State Bank of India v. Santosh Gupta & Anr. Etc. (with State Bank of India & Ors. v. Zaffar Ullah Nehru & Anr. Etc.)
Background
The Jammu & Kashmir High Court had ruled that key enforcement provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI), which lets banks seize and sell a defaulting borrower's mortgaged property without going to court, were beyond Parliament's legislative competence as applied to J&K, because they clashed with Section 140 of the Jammu & Kashmir Transfer of Property Act, 1920 (which restricted transfer of immovable property in the State to non-permanent-residents). On that basis, the High Court held SARFAESI could not be enforced against borrowers in J&K by all-India banks like the State Bank of India. SBI and other banks appealed to the Supreme Court, arguing that banking falls under Entry 45 of List I (Union List) of the Constitution, which Parliament was empowered to legislate on even for J&K under Article 370.
Decision Breakdown
The Supreme Court held that SARFAESI, in pith and substance, is a banking statute enacted under Entry 45 (and 95) of List I, not a "transfer of property" law, and that under Article 370 read with the relevant Presidential Orders, Parliament's power over banking fully extends to Jammu & Kashmir. Because SARFAESI is a Union law validly made under Entry 45, its provisions override any conflicting State law, including Section 140 of the J&K Transfer of Property Act, to the extent of the conflict. The Court also rejected reliance on Article 35A, holding that it only shields J&K's special property laws from challenge under India's fundamental rights chapter; it does not resolve a separate question of legislative competence between Parliament and the State legislature. Finding the High Court's reasoning self-contradictory (it could not simultaneously hold SARFAESI void in J&K while allowing J&K-origin banks to use it against outside borrowers), the Court set aside the High Court's judgment, holding that SARFAESI's enforcement notices and other coercive recovery measures taken by banks are valid and can proceed. The appeals were allowed with no order as to costs.
Lesson Learnt
Special constitutional protections for Jammu & Kashmir (such as Article 370 and Article 35A) do not shield every local law from a validly enacted Union law on a subject squarely within Parliament's domain, like banking: if a Central law genuinely falls within a Union List entry, it can override a conflicting State-specific property law even in J&K, and banks can enforce defaulted loan securities there just as anywhere else in India.