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PETITIONER:

RUSTOM CAVASJEE COOPER

Vs.

RESPONDENT:

UNION OF INDIA

DATE OF JUDGMENT:

10/02/1970

BENCH:

SHAH, J.C.

BENCH:

SHAH, J.C.

SIKRI, S.M.

SHELAT, J.M.

BHARGAVA, VISHISHTHA

MITTER, G.K.

VAIDYIALINGAM, C.A.

HEGDE, K.S.

GROVER, A.N.

RAY, A.N.

REDDY, P. JAGANMOHAN

DUA, I.D.

CITATION:

1970 AIR 564 1970 SCR (3) 530

1970 SCC (1) 248

CITATOR INFO :

F 1972 SC 106 (20,21,22,41,42,105)

RF 1972 SC1660 (9)

F 1973 SC 602 (44,46)

RF 1973 SC 974 (5,9,10)

RF 1973 SC1425 (28,39)

RF 1973 SC1461 (413,435,601,605,711,712,1033,

R 1974 SC1300 (24)

R 1974 SC2077 (17)

RF 1974 SC2098 (22,28)

RF 1974 SC2154 (21)

R 1974 SC2192 (131)

F 1975 SC 32 (30,32)

R 1975 SC 550 (12)

RF 1975 SC1699 (4,10)

RF 1975 SC2299 (606)

R 1976 SC1031 (17)

RF 1976 SC1207 (53,57,58,59,274,450,458,518,5

RF 1977 SC 915 (8)

R 1978 SC 215 (15,41,73,74,75,76,79,85)

R 1978 SC 597 (9,40,41,54,55,68,68A,118,131,

R 1978 SC 803 (30,34)

RF 1979 SC 25 (35)

E&R 1979 SC 248 (9,15,16,19,27)

RF 1979 SC 478 (101)

RF 1979 SC1925 (16)

R 1980 SC 898 (41,45,47,57,61)

RF 1980 SC1789 (36)

F 1980 SC1955 (16)

RF 1981 SC 234 (99)

RF 1981 SC1597 (3)

F 1982 SC 697 (20)

R 1982 SC 710 (16,71,87)

MV 1982 SC1325 (80)

R 1983 SC 1 (71)

R 1983 SC 473 (6,24)

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R 1983 SC 937 (12,31)

R 1983 SC1190 (14)

R 1984 SC 774 (9,15)

RF 1984 SC1178 (17)

D 1984 SC1346 (5)

D 1985 SC1416 (103,104)

R 1985 SC1737 (13)

RF 1986 SC 468 (26,28,30,31)

RF 1986 SC 555 (6)

RF 1986 SC 872 (77)

R 1986 SC1466 (11)

D 1987 SC 579 (8)

RF 1987 SC1706 (2)

RF 1988 SC 151 (13)

RF 1988 SC 782 (50)

RF 1988 SC1208 (27)

RF 1988 SC1353 (18)

D 1988 SC1737 (53)

RF 1989 SC 389 (6)

F 1989 SC1629 (16)

R 1991 SC 101 (32,259)

RF 1991 SC 855 (21)

F 1992 SC1701 (26,27)

ACT:

Banking Companies (Acquisition and Transfer of Undertakings)

Act 22 of 1969-Sections 4, 5, 6, 15(2) and Schedule II-

Fundamental rights, infringement of-Legislative competence-

Constitution of India, Arts. 14, 19 and 31 (2), Entries 43,

44, 45 List I, Entry 42 List III Seventh Schedule.

Constitution of India, 1950, Art. 14-Equality--Banking

Companies (Acquisition and Transfer of Undertakings) Act

1969, s. 15(2)-Statute permitting Banks to do business other

than Banking but practically preventing them from doing not-

banking business--If discriminatory.

Constitution of India, 1950, Art. 19(1) (f) cl. (6) (ii)

anel 19(1) (g)- Banking Companies (Acquisition and Transfer

of Undertakings) Act, 1969-Carrying on of business by the

State to the exclusion of citizens-If Could be challenged

under Art. 19(1)(g)-Restrictions on the right to do non-

banking business-If unreasonable.

Constitution of India, 1950, Arts. 19(1)(f) and 31(2)-If

mutually -exclusive.

Constitution of India, 1950, Art. 31(2)-Compensation-Meaning

of compensation-Undertaking-Acquisition as a unit-Principles

of valuation-Justiciability of compensation.

Constitution of India, 1950, Art. 123-Ordinance-Promulgation

of Nature of power conferred by Article.

Constitution of India, 1950, Art. 32--Banking Companies

(Acquisition and Transfer of Undertakings) Act, 1969-When

shareholder can move petition for infringements of the

rights of the Company.

Legislative competence-Entry 45 List I, Entry 42, List III

Seventh Schedule-"Banking", meaning of-"Property" meaning

of-Banking Companies (Acquisition and Transfer of

Undertakings-) Act, 1969 Section 4-"Undertaking", meaning

of-Validity of law acquiring undertaking.

