1. Lord Porter:—This group of cases and those which immediately follow necessitate a consideration of the principle on which the respective jurisdictions of the Federal and Provincial legislatures in India are to be delimited, and of the method to be adopted in determining the subjects which are to be dealt with by the one or the other under the provisions of ss. 99 and 100 of the Government of India Act, 193S, and the three lists set out in the Seventh Schedule thereto. [His Lordship then set out the facts and statutory provisions as stated above, and continued] Having regard to these provisions the respondent says that whilst it is true that it is a money lender, yet it is engaged in banking and is the holder of promissory notes, matters which are solely within the Federal jurisdiction, and that a Provincial Act such as the Bengal Money Lenders Act is ultra vires in that it deals with Federal matters. These matters, it says, are so intertwined with the rest of the Act that they cannot be disassociated and therefore the Act is wholly void. But whether this be so or not, the particular loans, the subject-matter of the actions under review, are secured by promissory notes and, in addition, are matters of banking; accordingly it says that the Act is void at any rate so far as concerns promissory notes or banking.

The cases under review originally came before the subordinate judge at Khulna, where the only points which appear to have been taken were, not that the Act was wholly void, but only that it was void in so far as it affected promissory notes and that its provisions remained suspended until the Government decided what banks should become notified banks under s. 2 of the Act. The latter contention is plainly untenable and, indeed, was not persisted in in the Federal Court or before their Lordships' Board. Moreover, it is to be observed that in the Subordinate Court no reliance appears to have been placed on the contention that banking rights were interfered with. The point, however, seems to have been taken in the High Court, but no decision on it was given there or in the Federal Court. In these circumstances their Lordships do not think that the respondent is entitled to argue that it carries on the business of banking. No proof has been given that it does so and the facts cannot be assumed without proof. The respondent is, however, entitled to say that the Act deals with banks and banking and is, therefore, void in whole or in so far as it deals with banking matters.

2. In the present cases the judges of the High Court found in favour of the appellants on the ground that though the Federal List prevails over the Provincial List where the two lists come in conflict, yet the Act, being a money lenders Act, deals with what is in one aspect at least a Provincial matter and is not rendered void in whole or in part by reason of its effect on promissory notes. In their view the jurisdiction of the Provincial legislature is not ousted by the inclusion of provisions dealing with promissory notes though that subject-matter is to be found in item 28 of the Federal List. The reference to bills of exchange and promissory notes in that item, they held, only applies to those matters in their aspect of negotiability and not in their contractual aspect. In their contractual aspect the appropriate item, as they considered, was entry (10.) t of List III “contracts.” “Interest on promissory” notes, “they say,” is a matter with respect to contracts, “a subject to be found in the Concurrent Legislative” List. The Bengal Act has received the assent of the, “Governor-General, and in view of the provisions of” s. 107, sub-s. 2, of the Constitution Act, s. 29, sub-s. 2, and s 30 of the Bengal Money Lenders Act, 1940, must prevail.”

3. Section 107 of the Constitution Act is in the following terms:

“107 — (1.) If any provision of a Provincial law is “repugnant to any provision of a Federal law which the Federal legislature is competent to enact or to any provision of an existing Indian law with respect to one of the matters enumerated in the Concurrent Legislative List, then, subject to the provisions of this section, the Federal law, whether passed before or after the Provincial law, or, as the case may be, the existing Indian law, shall prevail and the Provincial law shall, to the extent of the repugnancy, be void.

“(2.) Where a Provincial law with respect to one of the matters enumerated in the Concurrent Legislative List contains any provision repugnant to the pro-” visions of an earlier Federal law or an existing Indian law with respect to that matter, then, if the Provincial law, having been reserved for the consideration of the Governor-General or for the signification of His Majesty's pleasure, has received the assent of the Governor-General or of His Majesty, the Provincial law shall in that Province prevail, but nevertheless the Federal legislature may at any time enact further legislation with respect to the same matter:

“Provided that no Bill or amendment for making any provision repugnant to any Provincial law, which, having been so reserved, has received the assent of the Governor-General or of His Majesty, shall be introduced or moved in either Chamber of the Federal legislature without the previous sanction of the Governor-General in his discretion.

