This landmark judgment involved a challenge to the nationalization of 14 private banks by the Indira Gandhi government in 1969. While the majority of 10 judges found the nationalization violated the right to compensation under Article 31(2) of the Constitution, it was upheld under Article 19(1)(f). The court struck down the nationalization primarily due to the violation of Article 31(2) but provided different reasoning on various issues. One judge dissented, finding the nationalization was a valid exercise of parliamentary powers and did not violate any constitutional rights.

1. SUBMITTED TO:
MR. RAJNEESH
DUBEY
PRESENTED BY:
AMISHA DESHMUKH
PAYAL THARANI
KAVITA VERMA
SOURAV DIXIT
SWASTI CHATURVEDI

2. This is a landmark judgment of 11 judges where the
Constitutional Validity of bank nationalisation by the
Indira Gandhi Government was challenged. While
declaring the nationalisation to be invalid, SC by a
majority of 10:1 observed that the nationalisation of
banks impaired the right to compensation under Article
31(2) of the Constitution of India and consequently was
struck down primarily on the ground of violation of
Article 31(2).
BENCH:
A.N.Grover, A.N.Ray, C.A. Vaidialingam, G.K.Mitter,
I.D.Dua, J.C.Shah, J.M.Shelat, K.S.Hegde, P. Jagmohan Reddy,
S.M. Sikri and Vashishtha Bhargava, JJ.

3. On 19.07.1969, then Vice- President of India
V.V.Giri (acting as President) promulgated the
Banking Companies (Acquisition and Transfer of
Undertakings) Ordinance 8 of 1969 in exercise of
the power conferred by Article 123(1) of the
Constitution of India. This Ordinance had the
effect of nationalizing 14 private sector banks
having a deposit base of over INR 50 Crore and
thereby vesting the ownership of the private
banks with the government.

4. The principal provision of this Ordinance was that
every undertaking (i.e. the 14 banks) would stand
transferred and would vest in the corresponding new
bank which would be owned by the government. This
included transfer of all assets, rights, powers,
authorities and privileges and all movable and
immovable properties of the old bank which would be
vested in the corresponding new bank.
For this purpose, the Central Government was
supposed to pay compensation to the banks. However,
if achieving consensus was not possible, the Central
Government would refer the matter to a Tribunal to
determine the compensation payable in marketable
government securities which would mature post 10
years.

5. Thereafter, on 21.07.1969, petitions challenging the
competence of the President to promulgate the
Ordinance were filed in the Supreme Court. The
lead petitioner was one Rustom Cavasjee Cooper,
who was a director of the Central Bank of India
which was one of the nationalised banks and he
held shares in the Central Bank of India, Bank of
Baroda and the Union Bank of India.

6. However, before the petitions could be heard by the
Supreme Court, a bill to enact provisions relating to
acquisition and transfer of undertaking of the existing
banks was introduced in Parliament and was enacted
on 09.08.1969 as the Banking Companies (Acquisition
and Transfer of Undertakings) Act 22 of 1969. The long
title of the Ordinance and the Act was identical and by
Section 27(1) of the Act, Ordinance 8 of 1969 was
repealed. This Act was to be retrospectively applicable
from 19.07.1969 and the 14 private banks were to be
nationalized as similar to the Ordinance.

7.  Whether a shareholder can file a petition for remedy
against violation of his fundamental rights when the
company in which the shares are held is taken over.
 Whether the Ordinance was properly promulgated.
 Whether the Parliamentary Act was within
Parliamentary Competence.
 Whether the impugned Parliamentary Act was
violative of Article 19(1)(f) & 31(2) of Constitution of
India.
 Whether the method of ascertaining compensation
was valid.

8. Judgment of J.C.Shah, J. (He wrote the majority judgment
for himself and 9 other judges):
 The apex court overruled the 20 years law laid down by K.
Gopalan rejecting the mutual exclusivity theory. The court held
that we cannot overlook the violation of citizens of the nation on
mere technicalities. If due to state action the fundamental rights
of a citizen are violated the court is bound to prohibit such
violation. The court by holding this laid down the Effect test and
overruled the Object test. Therefore, now the courts won’t look
into the objects of the impugned act and rather they will look
into the effect of the impugned act. In case effect of such act
violates the FR’s of citizens it would be violative of Constitution
and liable to be struck down.
 Since the Ordinance was already replaced by the act of
Parliament therefore, the court held that deciding the validity of
the said impugned Ordinance is fruitless. This discussion is
relevant for academic purposes only.

9.  The court rejected both the Petitioner’s & Respondent’s
argument on legislative competence to acquire banking
Companies. The court held that the term Property in itself
constitutes the rights, liabilities, organization etc. that
accrue to the property. The power to acquire property was
held to be an independent power of Parliament and it
required no separate legislation under List II or List III.
 The court found the impugned act in contravention of the
Article 31 since the act failed to comply with said provision.
The said provision provided that the in case any property is
acquired by the government then they have to provide
compensation to the property owner. Since there was clear
violation of the said provision therefore, the court struck
down the said act.

10.  However, the court upheld the validity of the act in the
context of Article 19(1)(f). The court said that the act is
not violative of the freedom to carry trade & business.
The justification for the said ruling that the state can
always create a partial and absolute monopoly.
 But the court held the said act in clear violation of
Article 14c since only these 14 banks were restrained
from conducting banking business n the future while
other banks including the foreign banks were allowed
to continue Banking in India. The court this
discrimination as a flagrant hostile discrimination.

11. Dissenting Judgment of A.N.Ray, J. is as follows:
 Ray, J. held that there can be retrospective legislation
affecting acquisition of property and therefore the Act
was not invalid on the ground of retrospective
operation.
 Further, Ray, J. held that the Act does not violate
Article 31(2) because it referred to authority of a law
but did not include any words of limitation or
restriction as to law being in force at the time and
therefore held that the act was valid and as a corollary
the act need not be struck down.

12.  He agreed with the majority view that Parliament had
legislative competence to effect nationalisation under
Entry 45 of List I and Entry 42 of List III of the Seventh
Schedule.
 Ray, J. opined that Article 19(6) conferred a power on the
State to have a valid monopoly business and therefore
Article 19 (1) (g) was not violated and also that the Act did
not violate Article 14 of the Constitution.
 As far as the issue relating to the promulgation of the
Ordinance was concerned, Ray, J. opined that the
satisfaction of the President was subjective and therefore
there was no necessity required to be established by the
Union of India and the only way in which the Ordinance
making power by the President could be challenged was by
establishing bad faith or mala fide or corrupt motive by the
Petitioners.