R. C. Cooper v.

Union of India, (1970) 1 SCC 248

This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 267
3. The Banking Regulation Act was amended by Act 58 of 1968, to give effect to the policy of
“social control” over commercial banks. Act 58 of 1968 provided for reconstitution of the Boards of
Directors of commercial banks with a Chairman who had practical experience of the working of a
Bank or financial, economic and business administration and with a membership not less than 51%
consisting of persons having special knowledge or practical experience in accountancy, agriculture
and rural economy, banking, cooperation, economics, finance, law and small-scale industry. The Act
also provided that no loans shall be granted to any director of the Bank or to any concern in which he
is interested as Managing Director, Manager, employee, or guarantor or partner or in which he holds
substantial interest. The Reserve Bank was invested with power to give directions to commercial
banks and to appoint directors or observers in the interest of depositors or proper management of the
Banking Companies, or in the interest of Banking policy [which expression was defined by Section
5(ca)] as “any policy which is specified from time to time by the Reserve Bank in the interest of the
banking system or in the interest of monetary stability or sound economic growth, having due regard
to the interests of the depositors, volume of deposits and other resources of the bank and the need for
equitable allocation and the efficient use of these deposits and resources”. The Reserve Bank was also
invested with power to remove managerial and other personnel from office and to appoint additional
directors, and to issue directions prohibiting certain activities in relation to Banking Companies. The
Central Government was given power to acquire the business of any Bank if it failed repeatedly to
comply with any direction issued by the Reserve Bank under certain specific provision in regard to
any matter concerning the affairs of the Bank and if acquisition of the Bank was considered necessary
in the interest of the depositors or in the interest of the banking policy or for the better provision of
credit generally or of credit to any particular section of the community or in a particular area.
This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 284
45. Early in the history of this Court the question of inter-relation between the diverse provisions
affording the guarantee of fundamental rights in Part III fell to be determined. In A.K.
Gopalan v. State of Madras [(1950) SCR 88] a person detained pursuant to an order made in exercise
of the power conferred by the Preventive Detention Act, 4 of 1950 applied to this Court for a writ of
habeas corpus claiming that the Act contravened the guarantee under Articles 19, 21 and 22 of the
Constitution. The majority of the Court (Kania, C.J., and Patanjali Sastri, Mahajan, Mukherjea and
Das, JJ.), held that Article 22 being a complete code relating to preventive detention, the validity of an
order of detention must be determined strictly according to the terms and “within the four corners of
that Article”. They held that a person detained may not claim that the freedom guaranteed under
Article 19(1)(d) was infringed by his detention, and that validity of the law providing for making
orders of detention will not be tested in the light of the reasonableness of the restrictions imposed
thereby on the freedom of movement, nor on the ground that his right to personal liberty is infringed
otherwise than acceding to the procedure established by law. Fazl Ali, J., expressed a contrary view.
This case has formed the nucleus of the theory that the protection of the guarantee of a fundamental
freedom must be adjudged in the light of the object of State action in relation to the individual's right
and not upon its influence upon the guarantee of the fundamental freedom, and as a corollary thereto,
that the freedoms under Articles 19, 21, 22 and 31 are exclusive — each article enacting a code
relating to protection of distinct rights.
This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 285
46. Kania, C.J., proceeded on the theory that different articles guarantee distinct rights. He
obserbed at p. 100:
“…it (Article 19) … means that the legislation to be examined must be directly in respect of
one of the rights mentioned in the sub-clauses. If there is a legislation directly attempting to
control a citizen's freedom of speech or expression, or his right to assemble peaceably and without
arms, etc. the question whether that legislation is saved by the relevant saving clause of Article 19
will arise. If, however, the legislation is not directly in respect of any of these subjects, but as a
result of the operation of other legislation … the question of the application of Article 19 does not
arise. The true approach is only to consider the directness of the legislation and not what will be
the result of the detention otherwise valid, on the mode of the detenue's life”.
The learned Chief Justice also observed that Article 19(1)(d) had nothing to do with detention,
preventive or punitive, and the concept of personal liberty in Article 21 being entirely different from
the concept of the right to move freely throughout the territory of India, Article 22 was a complete
code dealing with preventive detention.
