This article is written by Raunak Chaturvedi and further updated by Aadrika Malhotra. It talks about the case of R.C. Cooper v. Union of India in detail, with an explanation of crucial concepts and modifications that were set forth in the narrative of bank nationalisation after the case.

It has been published by Rachit Garg.

Introduction 

Almost fifty-four years ago, the nation was moved by the highly unanticipated Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969, announced by Indira Gandhi, the then Prime Minister, who nationalised the whole banking industry. Rustom Cavasjee Cooper v. Union of India (1970), also known as the Bank Nationalisation Case, has garnered massive attention in banking laws and certain provisions of the Constitution of India. R.C. Cooper, who was the director of the Central Bank of India, had several shares in the Bank of Baroda and he filed a petition in the Supreme Court of India in 1969. This was the point where several banks were being nationalised and R.C. Cooper challenged the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969, passed at that time. One of the several provisions consisted of Schedule II, which stated that when the government acquires the banks, the compensation passed thereto will be decided through an agreement. Let’s say that the agreement fails, then the compensation will be decided in front of a tribunal and after the result of the tribunal, the company will get the compensation in ten years from the date on which the agreement failed. The case was fought on this basic premise and raised the question of socialism before the Supreme Court.

Brief details of R.C. Cooper v. Union of India

Name of the case

Rustom Cavasjee Cooper v. Union of India 

Date of the judgement

10 February 1970   

Parties to the case

Petitioner

Rustom Cavasjee Cooper (R.C. Cooper)

Respondent

Union of India

Represented by

Petitioner

Mr. N.A. Palkhivala

Respondent

Attorney-General Niren De 

Equivalent citations

1970 AIR 564, 1970 SCR (3) 530, 1970 SCC (1) 248

Type of the case 

Writ Petition No. 222, 298 and 300 of 1968 filed before the Supreme Court under Article 32 of the Constitution of India, 1950 

Court

The Supreme Court of India

Referred

Articles 14, 19 and 31 of the Constitution of India, along with the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969

Bench

Justice J.C. Shah, Justice S.M. Sikri, Justice J.M. Shelat, Justice Vishishtha Bhargawa, Justice G.K. Mitter, Justice C.A. Vaidyialingam, Justice K.S. Hegde, Justice A.N. Grover, Justice A.N. Ray, Justice P.J. Reddy, and Justice I.D. Dua.

Author of the judgement 

The majority judgement was drafted by Justice J. C. Shah on behalf of the other judges and the minority opinion was drafted by Justice A. N. Ray.

What is bank nationalisation

There were no legal provisions till the year 1949 for the direction of banking businesses until the enactment of the Banking Regulation Act, 1949. The word “banking,” as defined in Section 5(b) of the Act, means any acceptance of money in the form of deposits from the public for the purposes of lending or investment that the public can receive on demand. This Act applied to several commercial banks and it prohibited the employment of management agents, regulation of voting rights, minimum paid-up capital, balance sheets, and asset maintenance. The Act was also amended in 1968 to gain social control over the banks, which directed certain changes in the board of directors. There was supposed to be a chairman leading the board, with fifty-one percent of the membership consisting of special knowledge regarding finance and related sectors. The Reserve Bank of India was ordered to give directions to other banks regarding the appointment of directors, proper management of the banking business, monetary stability, sound economic growth, and equitable allocation of resources for these banks. The Reserve Bank could initiate any action to remove personnel at the managerial level from any of these banks until and unless it was considered necessary for the interest of the depositors of the bank. These powers have enabled the Reserve Bank to reorganise the whole banking structure in India and regulate the banking business. Even the State Bank of India, with seven subsidiaries, was able to amalgamate fifty crores in deposits each by mid-1969.  