HEADNOTE:

On July 19, 1964, the Acting President promulgated, in

exercise of the power conferred by cl. (1) of Article 123 of

the Constitution, Ordinance 8 of 1969, transferring to and

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vesting the undertaking of 14 named Commercial Banks, which

held deposits of not less than rupees fifty crores, in the

corresponding new Banks set up under the Ordinance.

Petitions challenging the constitutionality of the Ordinance

were lodged in this Court, but before they were heard

Parliament enacted the Banking Companies (Acquisition and

Transfer of Undertakings) Act, 1969. The object of the Act

was to provide for the acquisition and transfer of the

Undertakings of certain banking companies in order to serve

better the needs of development of the economy in conformity

with the national policy and _objectives and for matters

connected therewith or incidental

531

thereto. The Act repealed the Ordinance and came into force

on July 19, 1969, i.e., the day on which the Ordinance was

promulgated, and the Undertaking of every named Bank with

all its rights, liabilities and assets was deemed, with

effect from that date, to have vested in the corresponding

new bank. By s. 15(2) (e), the named Banks were entitled to

engage in business other than banking which by virtue of s.

6(1) of the Banking Regulation Act, 1949, they were not

prohibited from carrying on. Section 6 read with Schedule

11 provided for and prescribed the method of determining

compensation for acquisition of the undertaking.

Compensation to be determined was for the acquisition of the

undertaking as a unit and by section 6(2), though separate

valuation had to be made in respect of the several matters

specified in Schedule 11 of the Act, the amount of

compensation was to be deemed to be a single compensation.

Under Schedule 11 the compensation payable was to be the sum

-total of the value of the assets under the heads (a) to

(h), calculated in accordance with the provisions of Part I

less the sum total of the liabilities and obligations

calculated in accordance with the provisions of Part 11.

The corresponding new Banks took over vacant possession of

the lands and buildings of the named Banks. By Explanation

I to cl. (e) of Part I of Schedule It the value of any land

or building to be taken into account in valuing the assets

was to be the market value or the ascertained value

whichever was less; by Explanation 2 cl. (1) ascertained

value"' in respect of buildings wholly occupied on the date

of the commencement of the Act was to be twelve times the

amount of annual rent or the rent for which the building

could reasonably be expected to be let out from year to

year, reduced by certain deductions for maintenance, repairs

etc.; under cl. (3) of Explanation 2 the value of open land

with no building thereon or which was not appurtenant to any

building was to be determined with reference to the price at

which sale or purchase of comparable'lands were made during

the period of three years immediately preceding the

commencement of the Act. The compensation was to be

determine(1), in the absence of agreement, by a tribunal and

paid in securities which would mature not before ten years.

The petitioner held shares in some of the named Banks, had

accounts. current and fixed deposit, in these Banks and was

also a Director of one of the Banks. In petitions 'under

Article 32 of the Constitution he challenged the validity of

the Ordinance and the Act on the following principal grounds

(i) the Ordinance was invalid because the condition

precedent to the exercise of the power under Article 23 did

not exist:

(ii) the Act was not within the legislative competence of

Parliament, because, (a) to the extent to which the Act

vested in the corresponding new Banks the assets of business

other than Banking the Act trenched upon the authority of

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the State Legislature and (b) the power to legislate for

acquisition of property in entry 42 List III did not include

the power to legislate for acquisition of an undertaking;

(iii) Articles 19(1)(f) and 31(2) are not mutually

exclusive and a law providing for acquisition

of property for a public purpose could be

tested for its validity on the ground that it

imposed limitations on the right to property

which were not reasonable; so tested, the

provisions of the Act which transferred the

Undertaking of, the named Banks and prohibited

those Banks from carrying on business of

Banking and practically prohibited them from

carrying on non-banking busi-

532

ness, impaired the freedoms guaranteed by Articles 19(1) (f)

and (g);

(iv) the provisions of the Act which prohibited the named

Banks from carrying on banking business and practically

prohibited them from carrying on non-banking business

violated the guarantee of equal protection and were,

therefore, discriminatory;

(v) the Act violated the guarantee of compensation under

Article 31(2);

(vi) the Act impaired the guarantee of 'freedom of trade

under Article 301; and

(vii) -retrospective operation given to Act 22 of 1969

was ineffective since there was no valid Ordinance in

existence and the provision in the Act retrospectively

validating infringement of the fundamental rights of

citizens was not within the competence of Parliament.

On behalf of the Union of India a preliminary objection was

raised that the petitions were not maintainable because, no

fundamental right of the petitioner was directly impaired as

he was not the owner of the property of the undertaking

taken over.

HELD : (Per Shah, Sikri, Shelat, Bhargva, Mitter,

Vaidialingam Hegde, Grover, Reddy and Dua, JJ.)

