This article is written by Raunak Chaturvedi, a student of B.B.A.LL.B.(Hons.) from Amity University, Kolkata.
Table of Contents
Socialism. This is the particular term which was the reason for everything which happened in this case. It was due to a feat to achieve the ends of socialism in India that whatever is about to get narrated through this article, took place. Let us first understand certain basics pertaining to this particular case.
Equivalent Citation- AIR 1970 SC 564; 1970 SCR (3) 530.
Name of the Petitioner- Rustom Cavasjee Cooper/R. C. Cooper.
Name of the Respondent- Union of India.
Type of Case- Writ Petitions number 298 and 300 of 1969, filed under Article 32 of the Constitution of India before the Supreme Court of India.
Date of Judgement- 10/02/1970.
Authors of the Judgement-
The majority Judgement, which was given by 10 out of the 11 Judges, was drafted by Justice J. C. Shah for himself and on behalf of the other 9 Judges who were for the majority opinion. The dissenting order was drafted by Justice A. N. Ray. Thus, the Judgement was passed by a 10:1 majority in this particular case.
Names of the Judges
The Judges who were involved in this landmark Judgement are as follows-
- Justice J.C. Shah.
- Justice S.M. Sikri.
- Justice J.M. Shelat.
- Justice Vishishtha Bhargava.
- Justice G.K. Mitter.
- Justice C.A. Vaidialingam.
- Justice K.S. Hedge.
- Justice A.N. Grover.
- Justice A.N. Ray.
- Justice Jagmohan P. Reddy.
- Justice I.D. Dua.
Facts of the Case
For understanding the facts of the case, we need to understand a little bit of the history of India as well. The first Prime Minister of India, that is, Pandit Jawaharlal Nehru, believed in socialism to be the best model of development suited for the country to progress. In fact, the type of socialism in which he believed was termed as Fabian Socialism. This meant that for the better progress of the nation, its citizens’ good and development, it was necessary to exercise State control over certain industries, which were considered to be important.
Post-Independence, many sectors which were instrumental in the development of the State were nationalized. For example, the transport undertakings, insurance sector and the electricity was completely provided a monopoly of the State! The oil and refineries sector was nationalized a bit later in the 1960s, though.
Coming to the present case, which is popularly known as the Bank Nationalization case, the proposal to nationalize the banking sector was really not very new to India. In fact, in the year 1948, the proposal to nationalize the banking sector had been actively debated upon 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 nationalizing 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 nationalized under the State Bank of India Act and 7 of its subsidiaries too were taken over the 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 nationalization. The Reserve Bank gradually decreased the number of commercial banking institutions in India from 566, as in 1951, to merely 89 by the end of 1969.
Now, moving forward with our discussion, there were certain leaders in the Government who were in the opposition of this nationalization of the banks. Morarji Desai, the then Finance Minister, was seriously against the nationalization 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 which 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 the Finance Minister on 17th of July, 1969. The very next day, he voluntarily resigned from the post of the 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 the Parliament was going to start. The name of the Ordinance was ‘Banking Companies (Acquisition and Transfer of Property) Ordinance of 1969’. Let us now firstly understand that what was this Ordinance all about? The features of the Ordinance can be listed as follows:
- 14 banks in India were listed in the Ordinance which were going to be nationalized.
- 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 nationalized.
- All the Directors of these 14 banks were asked to vacate their offices. 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 which was supposed to be paid to the banks which were being undertaken by the Government. The Ordinance mentioned two major ways of providing compensation to the aggrieved banks-
- When an agreement was reached at- When the amount to be paid as compensation was being able to be decided through an agreement, then it was alright.
- When no agreement could be reached at- When no agreement was being able to reached at, then, the dispute matter was supposed to be referred to a Tribunal, within three months from the date of the failure to reach to 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’ and every provision was just the same as in the Ordinance.