In 1969, fourteen banks were nationalised by the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969 and a limit was posed for each bank for nationalisation. These banks did not include any foreign banks with deposits of less than fifty crores; rather, those banks were nationalised and controlled almost ninety-one percent of the total deposits. Before nationalisation, these banks were sole private entities and, thus, nationalisation was seen as a great effort to protect the public’s money. There was no interference of the government in the functioning of the bank officials; they used to pocket the money of the bank and the public with no welfare for the public in their minds through unfair means. However, even after the benefits, there were several difficulties that arose with the banks being nationalised. The fourteen banks that were nationalised included the Central Bank of India Ltd. (the petitioner in the present case), the Union Bank of India Ltd., the Bank of Baroda Ltd., the Dena Bank Ltd., the Bank of Maharashtra Ltd., the Canara Bank Ltd., the Punjab National Bank Ltd., the Syndicate Bank Ltd., the Indian Overseas Bank Ltd., the Indian Bank Ltd., the United Bank of India Ltd., the United Commercial Bank Ltd., the Allahabad Bank Ltd. and the Bank of India Ltd.

The need for this nationalisation arose because the private banks did not fulfil the criteria set by the government for the prediction of people’s interests. The Banking Regulation Act, 1949, failed to benefit the banking industry as a whole and reach the needs of small-scale businessmen. Another main aim of nationalising the banks was to save the economy and better serve the needs of national policies. This process allowed equal distribution and allocation of credits for all the sectors rather than focussing on one and initiating banking expansion. The case of R.C. Cooper is the landmark case that changed the whole banking industry in India and pointed out the defects of the ordinance as well.

Background of R.C. Cooper v. Union of India

The government passed the State Bank of India Act, 1955, with the aim of merging the seven subsidiaries of the State Bank into one, including the Imperial Bank, under Article 37 of Part IV of the Indian Constitution. The Directive Principles of State Policy (DPSP) are fundamental to the functioning of the rights and duties of a human being and it is the duty of the State to apply these rules to governance and law-making. The DPSP covers another vast term,’socialist’, which orders the government to follow these principles to govern the State. Since, back then, there were no banking facilities provided to the lesser-known parts of India, and nationalisation was the ultimate goal to achieve the establishment of banking facilities in these areas. Since all these areas were mostly rural, moneylenders used to exploit people by charging high rates of interest on loans. Still, after nationalisation was implemented, it became clearer that these people would benefit more from banks that charge a relatively lower rate of interest.

In July 1969, the then prime minister Indira Gandhi presented through radio an ordinance named the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969, hoping to change the course of the banking industry by nationalising the fourteen banks stated above that held the majority share of deposits. The most disturbing part of the Ordinance included Schedule II, which stated that compensation would be decided by an agreement and if no agreement is reached, the tribunal will be responsible for deciding the compensation, which will be rewarded after ten years of falling out of the agreement. 

Before petitions could challenge the constitutionality of this ordinance, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969, was passed with the object of looking after the process of acquisitions and transfers of undertakings in order to serve the government and the economy better. Section 6 read with Schedule 11 of the Act decided the compensation for the acquisition of undertakings per unit of these banks, which was to be deemed to be a single compensation. This compensation was supposed to be the sum total of the value of assets, which is less than the sum total of all liabilities and obligations. The compensation was to be determined by the tribunal with no agreements set in place and that compensation would be taken through securities until it matured over ten years.     

Facts of R.C. Cooper v. Union of India 

To understand the facts of the case, we need to understand a little bit of the history of India. The first Prime Minister of India, that is, Pandit Jawaharlal Nehru, believed in socialism as the best model of development suited for our country to progress. The type of socialism he believed in was termed Fabian Socialism. This meant that for the better progress of the nation and its citizens’ good and development, it was necessary to exercise State control over certain industries that were considered important for public welfare. Post-independence, many sectors that were instrumental in the development of the State were nationalised. For example, transport undertakings, the insurance sector and electricity were completely provided with a State monopoly. The oil and refineries sector was nationalised a bit later in the 1960s.

