This case analysis is written by Roshni Kumari Singh during her internship with Le Droit India.
• Title of the Case: Rustom Cavasjee Cooper v. Union of India.
• Court: Supreme Court of India
• Year: 1970
• Citation: [1970] 3 S.C.R. 530
- Facts of the Case:
Act 22 of 1969, passed by the Indian government (defendant), forbade the government from allowing 14 of the country’s current banks to continue operating as banks after July of 1969. In order to promote economic growth, the government went on to establish a number of new national banks. The government gave the newly established banks property that belonged to the 14 already-existing banks at the time of their foundation.
The government was sued by shareholders (plaintiffs) of the 14 operating banks to contest the establishment of the new banks. The shareholders contested the new banks’ constitutionality, claiming that their property rights under the Indian Constitution had been infringed by the property’s transfer to the new banks. - Issues of the Case:
By means of Mr. Palkhiwala, his counsel, Mr. Cooper had brought up the following concerns:
(1) Is it possible for a shareholder to file a Writ petition alleging that their basic rights were violated when the government buys the company they own? - (2)Whether or not the relevant Ordinance had been made correctly?
(3)Was the Act’s formulation under the purview of the Parliament or not? (4)Was there a violation of Article 19(1)(g) and Article 31(2) of the Indian Constitution by the contested Act?
(5) if the process used to determine the compensation was legitimate or not?
(6) Was the rationale behind Schedule II of the Ordinance sound? - Arguments:
Arguments made by R.C. Cooper, (the petitioner )-
(1) Maintainability of the Petition: Cooper contended that, in light of the company’s incapacity to assert fundamental rights under the Indian Citizenship Act of 1955, he was doing so in order to exercise his rights as an Indian citizen. - (2) Fundamental Rights Violated: According to him, the Act infringed upon: The 14th article guarantees equality before the law. Article 19(1)(f): Possession and acquisition of property rights.
Article 19(1)(g): Freedom to engage in any activity, including employment, trade, and enterprise. Article 31(2): The state has the right to reasonable recompense for property it acquires.
(3) Insufficient Recompense: The petitioner argued that the Act’s compensation was insufficient and unfair, in violation of Article 31(2).
(4) Improper Use of Ordinance Power: He contended that the Ordinance was not necessary, and therefore the President’s promulgation of it under Article 123 was unlawful.
(5) Hostile Discrimination: It was claimed that by forbidding the nationalized banks from conducting banking business while permitting other banks to function, the Act discriminated against them.
Arguments made by the Union of India, (the respondent)
(1) Maintainability of the Petition: According to the government, Cooper was asserting rights on behalf of the firm, which is a distinct legal entity and not a citizen, making the petition unmaintainable.
(2) Legality of the Ordinance: According to the respondent, the President promulgated the Ordinance in accordance with Article 74, acting within his constitutional authority.
(3) Justification for Public Interest: The government argued that the Act served the public interest and justified nationalization as an essential step toward accomplishing socioeconomic goals.
(4) Reasonability of Restrictions: The respondent argued that none of the Act’s limitations violated fundamental rights and that they were legitimate and reasonable in accordance with Article 19(5).
(5) Compensation Mechanism: The Act’s compensation provisions were argued to be adequate and in line with legislative intent, thus complying with Article 31(2).
- Judgement:
The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969 was declared unlawful by the majority (10-1). The Court determined that because the Act did not provide the acquired banks with reasonable and fair compensation, it breached Article 31(2). The nationalized banks’ endeavours were unrelated to the guidelines established for evaluating remuneration. Nonetheless, the Court determined that as the state is permitted to impose reasonable restrictions in the public interest, the Act did not infringe Article 19(1)(f) (right to property). Rather of focusing solely on the Act’s goal or intention, the Court established the “effect test,” which would look at how the Act affected fundamental rights. - Ratio Decidendi:
• Effect Test Over Object Test: The Supreme Court superseded the earlier “Object Test” by establishing the “Effect Test” as the main standard for determining whether legislative acts are constitutional.
• Fundamental Rights breached: The Indian Constitution’s Articles 14 (right to equality) and 31(2) (right to just compensation) were found to have been breached by the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969, according to the Court.
• Sufficient Reward Requirement: The ruling underlined that, in accordance with Article 31(2), any property acquired by the state must guarantee just and sufficient compensation.
• Legislative Competence: The Court emphasized that nationalizing banks in the public interest is still permissible as long as it respects individual rights and pays fair recompense. This case established a standard for striking a balance between the defence of essential rights.
- Obiter Dicta:
Rustom Cavasjee Cooper v. Union of India (1970) was a historic case in which Justice A.N. Ray dissented from the majority 10-1 decision. The main ideas of Justice Ray’s dissent are as follows:
• Maintainability of Petition: Justice Ray disagreed with the majority’s argument that a shareholder may file a case in the Supreme Court alleging a non-citizen firm has violated their rights. The mutual exclusivity notion that was advanced in the previous A.K. Gopalan v. State of Madras ruling was upheld by him.
• Fixation of Compensation: Justice Ray argued that the legislature’s fixation of compensation cannot be challenged in court. According to him, the ordinance may only be contested if the President enacted it with malicious intent.
• Ordinance Promulgation: Justice Ray disagreed with the majority on this issue as well, believing that since Parliament had already passed the ordinance into an Act, the Supreme Court’s action was not necessary nor acceptable.
• Fundamental Rights Violation: Judge Ray disagreed with the majority and did not find that Articles 14 (equality), 19(1)(f) (right to property), and 31 (compulsory acquisition of property) of the Constitution were violated by the Banking Companies (Acquisition and Transfer of Undertakings) Act.
• Dissenting Conclusion: Unlike the majority ruling, which declared some Act sections unconstitutional, Justice Ray rejected the petitions contesting the Act’s legality based on his logic.
- Legal Precedents Cited:
• A.K. Gopalan v. State of Madras – Justice Ray upheld the mutual exclusivity thesis outlined in this earlier ruling, rejecting the majority’s argument that a shareholder can file a case with the Supreme Court alleging that a non-citizen company has violated their rights.
• Earl Fitzwilliant’s Wentworth Estates Co. v. Minister of Housing and Local Government and Another – This English case was referred to in the judgment.
• Sitabati Devi v. State of West Bengal – In this instance, the Court unanimously declared that an Act pertaining to purchase and requisition cannot be invalidated on the grounds that it violated Article 19(1)(f) and cannot be determined by applying the standard outlined in Article 19(5).
- Conclusion:
In the history of bank nationalisation, the R.C. Cooper v. Union of India (1969) case is a seminal case that set the standard for numerous other significant cases. Some people may find the ruling puzzling, but it should be clear from a careful reading of the decision’s underlying assumptions and reasoning that the Court upheld the parties’ fundamental rights as well as the socialist principles. The ruling examined the application of Article 19 and broadened the purview of Article 31(2) of the Indian Constitution.