Patanjali Sastri, J., observed at p. 191:
“… Article 19 seems … to pre-suppose that the citizens to whom the possession of these
fundamental rights is secured retains the substratum of personal freedom on which alone the
enjoyment of these rights necessarily rests … Article 19 guarantees to the citizens the enjoyment
of certain civil liberties while they are free, while Articles 20-22 secure to all persons — citizens
and non-citizens — certain constitutional guarantees in regard to punishment and prevention o
crime.”
Mahjan, J., was of the view that Article 22 was “self-contained in respect of laws on the subject of
preventive detention”. Mukherjea, J., observed (at p. 254) that there was no conflict between Article
19(1)(d) and Article 22 for the former did not contemplate freedom from detention either punitive or
preventive, but speaks of a different aspect or phase of civil liberty. In his view Articles 20 to 22
embodied the entire protection guaranteed by the Constitution in relation to deprivation of life and
personal liberty with regard to substantive as well as procedural law. He proceeded to observe at p.
261:
“… by reason of preventive detention, a man may be prevented from exercising the right of
free movement within the territory of India ... but that is merely incidental to or consequentia
upon loss of liberty resulting from the order of detention”.
But the learned Judge observed at p. 263:
“It may not, I think, be quite accurate to state that the operation of Article 19 of the
Constitution is limited to free citizens only and that the rights have been described in that article
on the pre-supposition that the citizens are at liberty. The deprivation of personal liberty may
entail as a consequence the loss or abridgement of many of the rights described in Article 19, but
that is because the nature of these rights is such that free exercise of them is not possible in the
absence of personal liberty.”
Das, J., observed at p. 304:
“Therefore, the conclusion is irresistible that the rights protected by Article 19(1), insofar as
they relate to rights attached to the person i.e. the rights referred to in sub-clauses (a) to (e) and
(g), are rights which only a free citizen, who has the freedom of his person unimpaired, can
exercise.”
The learned Judge further observed:
 “… a lawful detention, whether punitive or preventive, does not offend against the protection
conferred by Article 19(1)(a) to (e) and (g), for those rights must necessarily cease when the
freedom of the person is lawfully taken away. In short, these rights end where the lawful detention
begins. So construed, Article 19 and Article 21 may, therefore, easily go together and there is, in
reality, no conflict between them”.
Fazl Ali, J., struck a different note: he observed at p. 148:
“... the scheme of the Chapter dealing with the fundamental rights does not contemplate ...
that each article is a code by itself and is independent of the others.... The case of a person who is
convicted of an offence will come under Articles 20 and 21 and also under Article 22 so far as his
arrest and detention in custody before trial are concerned. Preventive detention, which is dealt
with in Article 22, also amounts to deprivation of personal liberty which is referred to in Article
21, and is a violation of the right of freedom of movement dealt with in Article 19(1)(d).”
At p. 149 the learned Judge observed:
“The words used in Article 19(1)(d) must be construed as they stand, and we have to decide
upon the words themselves whether in the case of preventive detention the right under Article
19(1)(d) is or is not infringed. But, … however, literally we may construe the words used in
Article 19(1)(d) and however, restricted may be the meaning we may attribute to those words,
there can be no escape from the conclusion that preventive detention is a direct infringement of
the right guaranteed in Article 19(1)(d).”
At p. 170 he observed:
“… this article (Article 22) … does not exclude the operation of Articles 19 and 21, and it
must be read subject to those two articles, in the same way as Articles 19 and 21 must be read
subject to Article 22. The correct position is that Article 22 must prevail insofar as there are
specific provisions therein regarding preventive detention, but, where there are no such provisions
in that article, the operation of Articles 19 and 21 cannot be excluded. The mere fact that different
aspects of the same right have been dealt with in three different articles will not make them
mutually exclusive except to the extent I have indicated”.