Coming to the present case, which is popularly known as the Bank Nationalisation case, the proposal to nationalise the banking sector was not very new to India. In fact, in 1948, the proposal to nationalise the banking sector had been actively debated by the All India Congress Committee (A.I.C.C.). The first Finance Minister of India, R.K. Shanmugham Shetty, was strongly in favour of nationalising the Imperial Bank of India, but Sardar Vallabhbhai Patel had stopped him from doing so due to certain political reasons. However, very soon, in the year 1955, the Imperial Bank of India was nationalised under the State Bank of India Act and 7 of its subsidiaries too were taken over by the Government. So, we may see from this point that partial nationalisation of the banking sector had already started. The role of the Reserve Bank of India, too, is very noteworthy in this process of nationalisation. The Reserve Bank gradually decreased the number of commercial banking institutions in India from 566 in 1951 to merely 89 by the end of 1969.

Moving forward with our discussion, there were certain leaders in the Government who were in opposition to this nationalisation of the banks. Morarji Desai, the then Finance Minister, was seriously against the nationalisation of 14 banks in India by Indira Gandhi while following the ideals of her father. Desai was also the Deputy Prime Minister at that time. Mr. Desai’s main argument was that the amount of compensation that was going to be paid to these banks, which amounted to Rs. 85 crores, could be simply used to accelerate the economy of the country. Another argument that Mr. Desai had put forward was that the credit could be diverted towards the social sectors simply by controlling the banks by amending the banking laws of the country.

The differences between the two became so severe that Morarji Desai was dismissed from the post of Finance Minister on 17th of July, 1969. The very next day, he voluntarily resigned from the post of Deputy Prime Minister of India. Amidst this, the then-acting President of India, Justice M. Hidyatullah, issued an Ordinance just two days before the monsoon session of Parliament was going to start. The name of the Ordinance was ‘Banking Companies (Acquisition and Transfer of Property) Ordinance of 1969’. 

Let us first understand what this Ordinance was all about. The features of the Ordinance can be listed as follows:

• 14 banks in India were listed in the Ordinance that were going to be nationalised.
• These 14 banks had been selected on the basis of the amount of deposits that they held. That is, all of these banks held deposits of more than 50 crores, which was taken as the criterion to choose them to be nationalised.
• All the Directors of these 14 banks were deemed to vacate their offices after the nationalisation However, apart from the Directors, the rest of the staff was allowed to continue in their jobs under the Government of India.
• The Second Schedule of the Ordinance was the most unconstitutional part. It talked about the compensation that was supposed to be paid to the banks and was being undertaken by the Government. The Ordinance mentioned two major ways of providing compensation to the aggrieved banks-
  • When an agreement was reached – When the amount to be paid as compensation was able to be decided through an agreement, the compensation would be decided according to the agreed terms. 
  • When no agreement could be reached – When no agreement was able to be reached, then, the disputed matter was supposed to be referred to a Tribunal, within three months from the date of the failure to reach an agreement. Whatever compensation amount was to be decided by the Tribunal, was to be awarded in the form of Government Securities. These Government Securities were not redeemable immediately, but 10 years after they were issued.

Once the Ordinance had been passed, after two days when the Parliament started its monsoon session, immediately the Indira Gandhi Government formulated the ‘Banking Companies (Acquisition and Transfer of Property) Act, 1969’ with certain modifications from the Ordinance except for the compensation structure, undertaking, management, and named banks.  

After the news of the promulgation of the Ordinance reached Mr. Cooper, who was not only the then Director of the Central Bank of India Ltd. but also held shares in the Union Bank of India Ltd., the Central Bank of India Ltd., the Bank of Baroda Ltd., and the Bank of India Ltd., he filed a Writ petition under Article 32 of the Constitution of India before the Supreme Court of India, stating that his fundamental rights had been violated by the promulgation of the Ordinance.

The petitioner filed the writ petition on July 21, 1969, under Article 32 of the Constitution of India, challenging the Ordinance and the Act on the basic claim that the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance and the Banking Companies (Acquisition and Transfer of Undertakings) Act together passed in 1969 violated the fundamental rights of the petitioner as mentioned under Articles 14, 19, and 31, which makes them invalid. However, after the hearing of the interim injunction on July 22, 1969, the Supreme Court ordered the government, through an injunction, not to remove the directors from the companies.

