A Critique of Prafulla Kumar Mukherjee V.

Bank of Commerce, Khulna

PROJECT BY:

NAME: Mukul Rathore

COURSE: B.A.LL. B (Hons.)

ROLL NO: 1742

SEMESTER: 6th

SUBMITTED TO:

DR. Anirudh prasad

Professor of Law
A FINAL DRAFT SUBMITTED FOR THE PARTIAL FULFILMENT OF THE COURSE
CONSTITUTIONAL LAW II FOR THE DEGREE OF B.A.LL. B

February 2020

CHANAKYA NATIONAL LAW UNIVERSITY, NYAYA NAGAR,

MITHAPUR, PATNA – 800001

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DECLARATION
I, hereby declare that the project entitled “Prafulla Kumar Mukherjee V. Bank of Commerce,
Khulna” submitted in partial fulfilment of the requirements for award of the degree of B.A.LL.B.
at CHANAKYA NATIONAL LAW UNIVERSITY, is an authentic work and has not been
submitted to any other University/Institute for award of any degree/diploma. 

MUKUL RATHORE
(1742)
B.A.LL.B.
THIRD YEAR.

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ACKNOWLEDGEMENT

Firstly, I would like to express our immense gratitude towards our institution Chanakya National
Law University, which created a great platform to attain profound technical skills in the field
of B.A.LL.B. in the subject Constitutional law, thereby fulfilling our most cherished goal. 

I sincerely express thanks to my guide and teacher Dr.Anirudh prasad who helped me complete
this project to the best of my capabilities and patiently attended to my queries and doubts.

I express deep gratitude to my family and friends who continue to push me in the daunting times
of project submission and ultimately, whether directly or indirectly, helping me complete this
project successfully. 

MUKUL RATHORE
(1742)
B.A.LL.B.
THIRD YEAR.

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Contents
INTRODUCTION...........................................................................................................................5
AIMS AND OBJECTIVES:........................................................................................................6
RESEARCH METHODOLOGY:................................................................................................6
SCOPE & LIMITATION:............................................................................................................6
MODE OF CITATION................................................................................................................6
FACTS OF THE CASE:..................................................................................................................7
ISSUE OF THE CASE....................................................................................................................9
ARGUMENT BY THE COUNCIL...............................................................................................13
CASE CITED............................................................................................................................14
JUDGEMENT...............................................................................................................................16
RULE OF PITH AND SUBSTANCE.......................................................................................18
CONCLUSION:............................................................................................................................20
BIBLIOGRAPHY..........................................................................................................................22

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INTRODUCTION
The case of Prafulla Kumar Mukherjee v. The Bank of Commerce succinctly explained the
situation in which a State Legislature dealing with any matter may incidentally affect any Item in
the Union List. The court held that whatever may be the ancillary or incidental effects of a
Statute enacted by a State Legislature, such a matter must be attributed to the Appropriate List
according to its true nature and character.
In the present cases the Judges of the High Court found in favour of the appellants on the ground
that though the Federal List prevails over the Provincial List, where the two lists come in
conflict, yet the Act being a money-lenders' Act, deals with what is in one aspect at least a
Provincial matter and is not rendered void in whole or in part by reason of its effect upon
promissory notes. In their view the jurisdiction of the Provincial Legislature is not ousted by the
inclusion of provisions dealing with promissory notes though that subject matter is to be found in
item 28 of the Federal List. The reference to bills of exchange and promissory notes in that item,
they held, only applies to those matters in their respect of negotiability and not in their
contractual aspects. 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 Section 107(2) of the
Constitution Act, Sections 29(2) and 30 of the Bengal Money Lenders Act, 1940, must prevail."

 It will be observed that in considering the principals involved their Lordships have dealt mainly
with the alleged invalidity of the Act, based upon 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 upon the Federal List by making regulations for banking or promissory
notes, it is still an answer that neither of those matters is its substance and this view is supported
by its provisions exempting scheduled and notified banks from compliance with its requirements.
In the result their Lordships are of opinion that the Act is not void either in whole or in part as
being ultra vires the Provincial Legislature. This opinion renders it unnecessary to pronounce
upon the effect of the Ordinance No. XI of 1945, purporting to validate, inter alia, the impugned

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Act, and their Lordships express no opinion upon it. But having regard to their views expressed
in this judgment they will humbly advise His Majesty that the appeal be allowed. The
respondents must bear the costs of the appellants throughout.

