that any judicial review of legislation is subject to the doctrine of severability. We hold sub-section (6) of Section 5 is wholly severable and that the rest of the provisions of the Act can sustain themselves without this peccant part. We accordingly, answer point (c).
30. In the result, these writ petitions succeed in part, and sub-section (6) of Section 5 of the Karnataka Debt Relief Act, 1976, is declared unconstitutional and void. The rest of the Act is held to be valid and kept undisturbed.
In the circumstances of these cases, the parties are left to bear their own costs.