Issues raised in R.C. Cooper v. Union of India 

The following issues had been raised by Mr. Cooper through his advocate, Mr. Palkhiwala, which are as follows-

• Whether a shareholder could file a Writ petition for the violation of his fundamental rights when the company in which he is a shareholder is acquired by the Government?
• Whether the Ordinance in question had been properly made or not?
• Whether the Act was within the jurisdiction of the Parliament to get formulated or not?
• Whether the impugned Act was violative of Article 19(1)(g) and Article 31(2) of the Constitution of India or not?
• Whether the method of ascertaining the compensation was valid or not? 
• Whether Schedule II of the Ordinance was justified?  

Arguments submitted in R.C. Cooper v. Union of India

Petitioner 

The petitioner was represented by Mr. A. Palkhivala in the present case and challenged the validity of the Ordinance on the following grounds:

• That the Ordinance passed under Article 123 of the Indian Constitution was invalid because the conditions that need to be fulfilled for the exercise of the article have not been fulfilled.
• That the Act violates the guarantee of free trade mentioned under Article 301.
• That the Act infringed upon the subjects of the State List under Entry 42, List III, therefore, it is outside the powers of the Parliament to enact such a provision.
• That the Act violated the rights as me jintioned under Articles 14, 19(1)(f)(g), and 31(2) of the Indian Constitution.
• That the retrospective action given to the Act 22 of 1969 would be invalid because there was no valid ordinance and the provisions that infringe on fundamental rights do not fall under the ambit of the parliament to make laws; therefore, Sections 11 and 26 are invalid.

The arguments in detail are as follows: 

• The petitioner argued that the shareholder may not be the owner of a company but the petitions filed are not claiming any representation from the companies’ side as argued by the respondent. Here, the test for determining this lies in the question of whether the State has impaired the rights of the shareholders regardless of the rights of the company in the process. The court cannot rely on technicalities to decide whether the grant will be provided. 
• Mr. Palkhivala further contended that the Act and the Ordinance do not have legal competency because they interfere with the guarantee of freedom of trade and are not made in the public interest. The President does not have the power to promulgate the Ordinance because the subject matter of the Act belongs to the State List. Moreover, the undertakings of the banks being shifted into new banks do not necessarily serve any public purpose and are a form of hostile discrimination against the petitioner, due to which the value of his investment in shares is reduced and so are his dividends, resulting in a great financial loss for him. The petitioner also argued that he lost his right to carry on his business and that he had lost all of his clients to the new banks without his consent.  
• The petitioner argued that in imposing the Act, the Parliament has also violated the provisions of Part XIII of the Constitution of India. The Parliament has taken away the right to conduct business from all the banks that they have nationalised under the Act. Furthermore, the petitions under Article 32 are entertained in court by a citizen of the country and since the company is not a citizen, the petitioner can file a petition in the present case.  
• To rebut the litigation made by the respondent, the petitioner argued that under Article 123 of the Constitution of India, the President does not have the sole decision-making power. (Barium Chemicals Ltd. and Anr. v. The Company Law Board and Ors. (1966) and Nakkuda Ali v. M. F. De S. Jayaratne (1951) The power is conditional and completely depends upon the existence of an immediate circumstance, whereas in the present case, the Ordinance was passed two days before the monsoon session of the Parliament, which makes it absolutely vague for the Ordinance and the Act to be passed by the President. 
• When it came to the issue of the competency of the Parliament to pass the Act, the petitioner argued that the Act passed is void and should be repealed because the jurisdiction for the Center to make laws had been exceeded. The Seventh Schedule clearly mentions the subjects that are to be dealt with by the State Legislature in which the Parliament cannot interfere, one of which includes banking. The Central laws upon banking were to be made only under the contents as mentioned under Entry 45, List I and Section 5(b) of the Banking Regulation Act, 1949. The State List can make laws in all subjects as mentioned under List II and both the State and the Center can make laws based on the Concurrent List of subjects mentioned under List III.    
• The petitioner argued that the Act violated Articles 19(1)(g) and 31(2) of the Indian Constitution, which deal with the acquisition and requisition of property. Mr. Palkhivala argued that the compensation provided by the Act to the banks was extremely draconian and not fair to the companies or the public. The Parliament may legislate on the acquisition of part of the business that relates to banking but not on any other business that was not incidental to the banking of that particular company because it falls within the ambit of List II. Any other commercial activities that a bank engages in are not controlled by the Parliament and the liabilities mentioned under the Act do not imply property. The classification is made on a wholly irrational basis that dismisses the great management as provided by the shareholders and directors. 