AIMS AND OBJECTIVES:

The aim of the researcher is to critically analyse Prafulla Kumar Mukherjee V. Bank of
Commerce, Khulna.

RESEARCH METHODOLOGY:

The researcher will be relying on Doctrinal method of research to complete the project.

LIMITATION:
 There is a time limitation for the researcher to finish the research.

 The researcher is limited to his own self for the research.

SOURCES OF DATA:
The researcher will be relying on both primary and secondary sources to complete the project.

1. Primary Sources: Acts

2. Secondary Sources: Books, newspapers, journals, cases and websites.

MODE OF CITATION

The researcher has used blue book mode of citation for the purpose of citation in his research.

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FACTS OF THE CASE:
The respondents are an incorporated body to which by an order of May 12, 1941, passed by
the High Court of Calcutta under Section 153A of the Indian Companies Act, the assets of
the Khulna Loan Bank, Ltd. (earlier known as the Khulna Loan Coy., Ltd.) were transferred.

Some of the cases now under appeal to their Lordships' Board were brought by the
respondents who claimed to recover loans and interest alleged to be due upon 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. 1The
proceedings began in 1941, 1942 and 1948, but are concerned with loans made at a much
earlier date not by the respondents but by the Khulna Loan Company 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 have to determine, by Section 30 provides 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 is retrospective in its effect, and its
limitations can be relied upon by a borrower by way of defence to an action by the
moneylender or the borrower can himself institute a suit in respect of a loan to which the
provisions of the Act apply.2

Having regard to these provisions the respondents say that whilst it is true that they are
money-lenders, yet they are engaged in banking and are holders of promissory notes, matters
which are solely within the Federal jurisdiction and that a Provincial Act such as the Bengal
Money Lenders Act is ultra vires in that it deals with Federal matters. These matters, they
say, are so intertwined with the rest of the Act that they cannot be disassociated and therefore

1
(1947) 49 BOMLR 568.
2
Ibid.

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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, they say 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 notified banks
under Section 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 upon 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. 3

 In the present cases the Judges of the High Court found in favour of the appellants on the
ground that though the Federal List prevails over the Provincial List, where the two lists
come in conflict, yet the Act being a money-lenders' Act, deals with what is in one aspect at
least a Provincial matter and is not rendered void in whole or in part by reason of its effect
upon promissory notes. In their view the jurisdiction of the Provincial Legislature is not
ousted by the inclusion of provisions dealing with promissory notes though that subject
matter is to be found in item 28 of the Federal List. The reference to bills of exchange and
promissory notes in that item, they held, only applies to those matters in their respect of
negotiability and not in their contractual aspects. 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 Section 107(2) of the Constitution Act, Sections 29(2) and 30 of the
Bengal Money Lenders Act, 1940, must prevail."

3
Ibid

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ISSUE OF THE CASE
This group of cases and those which immediately follow necessitate a consideration of the
principle upon 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 provisions of Sections 99 and 100 of the
Government of India Act, 1935, and the three lists set out in the Seventh Schedule thereto.

The question immediately in dispute is as to the validity of the Bengal Money-lenders Act, 1940.
By way of introduction it is enough to say that that Act limits the amount recoverable by a
moneylender on his loans for principal and interest and prohibits the payment of sums larger than
those permitted by the Act.4

 Section 100 of the Government of India Act, 1935, is in the following terms: -

100. (1) Notwithstanding anything in the two next succeeding subsections, the Federal
Legislature has, and a Provincial Legislature has not, power to make laws with respect to any of
the matters enumerated in List I in the Seventh Schedule to this Act (hereinafter called the
'Federal Legislative List').

(2) Notwithstanding anything in the next succeeding subsection, the Federal Legislature and,
subject to the preceding subsection, a Provincial Legislature also, have power to make laws with
respect to any of the matters enumerated in List III in the said Schedule (hereinafter called the
'Concurrent Legislative List').

(3) Subject to the two preceding subsections, the Provincial Legislature has, and the Federal
Legislature has not, power to make laws for a Province or any part thereof with respect to any of
the matters enumerated in List II in the said Schedule (hereinafter called the '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.

4
Ibid.

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8. The Federal Legislative List referred to in this section assigns to the Federal Legislature
jurisdiction to make laws with respect to (28) Cheques, bills of exchange, promissory notes and
other like instruments, (33) Corporations, that is to say, the incorporation, regulation and
winding-up of trading corporations including banking....