The view expressed in A.K. Gopalan case was re-affirmed in Ram Singh v. State of Delhi. [(1951)
SCR 451]
This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 289
51. Limitations prescribed for ensuring due exercise of the authority of the State to deprive a
person of his property and of the power to compulsorily acquire his property are, therefore, specific
classes of limitations on the right to property falling within Article 19(1)(f). Property may be
compulsorily acquired only for a public purpose. Where the law provides for compulsory acquisition
of property for a public purpose it may be presumed that the acquisition or the law relating thereto
imposes a reasonable restriction in the interest of the general public. If there is no public purpose to
sustain compulsory acquisition, the law violates Article 31(2). If the acquisition is for a public
purpose, substantive reasonableness of the restriction which includes deprivation may, unless
otherwise established, be presumed, but enquiry into reasonableness of the procedural provisions will
not be excluded. For instance if a tribunal is authorised by the Act to determine compensation for
property compulsorily acquired, without hearing the owner of the property, the Act would be liable to
be struck down under Article 19(1)(f).
This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 289
53. We are therefore unable to hold that the challenge to the validity of the provision for
acquisition is liable to be tested only on the ground of non-compliance with Article 31(2). Article
31(2) requires that property must be acquired for a public purpose and that it must be acquired under a
law with characteristics set out in that Article. Formal compliance with the conditions under Article
31(2) is not sufficient to negative the protection of the guarantee of the right to property. Acquisition
must be under the authority of a law and the expression “law” means a law which is within the
competence of the Legislature, and does not impair the guarantee of the rights in Part III. We are
unable, therefore, to agree that Articles 19(1)(1) and 31(2) are mutually exclusive.
This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 293
62. The law which prohibits after July 19, 1969, the named banks from carrying on banking
business, being a necessary incident of the right assumed by the Union, is not liable to be challenged
because of Article 19(6)(ii) insofar as it affects the right to carry on business. There is no satisfactory
proof in support of the plea that the enactment of Act 22 of 1969 was not in the larger interest of the
nation, but to serve political ends i.e. not with the object to ensure better banking facilities, or to make
them available to a wider public, but only to take control over the deposits of the public with the
major banks, and to use them as a political lever against industrialists who had built up industries by
decades of industrial planning and careful management. It is true that social control legislation
enacted by the Banking Laws (Amendment) Act 58 of 1968 was in operation and the named banks
were subject to rigorous control which the Reserve Bank was competent to exercise and did in fact
exercise. Granting that the objectives laid down by the Reserve Bank were being carried out, it cannot
be said that the Act was enacted in abuse of legislative power. Our attention was invited to a mass of
evidence from the speeches of the Deputy Prime Minister, and of the Governor and the Deputy
Governor of the Reserve Bank, and also extracts from the Reserve Bank Bulletins issued from time to
time and other statistical information collected from official sources in support of the thesis of the
petitioner that the performance of the named banks exceeded the targets laid down by the Reserve
Bank in its directives; that the named banks had effectively complied with the requirements of the law
that they had served the diverse interests including small-scale sector, and had been instrumental in
bringing about an increasing tempo of industrial and commercial activity; that they had discouraged
speculative holding of commodities, and had followed essential priorities in the economic
development of the nation coupled with a vigorous programme of branch development in the rural
sector, bringing about a considerable expansion in deposits, and large advances to the small-scale
business and industry. Mr Palkhivala urged that under the scheme of social control the commercial
banks had achieved impressive results comparing favourably with the performance of the State Bank
of India and its subsidiaries in the public sector, and that the performance of the named banks could
not be belittled by referring to the banking structure and development in highly developed countries
like Canada, Japan, France, United States and the United Kingdom. On the other hand, the Attorney-
General said that the commercial banks followed a conservative policy because they had to look
primarily to the interests of the shareholders, and on that account could not adopt bold policies or
schemes for financing the needy and worthy causes; that if the resources of the banking industry are
properly utilised for the weaker sections of the people economic regeneration of the nation may be
speedily achieved, that 28% of the towns in India were not served by commercial banks; that there
had been unequal development of facilities in different parts of the country and deserving sections
were deprived of the benefit of an important national resources resulting in economic disparities,
especially because the major banks catered to the large-scale industries.