Respondent  

• The Attorney General from the respondent’s side contended that the writ petitions filed are not maintainable because there is no direct violation of the fundamental rights of the petitioners mentioned under Articles 14 or 19 in the present case by the passing of the Ordinance and the Act. The petitioner is the shareholder, director, and holder of accounts in the banks listed by him, but he is not the owner of the property that was taken by the ‘new banks’, which makes him incompetent to file these petitions. 
• A company is a legal person and the property of the company does not belong to the shareholders. A shareholder is someone who has an interest in the decisions and profit-making of the company; a director is merely someone who manages the management of the company; a creditor is not someone who owns the banks. This makes all these people ineligible to file petitions for the infringement of rights based solely on company property. 
• The respondent further submitted that the petitioner can seek relief for his own rights and not for others. The guarantee of freedom of trade does not occur in Part II of the Constitution of India and so the petitioner does not have any rights to maintain the petitions in court. 
• The respondent argued that Article 123 confers the power to the President to promulgate an ordinance on a subject matter if it is most definitely required when both houses of Parliament are not in session. The Attorney-General stated that the condition to be fulfilled for such an ordinance to be passed is completely subjective and the Parliament needs to specify this as stated in the case of Bhagat Singh v. The King Emperor (1931). The respondent relied upon the case of Lakhi Narayan Das and Ors. v. The Province of Bihar (1950) argued that the division of such functions with the President is a matter of high policy and that his actions will always be justified when it comes to matters where an immediate decision is required.
• The respondent argued that, being under pressure to obtain a socialist society, it became essential for the Parliament to enact a law that is well within the ambit of its powers. To rebut the argument of acquisition of property as stated by the petitioner, the respondent focussed on the wide meaning of the term “banking.” Banking in Entry 45 means all types of businesses that banking institutions carry. The Charter of the Bank of Bengal lays down that banking business involves any activity that is carried on by a bank within its functionality or any commercial activity bankers engage in while doing business. There is no evidence that the named banks carried any non-banking business before or had any other assets. The Act simply takes the acquisition of property for the activities that relate to banking from the companies and allows them to move further with any non-banking business they wish to pursue. 
• The respondent further contended that in the case of A.K. Gopalan v. State of Madras (1950), a person detained under the Preventive Detention Act, 1950, filed a writ of habeas corpus, where he claimed that the Act contravened the provisions of Articles 19, 21, and 22 of the Indian Constitution. The Court held that Article 22 deals exclusively with detention and the petitioner could not demand the right mentioned under Article 19 because the freedom of movement was restricted on reasonable grounds by the officers. Similarly, in the present case, the attorney general drew a parallel to the judgement and argued that the Act was not violative of Articles 19(1)(g) and fell well within the ambit of Article 31A. This view was also reaffirmed in the case of Ram Singh v. The State of Delhi and Anr. (1951), where it was also held that the substantive laws of the acquisition of property were not to be challenged because they imposed restrictions on that property. 