(38) Banking, that is to say, the conduct of banking business....

and denies that jurisdiction to Provincial Legislatures.

 But the Bengal Act goes further: Section 2 contains certain definitions in the following terms:5 -

(1) 'bank' means a banking company as defined in Section 277F6 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, 1.089, or by a bank which
has been declared to be a notified bank under Section 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 Section 172 of
the Indian Contract Act, 1872;

5
The Indian Companies (Amendment) Act (1930), Act 7 of 1913.
6
The Indian Companies (Amendment) Act, 1930, Act No. 19 Of 1930.

10 | P a g e
(14) 'money-lending business' and 'business of money-lending' mean the business of advancing
loans either solely or in conjunction with any other business;

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: -7

(1) ...the lending or advancing of money either upon or without security....

and Section 3 of the Bengal Money Lenders Act enacts 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 requires a money-lender to be licensed. Sections, 25 and 26 prescribe the

form in which accounts are to be kept and require the lender to furnish each borrower with a
copy of his own account with certain penalties if he does not do so.

 Sections 28 and 29 of the Act impose a duty upon a moneylender in assigning a loan to furnish
full particulars to the assignee but protect the position of a bona fide transferee without notice
unless he himself be a money-lender.8 Section 34 enables the Court to direct payment by
instalments and Section 36 gives power to reopen transactions subject however to the rights of a
bona fide holder for value.

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

7
Ibid.
8
Ibid

11 | P a g e
accordingly, they say that the Act is void at any rate so far as concerns promissory notes or
banking.All the Courts in India have considered the Bengal Money Lenders Act to deal in pith
and substance with money lenders and money-lending and with this view their Lordships agree.
But such a view is not necessarily conclusive of the question in India and indeed, as the
respondents contend, is not decisive of the matter even in Canada or Australia. With these and
the other questions arising in the case their Lordships must now grapple.

ARGUMENT BY THE COUNCIL

The appellants set out their contentions under four heads.

Firstly, they said that power to make laws with respect to moneylending necessarily imports the
power to affect the lender's rights against the borrower upon a promissory note given in the
12 | P a g e
course of a moneylending 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 upon matters outside the authorized field.

Thirdly, they maintained that upon its true construction item 28 is confined to that part of the law
relating to negotiable instruments which has reference to their 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-viz. the Negotiable
Instruments Act, 1881-within the meaning of Section 31(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 Section 107(2) of the
Constitution Act.

The respondents on the other hand pointed out in the first place that the Constitution Act differs
in form from the British North America Act and the Australian Commonwealth Act. Those Acts,
they said, contain no concurrent list and therefore recognize, as the Constitution Act does not,
that there must be some overlapping of powers. Moreover, the Indian Act contains a strict
hierarchy, of powers since under the terms of Section 100, the Federal List prevails over both the
Concurrent and the Provincial List, and the Concurrent List in its turn prevails over the
Provincial List. "The Provincial Legislature", as it enacts, "has not power to make laws with
respect to any of the matters enumerated in List I", and this prohibition, they contend, extends to
any matter whatsoever set out in the Federal List, however incidental to a matter contained in the
Provincial List. No question could arise, they maintained, as to pith and substance. The
Constitution Act directly prohibits any interference by a Province with any matter set out in List
I.

13 | P a g e
For the same reasons they said that there could be no question of an exception out of the
generality of expressions used in List Ion 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 they said the expression "Money Lending" was no more particular than the
expression "Bills of Exchange, promissory notes, and other instruments of the like kind".

Finally, they contended that if money-lending was to be regarded as an incidence of contract,

then the Negotiable Instruments Act being an Act of the Government of India had precedence
over the impugned Act, in those subjects with which they both dealt.

CASE CITED

The Federal Court had in fact already given the matter some consideration in two previous cases,
viz.:-

14 | P a g e
(1) Subramanyan Chettiar v. Muttuswami Goundan9, a case in which the Madras Agriculturists
Relief Act of 1988 was impugned. That Act did not specifically mention promissory notes but it
did contain provisions limiting the liability and diminishing the debts of agriculturists in terms
wide enough to include debts due on promissory notes.