This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 299
79. Protection of the guarantee under Article 31(2)— The guarantee under Article 31(2) arises
directly out of the restrictions imposed upon the power of the State to acquire private property,
without the consent of the owner for a public purpose. Upon the exercise of the power to acquire or
requisition property, by clause (2) two restrictions are placed: (a) power to acquire shall not be
exercised save for a public purpose; and (b) that it shall not be exercised save by authority of a law
which provides for compensation for the property acquired or requisitioned, and fixes the amount of
compensation or specifies the principles on which and the manner in which the compensation is to be
determined and given. Sub-clause (2-A) in substance provides a definition of “compulsory acquisition
or requisitioning of property”. Existence of a public purpose and provisions for giving compensation
for compulsory acquisition of property of an individual are conditions of the exercise of the power. If
either condition be absent, the guarantee under Article 31(2) is impaired, and the law providing for
acquisition will be invalid. But jurisdiction of the Court to question the law on the ground that
compensation provided thereby is not adequate is, however, expressly excluded.
This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 299
80. In the case before us we need not express any opinion on the question whether a composite
undertaking of two or more distinct lines of business may be acquired where there is a public purpose
for acquisition of the assets of one or more lines of business, but not in respect of all the lines of
business. As we have already observed, there is no evidence that the named banks carried on non-
banking business, distinct from banking business, and in respect of such non-banking business the
banks owned distinct assets apart from the assets of the banking business.
This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 299
81. The law providing for acquisition must again either fix the amount of compensation or specify
the principles on which, and the manner in which, the compensation is to be determined and given. It
is plain on the terms of Article 31(2) that the owner whose property is compulsorily acquired is
guaranteed to right to receive compensation and the amount of compensation is either fixed by the law
or is determined according to the principles and in the manner specified by the law. The law which
does not ensure the guarantee will, except where the grievance only is that the compensation provided
by the law is inadequate, be declared void.
This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 299
82. The petitioner says that the expression “compensation” means a “just equivalent” in money of
the property acquired and that the law providing for compulsory acquisition must “aim” at a just
equivalent to the expropriated owner: if the law so aims at; it will not be deemed to impair the
guarantee merely on the ground that the compensation paid to the owner is inadequate. The Attorney-
General on the other hand says that “compensation” in Article 31(2) does not mean a just equivalent,
and it is not predi- cated of the validity of a law relating to compulsory acquisition that it must aim at
awarding a just equivalent, for, if the law is not confiscatory, or the principles for determination of
compensation are not irrelevant, “the Courts cannot go into the propriety of such principles or
adequacy or reasonableness of the compensation”.
This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 301
88. Article 31(2) was amended with effect from April 27, 1955, by the Constitution (Fourth
Amendment) Act, 1955. By sub-clause (2-A) a definition of acquisition or requisitioning of properties
was supplied and certain other formal changes were also made, with the important reservation that
“no such law shall be called in question in any court on the ground that the compensation provided by
that law is not adequate”. In cases arising under statutes enacted after April 27, 1955, this Court held
that the expression “compensation” in Article 31(2) as amended continued to mean “just equivalent”
as under the unamended clause: P. Vajravelu Mudaliar v. Collector [AIR 1965 SC 1017 : (1965) 1
SCR 614] under the Land Acquisition (Madras Amendment) Act 23 of 1961; Union of India v. Metal
Corpn. of India Ltd. [AIR 1967 SC 637 : (1967) 1 SCR 255] under the Metal Corporation of India
(Acquisition of Undertakings, Act 44 of 1955; Lachhman Dass v. Municipal Committee [(1969) 1
SCC 653 : AIR 1969 SC 1126] under Section 20-B of the Displaced Persons (Compensation and
Rehabilitation) Act, 1954, as amended by Act 2 of 1960. In Ranojirao Shinde case dealing with a case
under the Madhya Pradesh Abolition of Cash Grants Act 16 of 1963 it was observed that the
compensation referred to in Article 31(2) is a just equivalent of the value of the property taken. But
this Court in State of Gujarat v. Shantilal Mangaldas [(1969) 1 SCC 509 : AIR 1969 SC 624]
observed that compensation payable for compulsory acquisition of property is not, by the application
of any principles, determinable as a precise sum, and by calling it a “just” or “fair” equivalent, no
definiteness could be attached thereto: that valuation of lands, buildings and incorporeal rights has to
be made on the application of different principles, e.g. capitalisation of net income at appropriate
rates, reinstatement, determination of original value reduced by depreciation, break-up value of
properties which had outgrown their utility; that the rules relating to determination of value of lands,
buildings, machinery and other classes of property differ, and the application of several methods or
principles lead to widely divergent amounts, and since compensation is not capable of precise