Ratio decidendi  in R.C. Cooper v. Union of India

The major findings of the Court in the present case are as follows- 

1. The major contribution of this case was the overruling of the ‘Mutual Exclusivity Theory’ that had been practised for 20 years ever since the judgement of case A. K. Gopalan v. State of Madras was announced in 1950. The case stated that the extent of protection of guarantees such as the liberties of a person or their fundamental rights depends upon the form and object of the State action and not upon the freedoms guaranteed to the person. The Court in the present case held that, on the basis of technicalities, it can’t reject a petition that clearly shows that the fundamental rights of the citizens are being violated. Every fundamental right has different dimensions and just because a legislative action was also violating the rights of the company does not mean that the Court does not have the jurisdiction to protect the rights of the shareholder of the company as well. The Court also struck down the ‘Object’ test and laid down the ‘Effect’ test, which would now look into the effect of any particular legislative Act, rather than looking at the objective with which it had been formulated. Thus, if any Act of the Legislature, even at a remote stage, violated the fundamental rights of the citizens, then it was liable to be struck down. Here, the Court held that the present Act violates the rights of the petitioner, specifically Article 31(2), because there is no public purpose that is being fulfilled by the acquisition of the property.   
2. As far as whether the Ordinance was promulgated properly or not, the Court said that since the Ordinance had already been converted into an Act, it was unnecessary for the Court to discuss the same. The same had become a question for academicians to ponder upon, but not for the present case. Talking about the validity of Schedule II of the Ordinance, the court held that the concept of compensation being provided after ten years is baseless and illogical. 
3. As far as the arguments regarding the Parliament’s competence to acquire banking companies were concerned, the Court, very interestingly, rejected both the petitioner’s and the respondent’s arguments. The Court said that the term property included all the rights, liabilities, assets, etc. that were associated with the property. The power of the Parliament to acquire any banking company was an independent power of the Parliament and it required no separate legislation to be enacted first under List II and List III. The contention raised by Mr. Palhivala was rejected on straight grounds by the court regarding the competence for acquisition on two grounds: 

• The petitioner has failed to establish that the named banks had any prior non-banking assets, as mentioned in his contentions. 
• The acquisition of property does not fall within List II of the Seventh Schedule. 

1. The Court declared the Act to be clearly violative of Article 31, as Article 31 talked about compensation for the acquired property. Articles 19 and 31 are not mutually exclusive and should be read separately because the former talks about the right to practise any trade or business and the latter talks about the acquisition of property. While the Act may not be violative of Article 19, it is violative of Article 31 because, according to the reasoning of the Court, the term ‘compensation’ meant complete indemnification to the person whose property was being acquired. The Act violates the provisions of this Article because it does not lay down a comprehensive breakdown of the compensations provided and deals with the matter with principles that are not relevant in this regard. The amounts that would be declared after applying these principles could not be deemed fair compensation. When the compensation for an undertaking is decided, the method presented should be fair and reasonable, giving the compensation for the amount of undertaking minus the liabilities, which is not the case in the Act. After applying the doctrine of severability to Sections 2, 4, 5, and 6, the Court held that these provisions are not severable and would be read together with the Act.  
2. The Court, however, for the contention of Articles 19(1)(g), held that the Act was not violative of Article 19(1)(g), as the State had the complete right to partially or completely monopolise any business that it felt to. The Court held that the government can create a monopoly that may be either absolute or partial. When there is public welfare involved, any monopoly created by a government is valid and no director or shareholder can challenge the government on behalf of the company’s rights. The basic or essential provisions of law that the State carries out for the facilitation of business cannot be challenged on the grounds of Article 19(1)(g). The law that transforms the named banks cannot be challenged under this Article because there is no proof that determines that the Act was not for public welfare. The Court stated that the case of Mohammad Yasin v. The Town Area Committee, Jalalabad and Anr. (1950) held that Article 19(1)(g) has a restriction that includes that the State can make laws about the carrying of trade and business, which cannot be refuted by this Article. Any state monopoly that puts restrictions on trade and business would be considered reasonable and those laws cannot be tried by the Court. 
3. However, the Court discovered that the Act was in clear violation of Article 14. This was held on the basis of the following reason: the concerned Act barred the 14 banks from carrying out banking activities within the country; however, other banks, including the foreign banks, had not been stopped from doing so. The Supreme Court, thus, held the Act to be ‘flagrantly practising discrimination’ and thus held it to be violative of Article 14. 