 “(3.) If any provision of a law of a Federated State is repugnant to a Federal law which extends to that State, the Federal law, whether passed before or after the law of the State, shall prevail and the law of the State shall, to the extent of the repugnancy, be void.”

4. The High Court's conclusion would, no doubt, be true if they are right in saying that interest on promissory notes is a matter with respect to contracts and therefore an item contained in the Concurrent List. The Act to which it was said to be repugnant was the Negotiable Instruments Act, 1881, which no doubt applied to the whole of India, but, as the High Court points out, this Act is not a Federal but an existing Indian Act, and under the provisions of s. 107, sub-s. 2, would give place to the Bengal Money Lenders Act (which had received the assent of the Governor-General) provided that that Act does not deal with matters over which the Federal legislature alone has jurisdiction. This opinion, however, was reversed in the Federal Court, which thought the Act a clear interference with the subjects set out in item 28 in the Federal List and declared the Bengal Act to be ultra vires in so far as it dealt with these subjects. It was not, however, in their opinion totally void. The Federal Court had in fact already given the matter some consideration in two previous cases, namely, (1.) Subrahmanyan Chettiar v. Muttuswami Goundan, a case in which the Madras Agriculturists Relief Act of 1938 was impugned. That Act did not specifically mention promissory notes, but it did contain provisions limiting the liability and diminishing the debts of agriculturists in terms wide enough to include debts due on promissory notes. In that case, however, judgment had been obtained on the promissory note, and the court held that inasmuch as the debt had passed into a claim under a decree, before the Agriculturists Relief Act had been enacted, there was nothing to preclude it from being scaled down under the terms of that Act. Accordingly the court found it unnecessary to deal with a matter in which a claim on promissory notes as such was involved. (2.) A similar result was reached in Bank of Commerce, Ld. v. Amulya Krishna Basu Roy, a case on which their Lordships have to pronounce at a later stage.

5. All the courts in India have considered the Bengal Money Lenders Act to deal in pith and substance with money lenders and money lending, and with this view their Lordships agree. But such a view is not necessarily conclusive of the question in India, and, indeed, as the respondent contends, is not decisive of the matter even in Canada or Australia. With these and the other questions arising in the case their Lordships must now grapple. The appellants set out their contentions under four heads. Firstly, they said that power to make laws with respect to money lending necessarily imports the power to affect the lender's rights against the borrower on a promissory note given in the course of a money lending transaction. The Constitution Act, they said, must be read as a whole so as to reconcile item 28 of List I with item 27 of List II, and so read item 27 is a particular exception from the general provisions of item 28. Secondly, they argued that the impugned Act is in pith and substance an Act with respect to money lenders and money lending and is not rendered void in whole or in part because it incidentally touches on matters outside the authorizad field. Thirdly, they maintained that on its true construction item 28 is confined to that part of the law relating to negotiable instruments which has reference to their negotiability and does not extend to that part which governs the contractual relationship existing between the immediate parties to a bill of exchange or promissory note. That part, they said, lay in the field of contract. If, then, the subject-matter of the Act lay in contract, which is one of the items within the Concurrent List, it was, it was true, in conflict with an existing Indian Law — namely, the Negotiable Instruments Act, 1881 — within the meaning of s. 31, sub-s. 1, of the Constitution Act, but inasmuch as the impugned Act had received the assent of the Governor-General, it must prevail over the Negotiable Instruments Act as a result of the provision of s. 107, sub-s. 2, of the Constitution Act.