determination by the application of recognised rules, by qualifying the expression “compensation” by
the adjective “just”, the determination was made more controversial. It was then observed that the
Parliament amended the Constitution by the Fourth Amendment Act declaring that adequacy of
compensation fixed by the Legislature as amended according to the principles specified by the
Legislature for determination will not be justiciable. It was then observed that:
“The right declared by the Constitution guarantees that compensation shall be given before a
person is compulsorily expropriated of his property for a public purpose. What is fixed as
compensation by statute, or by the application of principles specified for determination of
compensation is guaranteed: it does not mean, however, that something fixed or determined by
the application of specified principles which is illusory or can in no sense be regarded as
compensation must be upheld by the Courts, for, to do so, would be to grant a charter of
arbitrariness, and permit a device to defeat the constitutional guarantee. But compensation fixed
or determined on principles specified by the Legislature cannot be permitted to be challenged on
the some what indefinite plea that it is not a just or fair equivalent. Principles may be challenged
on the ground that they are irrelevant to the determination of compensation, but not on the plea
that what is awarded as a result of the application of those principles is not just or fair
compensation. A challenge to a statute that the principles specified by it do not award a just
equivalent will be in clear violation of the constitutional declaration that inadequacy of
compensation provided is not justiciable.”
This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 304
91. Both the lines of thought which converge in the ultimate result, support the view that the
principle specified by the law for determination of compensation is beyond the pale of challenge, if it
is relevant to the determination of compensation and is a recognised principle applicable in the
determination of compensation for property compulsorily acquired and the principle is appropriate in
determining the value of the class of property sought to be acquired. On the application of the view
expressed in P. Vajravalu Mudaliar case or in Shantilal Mangaldas case, the Act, in our judgment, is
liable to be struck down as it fails to provide to the expropriated banks compensation determined
according to relevant principles. Section 4 of the Act transfers the undertaking of every named bank to
and vests it in the corresponding new bank. Section 6(1) provides for payment of compensation for
acquisition of the undertaking, and the compensation is to be determined in accordance with the
principles specified in the Second Schedule. Section 6(2) then provides that though separate
valuations are made in respect of the several matters specified in Schedule II of the Act, the amount of
compensation shall be deemed to be a single compensation. Compensation being the equivalent in
terms of money of the property compulsorily acquired, the principle for determination of
compensation is intended to award to the expropriated owner the value of the property acquired. The
science of valuation of property recognises several principles or methods for determining the value to
be paid as compensation to the owner for loss of his property: there are different methods applicable
to different classes of property in the determination of the value to be paid as recompense for loss of
his property. A method appropriate to the determination of value of one class of property may be
wholly inappropriate in determining the value of another class of property. If an appropriate method
or principle for determination of compensation is applied, the fact that by the application of another
principle which is also appropriate, a different value is reached, the Court will not be justified in
entertaining the contention that out of the two appropriate methods, one more generous to the owner
should have been applied by the Legislature.
This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 306
96-A. Compensation to be determined under the Act is for acquisition of the undertaking, but the
Act instead of providing for valuing the entire undertaking as a unit provides for determining the
value of some only of the components, which constitute the undertaking, and reduced by the
liabilities. It also provides different methods of determining compensation in respect of each such
component. This method for determination of compensation is prima facie not a method relevant to
the determination of compensation for acquisition of the undertaking. Aggregate of the value of
components is not necessarily the value of the entirety of a unit of property acquired, especially when
the property is a going concern, with an organised business. On that ground alone, acquisition of the
undertaking is liable to be declared invalid, for it impairs the constitutional guarantee for payment of
compensation for acquisition of property by law. Even if it be assumed that the aggregate value of the
different components will be equal to the value of the undertaking of the named bank as a going
concern the principles specified, in our judgment, do not give a true recompense to the banks for the
loss of the undertaking. Schedule II by clause (1) provides:
“The compensation … in respect of the acquisition of the undertaking thereof shall be an
amount equal to the sum total of the value of the assets of the existing bank as on the
commencement of this Act, calculated in accordance with the provisions of Part I, less the sum-
total of the liabilities computed and obligations of the existing bank calculated in accordance with
the provisions of Part II.”