In that case, however, judgment had been obtained upon the promissory note and the Court held
that inasmuch as the debt had passed into a claim under a decree, before the Agriculturists Relief
Act had been enacted, there was nothing to preclude it from being scaled down under the terms
of that Act. Accordingly, the Court found it unnecessary to deal with a matter in which a claim on
promissory notes as such was involved.

(2) A similar result was reached in Bank of Commerce Ltd. v. Amulya Krishna Basu: Bank of
Commerce Ltd. v. Brojo Lal Mitra 10, a case upon which their Lordships have to pronounce at a
later stage.

JUDGEMENT
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 order to oust its jurisdiction
would be to continue his normal practice of taking the security of a promissory note and he
9
[1940] F.C.R. 188.
10
[1944] F.C.R. 126.

15 | P a g e
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,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 recognised 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 upon in
an Act of the Provincial Legislature, that Act is ultra vires in whole or at any rate where in any
place it affects an entry in the Federal List.11

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 Subramanyan Chettiar's case (supra) (p. 201.):

It must inevitably happen from time to time that legislation though purporting to deal with a
subject in one list, touches also upon a subject in another list, and the different provisions of the
enactment may be so closely intertwined that blind 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
11
(1947) 49 BOMLR 568.

16 | P a g e
correctly describes the grounds upon which the rule is founded, and that it applies to Indian as
well as to Dominion legislation.No doubt experience of past difficulties has made the provisions
of the Indian Act more exact in some particulars and the existence of the Concurrent List has
made it easier to distinguish between those matters which are essential in determining to which
list particular provisions should be attributed and those which are merely incidental. But the
overlapping of subject matter is not avoided by substituting three lists for two or even by
arranging for a hierarchy of jurisdictions.

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.

In the result their Lordships are of opinion that the Act is not void either in whole or in part as
being ultra vires the Provincial Legislature. This opinion renders it unnecessary to pronounce
upon the effect of the Ordinance No. XI of 1945, purporting to validate, inter alia, the impugned
Act, and their Lordships express no opinion upon it. But having regard to their views expressed
in this judgment they will humbly advise His Majesty that the appeal be allowed. The
respondents must bear the costs of the appellants throughout.

RULE OF PITH AND SUBSTANCE

Parliament or a State Legislature should keep within the domain assigned to it, and not trespass
into the domain reserved to the other. A law made by one which trespass or encroaches upon the
field assigned to the other is invalid. If a subject fall exclusively in List II, and in no other List,
then the power to legislate exclusively vests in the State Legislature. But if it also falls in List I
as well, then the power belongs to the Centre. Similarly, if it falls within List III also, then it is

17 | P a g e
deemed to be excluded from List II. The dominant position of Parliament in List I and List III is
thus established.12

But before the legislation with respect to a subject in one List, and touching also on a subject in
another List, is declared to be bad, the Courts apply the rule of pith and substance. 13 To adjudge
whether any particular enactment is within the purview of one legislature or the other, it is the
pith and substance of the legislation in question that has to be looked into. This rule envisages
that the legislation as a whole be examined to ascertain its true nature and character in order to
determine to what entry in which List it relates. In determining whether the impugned Act is a
law with respect to a given power, the Court has to consider whether the Act, in its pith and
substance, is a law on the subject in question. To examine whether a legislation has impinged on
the field of other legislatures, in fact or in substance, or is incidental, keeping in view the true
nature of the enactment, the Courts have evolved the doctrine of "pith and substance" for the
purpose of determining whether it is legislation with respect to matters in one list or the other.
For applying the principle of "pith and substance" regard is to be had (i) to the enactment as a
whole, (ii) to its main objects, and (iii) to the scope and effect of its provisions. Where the
question for determination is whether a particular law relates to a particular subject mentioned in
one list or the other, the Courts look into the substance of the enactment. Thus, if the substance
of enactment falls within the Union List then the incidental encroachment by the enactment on
the State List would not make it invalid.14

To ascertain the true character of the legislation in question, one must have regard to it as a
whole, to its objects and to the scope and effect of its provisions. If according to its true nature
and character, the legislation substantially relates to a topic assigned to the Legislature which has
enacted it, then it is not invalid merely because it incidentally trenches or encroaches on matters
assigned to another Legislature. The fact of incidental encroachment does not affect the vires of

12
M.P Jain , onstitution of India , 7th edition.
13
The rule has been borrowed from Canada. Some Canadian cases on the rule are: Citizens Insurance Company v.
Parsons, 7 A.C. 96; Russell v. The Queen, 7 A.C. 829; Att. Gen for Canada v. Att. Gen. for British Columbia, 1930
A.C. 111
14
Bharat Hydro Power Corpn. Ltd. v. State of Assam, (2004) 2 SCC 553 [LNIND 2004 SC 27] : AIR 2004 SC 3173
[LNIND 2004 SC 27].