6. The respondent, on the other hand, pointed out in the first place that the Constitution Act differs in form from the British North America Act and the Australian Commonwealth Act. Those Acts, it said, contain no concurrent list and therefore recognize, as the Constitution Act does not, that there must be some overlapping of powers. Moreover, the Indian Act contains a strict hierarchy of powers, since under the terms of s. 100, the Federal List prevails over both the Concurrent and the Provincial Lists, and the Concurrent List in its turn prevails over the Provincial List. u The Provincial legislature,” as it enacts, “has not” power to make laws with respect to any of the matters “enumerated in List I,” and this prohibition, the respondent contends, extends to any matter whatsoever set out in the Federal List, however incidental to a matter contained in the Provincial List. No question could arise, it maintained, as to pith and substance. The Constitution Act directly prohibits any interference by a Province with any matter set out in List I. For the same reasons it said that there could be no question of an exception out of the generality of expressions used in List I on the ground that a matter dealt with in List II was particularly described whereas it was only referred to generally in List. I under a wider heading. In any case it said the expression “money lending” was no more particular than the expression “bills of exchange, promissory notes, and other instruments of the like kind.” Finally, it contended that if money lending was to be regarded as an incidence of contract, then the Negotiable Instruments Act, being an Act of the Government of India, had precedence over the impugned Act in those subjects with which they both dealt.

7. From the facts stated and the arguments presented to their Lordships it is apparent that the discussion ranged over a wide field, but in reaching their conclusion the Board do not think it necessary to determine all the issues presented to them. For instance, it is no doubt true, as has been pointed out above, and has been accepted in the courts in India, that in the case of a matter contained in the Concurrent List, the Act of a Provincial Legislature which has been approved by the Governor-General prevails over an existing Indian law(see s. 107, sub-s. 2, of the Government of India Act, 1935). If, then, the impugned Act is to be considered as a matter of contract, it would prevail over the Negotiable Instruments Act if that Act, or the part of it in respect of which repugnancy is alleged, is also to be regarded as contractual and therefore  coming within List III. But this result depends on two assumptions, namely, (1.) that the impugned Act in dealing with promissory notes, or for that matter with banking, is concerned with contract, and (2.), that the reference to negotiable instruments, promissory notes and the like instruments in List 1, item 28, is a reference to them in their capacity of negotiability only. The point was raised in the Federal Court in Subrahmanyan Chettiar's case, but that court did not find it necessary finally to decide it, though Sulaiman J. in his dissenting judgment inferentially rejected it. Like the Federal Court, their Lordships in the present case do not find it necessary to express a final opinion on these points, but it is, they think, essential to determine to what extent under the Indian Constitution Act of 1935 the jurisdiction of the several legislatures is affected by ascertaining what is the pith and substance of an impugned Act.

8. The two remaining points taken on behalf of the appellants can, in their Lordships' opinion, and, indeed, must be considered together, since to say that power to make laws in respect to money lending necessarily imparts power to affect the lender's rights in respect of promissory notes given as security in money lending transactions is, in their view, to maintain that if the pith and substance of the Act, the validity of which is challenged, is money lending, it comes within the Provincial jurisdiction. Three questions therefore arise, namely — (1.) Does the Act in question deal in pith and substance with money lending (2.) If it does, is it valid though it incidentally trenches on matters reserved for the Federal legislature (3.) Once it is determined whether the pith and substance is money lending, is the extent to which the Federal field is invaded a material matter

9.(1.) All the courts in India have held that the transactions in question are in pith and substance money lending transactions, and their Lordships are of the same opinion. To take a promissory note as security for a loan is the common practice of money lenders, and if a legislature cannot limit the liability of a borrower in respect of a promissory note given by him it cannot in any real sense deal with money lending. All the lender would have to do in order to oust its jurisdiction would be to continue his normal practice of taking the security of a promissory note and he would then be free from any restrictions imposed by the Provincial legislature. In truth, however, the substance is money lending and the promissory note is but the instrument for securing the loan.