For the purpose of Part I “assets” mean the total of the heads (a) to (h) and the expression “liabilities”
is defined as meaning the total amount of all outside liabilities existing at the commencement of the
Act and contingent liabilities which the corresponding new bank may reasonably be expected to be
required to meet out of its own resources. Compensation payable to the named banks is accordingly
the aggregate of some of the components of the undertaking, reduced by the aggregate of liabilities
determined in the manner provided in the Schedule. It appears clear that in determining the
compensation for undertaking: (i) certain important classes of assets are omitted from the heads (a) to
(h); (ii) the method specified for valuation of lands and buildings is not relevant to determination of
compensation, and the value determined thereby in certain circumstances is illusory as compensation;
and (iii) the principle for determination of the aggregate value of liabilities is also irrelevant.
This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 312
 116. A scheme for payment of compensation may take many forms. If the present value of what is
given reasonable approximates to what is determined as compensation according to the principles
provided by the statute, no fault may be found. But if the law seeks to convert the compensation
determined into a forced loan, or to give compensation in the form of a bond of which the market-
value at the date of expropriation does not approximate the amount determined as compensation, the
Court must consider whether what is given is in truth compensation which is inadequate, or that it is
not compensation at all. Since we are of the view that the scheme in Schedule II of the Act suffers
from the vice that it does not award compensation according to any recognised principles, we need not
dilate upon this matter further. We need only observe that by giving to the expropriated owner
compensation in bonds of the face-value of the amount determined maturing after many years and
carrying a certain rate of interest, the constitutional guarantee is not necessarily complied with. If the
market-value of the bonds is not approximately equal to the face-value, the expropriated owner may
raise a grievance that the guarantee under Article 31(2) is impaired.
This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 312
117. We are of the view that by the method adopted for valuation of the undertaking, important
items of assets have been excluded, and principles some of which are irrelevant and some not
recognised are adopted. What is determined by the adoption of the method adopted in Schedule II
does not award to the named banks compensation for loss of their undertaking. The ultimate result
substantially impairs the guarantee of compensation, and on that account the Act is liable to be struck
down.
IV. Infringement of the guarantee of freedom of trade, commerce and intercourse under Article 301
This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 313
Accordingly we hold that—
“(a) the Act is within the legislative competence of the Parliament; but
(b) it makes hostile discrimination against the named banks in that it prohibits the named
banks from carrying on banking business, whereas other Banks — Indian and Foreign — are
permitted to carry on banking business, and even new Banks may be formed which may engage in
banking business;
(c) it in reality restricts the named banks from carrying on business other than banking as
defined in Section 5(b) of the Banking Regulation Act, 1949; and
(d) that the Act violates the guarantee of compensation under Article 31(2) in that it provides
for giving certain amounts determined according to principles which are not relevant in the
determination of compensation of the undertaking of the named banks and by the method
prescribed the amounts so declared cannot be regarded as compensation.”
This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 313
121. Section 4 of the Act is a kingpin in the mechanism of the Act. Sections 4, 5, and 6, read with
Schedule II provide for the statutory transfer and vesting of the undertaking of the named banks in the
corresponding new banks and prescribe the method of determination of compensation for
expropriation of the undertaking. Those provisions are, in our judgment, void as they impair the
fundamental guarantee under Article 31(2). Sections 4, 5, and 6 and Schedule II are not severable
from the rest of the Act. The Act must, in its entirety, be declared void.