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 Central Bank of India, Bank of Baroda Ltd. and 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 Writ petition had been filed on the 21st of July, 1969 and the interim application had been heard on the 22nd of July, 1969. After hearing the interim application, the Court granted the injunction to stop the Directors from being vacated from their offices immediately.
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?
- The first argument submitted by Mr. Palkhiwala regarding the maintainability of the petition was that the petition was maintainable, on the pretext that the petition was being filed by Mr. Cooper in his individual capacity as a citizen of India and not as a representative of his company. Since a company is not a citizen within the ambit of the Indian Citizenship Act, 1955, so, it can’t claim any Fundamental Right under the Constitution, of which Mr. Cooper was eligible by virtue of being a citizen.
- According to Article 123, the President is empowered to pass any Ordinance, if he feels that there is an absolute necessity and when both the Houses of the Parliament are not in session. On the basis of this contention, we may see that the Ordinance was promulgated just two days before the monsoon session of the Parliament, so there was no necessity to promulgate the same. Thus, in contravention of this provision, the Supreme Court was empowered to strike it down.
- The third argument was regarding the competency of the Parliament to pass the Act. It was stated that the Seventh Schedule contained the three Lists, which demarcated the limit of jurisdiction for both the Central as well as the State Governments. The Union List contained entries upon which only the Central Government was empowered to make laws, the State List contained entries upon which only the State Governments were empowered to make laws and lastly, the Concurrent List contained entries upon which both the Central and State Governments could make laws, subject to the Doctrine of Repugnancy. The argument, thus, stated that the Central Government was entitled to make laws on ‘banking’ only as defined under Section 5 (b) of the Banking Regulation Act of 1949, as Entry 45 of the Union List empowered it to do so. Moreover, it was argued that by virtue of Entry 42 of the Concurrent List, the Legislature was empowered only to make laws in order to effectuate Entry 45 in the Union List. Thus, on the basis of these logics, it was said that the Parliament was not empowered at all to pass the impugned Act.
- At that time, Right to Property was considered to be a Fundamental Right under Article 19(1)(f), which was later omitted after the Judgement of Keshavananda Bharati’s case. However, when the present case had been instituted, the Right was officially recognized and so it was said that it violated Article 19 (1) (g) Article 31 (2) (the whole article has been repealed now) which dealt with compulsory acquisition of property.
- Lastly and not the least, the Achilles’ heel of this whole Act was the provision for compensation, which was argued to be entirely ‘draconian’ and extremely irrational and illogical. The compensation, which would not be paid in cash, but, in Government securities, which in turn were payable after 10 years, was completely biased in its approach, with an aim to harass the public and also, to give an undue benefit to the Government.
- The first argument of the respondent was regarding the maintainability of the Writ petition and it said that the said petition was not maintainable, as the same was being filed to claim the Rights in the name of a company, which, as we have seen, does not fall under the definition of a citizen as per the Indian Citizenship Act, 1955.
- The next argument was regarding the question about the President’s power to promulgate the Ordinance. It was contended that the power of the President to promulgate the Ordinance was completely subjective in nature, as the words ‘if he felt’ were used and also, he was not answerable to anyone for the reason of his actions done during his term of office. Thus, the argument of the invalidity of the Ordinance was condemned.
- The other argument, regarding the competence of the Parliament was that the Court must understand that there was an obligation upon the State to achieve a socialistic society, with principles of egalitarianism and where no inequality existed. Considering this definition, the argument was that the Court should interpret the term ‘banking’ in the widest possible way, so as to include all the activities that could be included by the respondent.
- The fourth argument was regarding the mutual exclusivity of the Fundamental Rights from one another, as held in the case of A. K. Gopalan Vs. State of Madras and stated that the Act was not violative of Article 19 (1) (g), as it fell within the ambit of Article 31 of the Constitution.