(2.) The second is a more difficult question and was put with great force by counsel for the respondent. The principles, it was said, which obtain in Canada and Australia have no application to India. In the former instances either the Dominions and Provinces or the Commonwealth and States divide the jurisdiction between them, the Dominion, or as the case may be, the States retaining the power not specifically given to the Provinces or the Commonwealth. In such cases it is recognized that there must be a considerable overlapping of powers. But in India, it is asserted, the difficulty in dividing the powers has been foreseen. Accordingly three, not two lists, have been prepared in order to cover the whole field, and these lists have a definite order of priority attributed to them so that anything contained in List I is reserved solely for the Federal legislature, and however incidentally it may be touched on in an Act of the Provincial legislature, that Act is ultra vires in whole or, at any rate, where in any place it affects an entry in the Federal List. Similarly any item in the Concurrent List if dealt with by the Federal legislature is outside the power of the Provinces, and it is only the matters specifically mentioned in List II over which the Province has complete jurisdiction, although so long as any item in the Concurrent List has not been dealt with by the Federal legislature the Provincial legislature is binding.

10. 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 Grwyer C.J. said in the Subrahmanyan Chettiar case: “It must inevitably happen from time to time that legislation, though purporting to deal with a subject in one list, touches also on a subject in another list, and the different provisions of the enactment may be so closely intertwined that blind observance to a strictly verbal interpretation would result in a large number of statutes being declared invalid because the legislature enacting them may appear to have legislated in a forbidden sphere. Hence the rule which has been evolved by the Judicial Committee, whereby the impugned statute is examined to ascertain its “pith” and substance, or its true nature and character, for the purpose of determining whether it is legislation with respect to matters in this list or in that. Their Lordships agree that this passage correctly describes the grounds on which the rule is founded, and that it applies to Indian as well as to Dominion legislation.

11. No doubt experience of past difficulties has made the provisions of the Indian Act more exact in some particulars, and the existence of the Concurrent List has made it easier to distinguish between those matters which are essential in determining to which list particular provisions should be attributed and those which are merely incidental. But the overlapping of subject-matter is not avoided by substituting three lists for two, or even by arranging for a hierarchy of jurisdictions. Subjects must still overlap, and where they do, the question must be asked what in pith and substance isthe effect of the enactment of which complaint is made, and in what list is its true nature and character to be found. If these questions could not be asked, much beneficent legislation would be stifled at birth, and many of the subjects entrusted to Provincial legislation could never effectively be dealt with.(3.) Thirdly, the extent of the invasion by the Provinces into subjects enumerated in the Federal List has to be considered. No doubt it is an important matter, not, as their Lordships think, because the validity of an Act can be determined by discriminating between degrees of invasion, but for the purpose of determining what is the pith and substance of the impugned Act. Its provisions may advance so far into Federal territory as to show that its true nature is not concerned with Provincial matters, but the question is not, has it trespassed more or less, but is the trespass, whatever it be, such as to show that the pith and substance of the impugned Act is not money lending but promissory notes or banking Once that question is determined the Act falls on one or the other side of the line and can be seen as valid or invalid according to its true content. This view places the precedence accorded to the three lists in its proper perspective.

12. No doubt where they come in conflict List I has priority over Lists III and II and List III has priority over List II, but the question still remains, priority in what respect Does the priority of the Federal legislature prevent the Provincial legislature from dealing with any matter which may incidentally affect any item in its list, or in each case has one to consider what the substance of an Act is and, whatever its ancillary effect, attribute it to the appropriate list according to its true character In their Lordships' opinion the latter is the true view. If this be correct it is unnecessary to determine whether the jurisdiction as to promissory notes given to the Federal legislature is or is not confined to negotiability. The Bengal Money Lenders Act is valid because it deals in pith and substance with money lending, not because legislation in respect of promissory notes by the Federal legislature is confined to legislation affecting their negotiability — a matter as to which their Lordships express no opinion.

13. It will be observed that in considering the principles involved their Lordships have dealt mainly with the alleged invalidity of the Act, based on its invasion of the Federal entry, “promissory notes,” item (27.) in List I. They have taken this course because the case was so argued in the courts in India, but the same considerations apply in the case of banking. Whether it be urged that the Act trenches on the Federal List by making regulations for banking or promissory notes, it is still an answer that neither of those matters is its substance, and this view is supported by its provisions exempting scheduled and notified banks from compliance with its requirements.

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

15. Solicitor for the appellants and the intervener: The Solicitor, India Office.

16. Solicitors for the respondent: T.L. Wilson & Co.