18 | P a g e
the law even as regards the area of encroachment. To put it differently, incidental encroachment
is not altogether forbidden.

The practical working of the rule can be appreciated by referring to a few decided cases.

The Bengal Money Lenders Act passed to scale down debts owed by the agriculturists, was
challenged on the ground that being a provincial (State) law, it affected promissory notes, a
Central subject (Entry 46, List I). The Privy Council found that in its true nature and character,
the legislation dealt with money-lenders and money-lending (Entry 30, List II), and not with
promissory notes. The money-lenders commonly take a promissory note as security for a loan. A
legislature would not, in any real sense, be able to deal with money-lending if it cannot limit the
liability of a borrower in respect of a promissory note given by him. The Act was held valid even
though as an ancillary effect it affected the negotiable instrumentsa Central subject.15

CONCLUSION:
The case of Prafulla Kumar Mukherjee v. The Bank of Commerce succinctly explained the
situation in which a State Legislature dealing with any matter may incidentally affect any Item in
the Union List. The court held that whatever may be the ancillary or incidental effects of a
Statute enacted by a State Legislature, such a matter must be attributed to the Appropriate List
according to its true nature and character.

15
Prafulla Kumar v. Bank of Commerce, Khulna, 74 I.A. 23. Also, Subrahmanyan v. Muttuswami, AIR 1941 FC 47.

19 | P a g e
Pith means ‘true nature’ or ‘essence of something’ and Substance means ‘the most important or
essential part of something’. Doctrine of Pith and Substance says that where the question arises
of determining whether a particular law relates to a particular subject (mentioned in one List or
another), the court looks to the substance of the matter. Thus, if the substance falls within Union
List, then the incidental encroachment by the law on the State List does not make it invalid.

This is essentially a Canadian Doctrine now firmly entrenched in the Indian Constitutional
Jurisprudence. Cushing v. Dupey in this case the Privy Council evolved the doctrine, that for
deciding whether an impugned legislation was intra vires, regard must be had to its pith and
substance.
Need for the Doctrine of Pith and Substance in the Indian Context The doctrine has been applied
in India also to provide a degree of flexibility in the otherwise rigid scheme of distribution of
powers. The reason for adoption of this doctrine is that if every legislation were to be declared
invalid on the grounds that it encroached powers, the powers of the legislature would be
drastically circumscribed.
The case of Prafulla Kumar Mukherjee v. The Bank of Commerce succinctly explained the
situation in which a State Legislature dealing with any matter may incidentally affect any Item in
the Union List. The court held that whatever may be the ancillary or incidental effects of a
Statute enacted by a State Legislature, such a matter must be attributed to the Appropriate List
according to its true nature and character.

Thus, we see that if the encroachment by the State Legislature is only incidental in nature, it will
not affect the Competence of the State Legislature to enact the law in question. Also, if the
substance of the enactment falls within the Union List then the incidental encroachment by the
enactment on the State List would not make it invalid.

However, the situation relating to Pith and Substance is a bit different with respect to
the Concurrent List. If a Law covered by an entry in the State List made by the State
Legislature contains a provision which directly and substantially relates to a matter enumerated
in the Concurrent List and is repugnant to the provisions of any existing law with respect to that

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matter in the Concurrent List, then the repugnant provision in the State List may be void unless it
can coexist and operate without repugnancy to the provisions of the existing law.

BIBLIOGRAPHY
1.The Indian Companies (Amendment) Act, 1930
2.The Constitution of India 1949
3.The Bengal Districts Act, 1836]
4.The Indian Companies (Amendment) Act, 1930

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5. M P Jain: Indian Constitutional Law, 7th Edition
5. Prafulla Kumar Mukherjee vs The Bank of Commerce on 11 February, (1947)
49 BOMLR 568
6. Subrahmanyan v. Muttuswami, AIR 1941 FC 47.
7. Bharat Hydro Power Corp. Ltd. v. State of Assam, (2004) 2 SCC 553 [LNIND
2004 SC 27] : AIR 2004 SC 3173 [LNIND 2004 SC 27].

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