Dissenting judgment
This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 325
 151. It is in this background that the 1949 Banking Regulation Act was enacted. “Banking” is
defined in Section 5(b) of the 1949 Act as meaning the acceptance for the purpose of lending or
investment of deposits of money from the public repayable on demand or otherwise and withdrawable
by cheque, draft order or otherwise. Section 6 of the 1949 Act contains two sub-sections. In sub-
section (1) it is enacted that in addition to the business of banking, a banking company may engage in
one or more of the forms of businesses mentioned therein. In sub-section (1) there are clauses marked
(a) to (o). In sub-section (2) of Section 6 of the 1949 Act it is enacted that no banking company shall
engage in any business other than those referred to in sub-section (1). clause (a) of Section 6(1)
enumerates the various forms of business, inter alia, the borrowing, raising, or taking up of money,
the lending or advancing of money either upon or without security, the drawing, making, accepting,
discounting, buying, selling, collecting and dealing in bills of exchange, hoondees, promissory notes,
coupons, drafts, bills of lading, railway receipts, warrants, debentures, certificates, scrips and other
instruments and securities whether transferable or negotiable or not, the granting and issuing of letters
of credit, traveller's cheques and circular notes, the buying, selling and dealing in bullion and specie,
the receiving of all kinds of bonds, scrips or valuables on deposit or for safe custody or otherwise, the
providing of safe deposit vaults, the collecting and transmitting of money and securities. clause (b)
speaks of acting as agents for any Government or local authority or any other person or persons; the
carrying on of agency business of any description including the clearing and forwarding of goods,
giving of receipts and discharges and otherwise acting as an attorney on behalf of the customers, but
excluding the business of a company. clause (h) speaks of undertaking and executing trusts. clause (i)
speaks of undertaking the administration of estates as executor, trustee or otherwise. It will, therefore,
appear that under Section 6(1) of the 1949 Act the four types of business disputed by counsel for the
petitioner not to be within the businesses of a bank are recognised by the statute as legitimate forms of
business of a banking company.
This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 329
160. There are various provisions in the 1949 Act to indicate that a banking company cannot carry
on business of a managing agent or Secretary and treasurer of a company and that it cannot acquire,
construct, maintain, alter any building or works other than those necessary or convenient for the
purpose of the company. A banking company cannot acquire or undertake the whole or any portion of
any business unless such business is of one of those enumerated in Section 6(1) of the 1949 Act. A
bank cannot deal in buying or selling or bartering of goods except in connection with certain purposes
related to some of the businesses enumerated in the aforesaid Section 6(1). These provisions also
establish that businesses mentioned in Section 6 of the 1949 Act are incidental and conducive to
banking business. A bank cannot employ any person whose remuneration is in the form of a
commission or a share in the profits of the banking company or whose remuneration is in the opinion
of the Reserve Bank excessive. One of the most important provisions is Section 35 of the 1949 Act,
which states that the Reserve Bank at any time may and on being directed so to do by the Central
Government cause an inspection to be made by one or more of its officers of the books of account and
to report to the Central Government on any inspection and the Central Government thereafter if it is of
opinion after considering the report that the affairs of the banking company are being conducted to the
detriment of the interests of its depositors, may prohibit the banking company from receiving fresh
deposits or direct the Reserve Bank to apply under Section 38 for the winding up of the banking
company. Another important provision in the 1949 Act, is found in Section 27 which provides for
monthly returns in the prescribed form and manner showing assets and liabilities. The power of the
Reserve Bank under Sections 27 and 35 of the 1949 Act relates to the affairs of the banking company
which comprehend the various forms of business of the bank mentioned in Section 6 of the 1949 Act.
Then again Section 29 of the 1949 Act contemplates accounts relating to accounts of all business
transacted by the bank. Section 35-A of the 1949 Act confers power on the Reserve Bank to give
directions with regard to the affairs of a bank. These provisions indicate beyond any measure of doubt
that all forms of business mentioned in Section 6(1) of the 1949 Act are lawful, legitimate businesses
of a bank as these have grown along with increase of trade and commerce. The word “banking” has
never had any static meaning and the only meaning will be the common understanding of men and the
established practice in relation to banking. That is why all these disputed forms of business come
within the legitimate business of a bank.
This extract is taken from Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India,
(1970) 1 SCC 248 at page 350
222. It was said that no reason was shown as to what mischief could have happened if the
Ordinance would not have been promulgated on the date in question but no reason was required to be
shown. The statement of objects and reasons shows that there was considerable speculation in the
country regarding Government's intention with regard to “nationalisation” of banks during few days
immediately before the Ordinance. In the case of Barium Chemicals it was said by this Court that if
circumstances lead to tentative conclusion, that the Court would not have drawn a similar inference
would be irrelevant. 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.