On the 2nd of February, 1970, the landmark judgement, by a majority of 10:1 was delivered by the Supreme Court of India. Except Justice A.N. Ray, the other Judges gave the following judgement that a shareholder was not entitled to move to the Supreme Court for enforcing the Fundamental Rights in the name of his company, until and unless the action which was being complained of, directly or indirectly violated the petitioner’s Fundamental Rights as well.
The major findings of the Court in the present case are as follows-
- The major contribution of this case was the overruling of the ‘Mutual Exclusivity Theory’ which had been practiced for 20 years till this case happened, from A. K Gopalan Vs. State of Madras. The Court held that just on the basis of technicalities, it can’t reject a petition which clearly shows that the Fundamental Rights of the citizens are being violated. Just because a Legislative action was also violating the Rights of the company didn’t mean that the Court was not having 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. The Effect test 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.
- As far as whether the Ordinance was promulgated properly or not, to this the Court said that since the Ordinance had already been converted into an Act, so it was unnecessary for the Court to discuss the same. The Court said that the same had become a question for academicians to ponder upon, but not for the present case.
- As far as the arguments regarding the Parliament’s competence to acquire banking companies was concerned, the Court, very interestingly, rejected both the petitioner’s as well as the respondent’s arguments. The Court said that the term property included all the Rights, liabilities, assets, etc., which 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 Court declared the Act to be clearly violative of the Article 31, as Article 31 talked about compensation for the acquired property. Now, the term ‘compensation’ meant complete indemnification to the person, whose property was being acquired. Since it was frankly clear from the objectives of the Act that equal indemnification was not going to be provided and also, after applying the test of severability, as the Act was not independent enough to stand alone without the part in question, so it was liable to be struck down.
- 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.
- However, the Court discovered that the Act was in clear violation of Article 14. This was held on the basis of the following reason that the concerned Act barred the 14 banks 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 practicing 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 gave the following points-
- 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 just two days before the session of the Parliament began, indicated that the same had been passed legitimately, although in a haste.
- There was considerable speculation in the country regarding Government’s intention with regard to nationalisation of banks during 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 upon various other reasons and thus, declared the petitions to fail.
- A shareholder can’t approach the Court for the violation of his Rights, which at the end, were associated with a company, which by virtue of being a non-citizen, was not possessing the Right to claim Fundamental Rights.
- The ‘mutual exclusivity theory’, as propounded in the A. K. Gopalan case, was upheld by him.
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.
Many people confuse this case with going against the socialistic ideals of the nation. However, it must be understood that in reality, the Supreme Court had upheld the socialistic 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 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 too 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 Fundamental Rights of the shareholder would mean the enforcement of Rights of the company, it wouldn’t stop the Supreme Court from protecting the Rights of the citizens, even if in the process some unwanted enforcements were happening.
Moreover, this case was a landmark one, as it rejected the mutual exclusivity theory which had been propounded in the case of A. K. Gopalan Vs. State of Madras. It mentioned that all the Rights were interlinked to one another and couldn’t be treated separately for the purposes of jurisprudence.
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 first 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.
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 maybe 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 acquisitioned as 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 to give effect to Articles 39(b) & 39(c) will be immunized from Court’s intervention.
Hence, this was all about the R.C. Cooper Vs. Union of India case, popularly known as the Bank Nationalisation case of 1970.
- Rustom Cavasjee Cooper Vs. Union of India, 1970 AIR 564, https://indiankanoon.org/doc/513801/
- Hemant Varshney, R.C. Cooper Vs. Union of India- Bank Nationalisation Case- Case Summary, Law Times Journal, (Sep. 27, 2018), http://lawtimesjournal.in/r-c-cooper-v-union-of-india-bank-nationalization-case-case-summary/
- Anonymous, R.C. Cooper Vs. Union of India, The Bank Nationalisation Case, A Turning Point in the Interpretation of Fundamental Rights, http://www.jurisedge.com/wp-content/uploads/RC%20Cooper%20Presentation.pdf
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