Justice A.N. Ray was the only Judge who gave the dissenting opinion. He made the following points-

• The power under Article 123 given to the President for the passing of an Ordinance is subjective, though he is not answerable for the provisions he promulgated in the absence of the Parliament under Article 361(1). The only way in which the Ordinance passing power of the President could be challenged was on the basis of malafide and corrupt intentions. The fact that the Ordinance had been promulgated two days before the session of Parliament began indicated that the same had been passed legitimately, although in haste. There was considerable speculation in the country regarding the Government’s intention with regard to the nationalisation of banks during the few days immediately before the Ordinance. The reason is obvious that in matters of policy, just as Parliament is the master of its province, similarly, the President is the supreme and sole judge of his satisfaction on such policy matters on the advice of the Government.
• He dismissed the petitions for several other reasons and declared that they were bound to fail. The legislation was valid under Entry 42 List III and Entry 45 List I and did not by any means trench upon the matters of the State List. A shareholder can’t approach the Court for the violation of his Rights, which, in the end, were associated with a company that, by virtue of being a non-citizen, did not possess the right to claim fundamental rights.
• Article 19(1)(g) does not enter the domain of Article 31(2) because the former did not enter the concept of requisition or acquisition of property. Therefore, Article 31(2) cannot be questioned on the grounds of Article 19 because a reasonable restriction is inherent and criticising it on the grounds of other Articles again and again is completely repetitive. The compensation to be sought shall be decided by the State as well, because the law was passed for public welfare as a reasonable restriction. The Court cannot review the separate matters of State monopoly on the grounds of being unreasonable. Section 15 of the Act allowed the directors and shareholders to continue with the non-banking business they wanted to pursue. If the entire undertaking of a bank is taken, there is no way to divide the assets that are already with the bank. No acquisition would be complete if there was a line drawn between the divisibility of assets. 
• Article 14 has not been violated by the Act because of intelligible differentia and the basic rationale that the Act cannot be nullified so that the directors can carry on the banking business. The clear classification is on the basis of the level of profits and the object was to control the deposit to save the economy. The Act already has enough guidelines that are set out in the preamble and is socialist with the object being sought.        

However, there were indeed two things upon which he agreed with the majority and they were –

• That the impugned Act was not violative of Article 19(1)(g) of the Constitution of India, inhibiting the freedom to carry on any trade or business.
• That the Parliament was competent enough to pass the impugned Act, related to the acquisition of banking. 

Critical analysis of R.C. Cooper v. Union of India

Many people confuse this case with going against the socialist ideals of the nation. However, it must be understood that, in reality, the Supreme Court upheld the socialist ideals of the Constitution by upholding the Government’s power to nationalise. However, it must also be remembered that the Court also increased the ambit of the fundamental rights of the citizens by ruling that it was not binding upon the Supreme Court to reject the claim for enforcement of a shareholder’s fundamental rights if, in the process of a violation of his rights, the rights of his company were also being violated. 

It was understood that if the shareholder’s rights were to be enforced by the Supreme Court, then in the process, it would mean that the Supreme Court was inevitably enforcing the rights of the company in which he was a shareholder, meaning that the fundamental rights were being enforced for a non-citizen. But the Court clearly stated that even if the enforcement of the fundamental rights of the shareholder would mean the enforcement of the rights of the company, it wouldn’t stop the Supreme Court from protecting the rights of the citizens. 

Another landmark point given by the Supreme Court was regarding the setting free of the Parliament from lengthy processes of making laws. The Court clearly mentioned that in order to make any law upon the nationalisation of any subject, it didn’t mean that the Parliament would have to make a separate law upon that subject and then move on to make the law regarding its nationalisation, as it expanded the interpretation of the term ‘property’ that was under Entry 42 of the State List. 

