This case was filed by Rustom Cavasjee Cooper, in this case, the decision of Indira Gandhi’s government to nationalize 14 Major commercial banks of India was challenged. This was an attempt to socialize India on the model of the Soviet Union.
Rustom Cavasjee Cooper was an advocate of a free-market economy, he was a charted accountant and he also served as president of the Indian Institute of Charter accountant. He also held the post of vice president at the influential Free Enterprise Forum. He was a critic of India’s socialist model adopted by Indira led congress.
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’.
By this ordinance undertakings of 14 commercial banks were transferred to corresponding banks, having deposits exceeding 50 crores. Commercial banks whose undertaking was transferred are namely.
- The Central Bank of India Ltd.
- The Bank of India Ltd.
- The Punjab National Bank Ltd.
- The Bank of Baroda Ltd.
- The United Commercial Bank Ltd.
- Canara Bank Ltd.
- United Bank of India Ltd.
- Dena Bank Ltd.
- Syndicate Bank Ltd.
- The Union Bank of India Ltd.
- Allahabad Bank Ltd.
- The Indian Bank Ltd.
- The Bank of Maharashtra Ltd.
- The Indian Overseas Bank Ltd
All the directors were vacated from their posts, however, the rest of the staff was allowed to continue in their jobs under the Government of India.
The central government provided compensation to named banks, the amount of compensation was fixed by agreement, where no such agreement can be reached, the Central Government made the Tribunal reach an agreement regarding the amount of compensation.
Rustom Cavasjee Cooper was a shareholder in Central Bank of India, Union Bank of India, Bank of Baroda, Bank of India, and Director of Central bank. He filed this petition as a shareholder of the said banks.
By this petition, the Rustom Cavasjee Cooper challenged ordinance 8 of 1969, ‘Banking Companies (Acquisition and Transfer of Property) and act 22 of 1969 which replaced the ordinance. The new act was enacted with some modifications.
Rustom Cavasjee Cooper filed the written petition under Article 32 of the Indian constitution, he challenged the act on grounds enumerated below.
- The ordinance passed under article 123 by the president was invalid, because the condition precedent to the exercise of power does not exist.
- The act is outside the legislative competence of parliament.
- Fundamental rights given under Articles. 14, 19 (1) (f) & (g) and 31(2) are impaired.
- Act also violated freedom of trade guaranteed under article 301.
- That sub-sections (1) & (2) of section 11 and 26 are invalid.
The Attorney-general contended that petitions are not maintainable, because the petitioner who claims to be a shareholder, director, and holder of deposit and current accounts with the Banks is not the owner of the property of the undertaking taken over by the corresponding new banks and is on that account incompetent to maintain the petitions complaining that the rights guaranteed under Articles 14, 19 and 31 of the Constitution were impaired.
Judgement of Rustom Cavasjee Cooper vs Union of India
The decision of the court was given by the majority of 10:1. Justice A.N Ray delivered a separate judgment disagreeing with the majority view.
Justice shah delivered judgment for himself and 9 others. The petition Rustom Cavasjee Cooper was allowed as a shareholder for infringement of his fundamental rights.
The contention that parliament was incompetent to legislate for the acquisition of the named banks in so far it related to assets of the non-banking business was failed for two reasons
- There was no evidence that the named Banks held any assets for any distinct nonbanking business.
- There was no satisfactory proof in support of the plea that the Act was not enacted in the larger interest of the nation but to serve political ends.
By this case theory of mutually exclusive which operated for 20 years was overruled. This theory was developed in A.K Gopalan’s case.
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 an Act of the Legislature, even at a remote stage, violated the Fundamental Rights of the citizens, then, it was liable to be struck down.
Act violated the guarantee of compensation under Article 31(2), the principle adopted for compensation was not relevant. Section 4, 5, and 6 read with schedule 11 was declared void as they impair the fundamental rights guaranteed under Article 31(2).
This act makes hostile discrimination against the named and prohibits them from carrying on banking business, whereas foreign banks, other banks, and new banks are allowed to do banking business.
The court allowed Petition no. 300 and 298 of 1969 and it is declared that the Banking Companies (Acquisition and Transfer of Undertakings) Act 22 of 1969 is invalid and the action taken or deemed to be taken in exercise of the powers under the Act is declared unauthorized. Petition No. 222 of 1969 was dismissed.
Judgement of A.N Ray.
- A shareholder cannot approach a court for infringement of its fundamental rights, which in the end are associated with the company.
- Justice Ray upheld mutually exclusive theory.
- He dismissed all the petitions.
- 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.
- He agreed with the majority on two points i.e., The impinged act is not violative of Article 19(1)(g) of the constitution and the Parliament was competent enough to pass the impugned Act, related to the acquisition of banking.