This case has been a landmark for protecting the rights of the citizens because now if any law is passed, it is in violation of the fundamental rights of the citizens, even though indirectly it would be struck down. It overruled the judgement of A.K. Gopalan v. State of Madras (1950) and made the effect test the primary requirement for administering the test of reasonable restrictions. Even though the case held that the Act was not in violation of Article 19, it held that it was indeed violative of Article 31(2), which established the precedent that was needed to limit and analyse the power of the Parliament to legislate in matters of property acquisition. The bench took into consideration several other cases that were necessary to be dealt with while deciding the rationale, like Kavalappara Kottarathil Kochuni & Others v. The State of Madras and Others (1960) and State of West Bengal v. Bela Bannarjee (1953). The compulsory acquisition of law is therefore validated by certain conditions, as held by several benches before the case was initiated in the Supreme Court in the present case. Matters relating to banking are dealt with in different lists with different aspects but the overall compensation and acquisition were decided fairly and clearly by the Court in this case. 

Even though the dissenting opinion was not in complete favour of the rationale behind the judgement, it did raise some valid points. The Ordinance passed by the President is valid under certain circumstances, though, as also pointed out in the majority judgement, it has to be validated by the Parliament and the President doesn’t have absolute authority over it. Another issue raised by the dissenting opinion was that it could not be figured out whether the Act was passed for the welfare of the public or not. While that is the case, it is pertinent to notice that the compensation provided by the Act was absurd and not clear in reasoning as to what was taken into account while calculating, which also poses a doubt behind the rationale of the Act.    

Further developments following R.C. Cooper v. Union of India 

The Bank Nationalisation case indeed served as a landmark judgement for guiding the Parliament as well as the Constitutional jurisprudence of the country for years to come. However, the aftermath of the judgement may be noted from the fact that the Parliament, in order to strengthen its position, made the 25th Constitutional (Amendment) Act, in which the following points were noted- 

• The word ‘compensation’ in Article 31(2) was replaced by the word ‘amount’. This meant that the Government was now not liable to pay an ‘adequate’ amount to the person whose property was being acquired earlier.
• Article 19(1)(g) was clearly detached from Article 31(2).
• Article 31C, a new provision was added to the Constitution to remove all difficulties that-
• Articles 14, 19 and 31 are not to be applied to any law enacted under the fulfilment of objectives laid down under Articles 39(b) and 39(c).
• Any law giving effect to Articles 39(b) and 39(c) will be immunised from the court’s intervention. 

There were several changes made as per the judgement passed by the majority opinion in the  case:      

• A new legislation, namely the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970, was passed to regulate the acquisition and undertaking of banks, as discussed in the judgement. 
• The lead counsel of the case from the petitioner’s side, N.A. Palkhivala, fought another landmark case, Kesavananda Bharati v. State of Kerala (1973) (basic structure doctrine case), that also dealt with the protection of fundamental rights. 
• This case became the basis for Bennett Coleman v. Union of India (1972) which also upheld the view of the court that the fundamental rights of the people will be upheld with the fundamental rights of the company. 
• The case also became the basis for another landmark case, Maneka Gandhi v. Union of India (1978), which also became the precedent to uphold the right to life and liberty and the mutually exclusive theory.  

Conclusion 

The case of R.C. Cooper v. Union of India (1969) is a landmark case in the regime of bank nationalisation and has become a precedent for several other landmark cases. The judgement might be confusing for some but a thorough understanding of the principles and rationale behind the decision should be enough to know that the Court protected both the ideals of socialism and the fundamental rights of the people in the case. The judgement expanded the scope and ambit of Article 31(2) of the Indian Constitution while also examining that of Article 19. The use of an effect test in the case led to the decision of fair compensation and acquisition of property in the industry of banking, which is the major profit-making business. The rights of shareholders and directors were also upheld while preserving the dignity and powers of the Parliament.    

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