1. The petitions were maintainable.

A company registered under the Indian Companies Act is a

legal person, separate and distinct from its individual

members. Hence a shareholder, a depositor or a director is

not entitled to move a petition for infringement of the

rights of the company unless by the action impugned his

rights are also infringed. But, if the State action impairs

the right of the share-holders as well as of the company the

Court will not, concentrating merely upon the technical

operation of the action deny itself jurisdiction to grant

relief. In the -present case the petitioner's claim was

that by the Act and the Ordinance the rights. guaranteed to

him under Articles 14, 19 and 31 of the Constitution were

impaired. He thus challenged the infringement of his own

rights and not of the Banks. [555 G-556 H]

The State Trading Corporation of India Ltd. Ors. v. The

Commercial Tax Officer, Visakhapatnam & Ors., [1964] 4

S.C.R. 99 and Tata Engineering and Locomotive Co. Ltd. v.

State of Bihar and Ors., [1964] 6 S.C.R. 885 held

inapplicable.

Dwarkadas Shrinivas v. The Sholapur Spinning & Weaving Co.

Ltd. and Ors., [1954] S.C.R. 674 and Chiranjit Lal Chowdury

v. The Union of India" [1950] S.C.R. 869, referred to.

2. (i) Exercise of the power to promulgate an Ordinance

under Article 123 is strictly conditioned. The clause

relating to the satisfaction is composite; the satisfaction

relates to the existence of circumstances, as well as to the

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necessity to take immediate action on account of those

circumstances. Determination by the President of the

existence of circumstances and the necessity to take

immediate action on which the satisfaction depends, is not

declared final.

533

[Since the Act was declared invalid no opinion was expressed

on the extent of the jurisdiction of the court to examine

whether the condition relating to satisfaction of the

President was fulfilled.] [559 H-560 B; 561 G]

(ii) Act 22 of 1969 was within the legislative competence of

Parliament.

The competence of Parliament is not covered in its entirety

by entries 43 and 44 of List I of the Seventh Schedule. A

law regulating the business of a corporation is not a law

with respect to regulation of a corporation. [563 B]

Parliament has exclusive power to legislate with respect to

"Banking" in entry 54 List I. A legislative entry must

receive a meaning conducive to the widest amplitude subject

to limitations inherent in the federal scheme which

distributes legislative power between the union and the

constituent units. But, the field of "banking" cannot be

extended to include trading activities which, not being

incidental to banking, encroach upon the substance of the

entry "trade and commerce" in entry 26 List II. It cannot be

said that all forms of business described in s. 6(1) of the

Banking Regulation Act, 1949, cls. (a) to (n) are, if

carried on in addition to banking as defined in s. 5(b) of

the Act, banking, and that Parliament is competent to

legislate in respect that business under entry 54 List I.

[565 D, 566 D]

The contention that Parliament was incompetent to legislate

for acquisition of the named Banks in so far as it related

to assets of the non-banking business had to fail for two

reasons : (a) there was no evidence that the named Banks

held any assets for any distinct nonbanking business, and

(b) the acquisition was not shown to fall within any entry

in List II of Seventh Schedule. [568E]

Power to legislate for acquisition of "Property" in entry 42

List III includes the power to legislate for acquisition of

an undertaking. The expression "property" in entry 42, List

III, has a wide connotation and it includes not only assets,

but the Organisation, liabilities and obligations of a going

concern as a unit. The expression "undertaking" in section

4 of the Act clearly means a going concern with all its

rights, liabilities and assets as distinct from the various

rights and assets which compose it. The obligations and

liabilities of the business form an integral part of the

undertaking and for compulsory acquisition cannot be

divorced from the assets, -rights and privileges. A law

could. therefore, be enacted for compulsory acquisition of

an undertaking as defined in s. 5 of the Act. [568 B-D]

There was no satisfactory proof in support of the plea that

the Act was not enacted in the larger interest of nation but

to serve political ends. Whether by the exercise of the

power vested in the Reserve Bank under the pre-existing

laws, results could be achieved which it was the object of

the Act to achieve was not relevant in considering whether

the Act amounted to abuse of legislative power. This court

has the power to strike down a law on ground of want of

authority, but the Court will not sit in appeal over the

policy of the Parliament in enacting a law. [583 D, 584 H]

Commonwealth of Australia v. Bank of New South Wales, L.R.

[1950] A.C. 235 and Rajahmundry Electric Supply Corporation

Ltd. v. The State of Andhra, [1954] S.C.R. 779, referred to.

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(iii) (a) Articles 19(1)(f) and 31(2) are not mutually

exclusive.

534

Under the Constitution the extent of protection against

impairment of a fundamental right is determined not by the

object of the legislature nor by the form of the action, but

by its direct operation upon the individual's tights. [576C]

In this Court, there is, however. a body di authority that

the nature and extent of the protection of the fundamental

rights is measured not by the operation of the State action

upon the rights of the individual but by its object.

Thereby the constitutional scheme which makes the guaranteed

rights subject to the permissible restrictions within their

allotted field, fundamental, got blurred and gave impetus to

a theory that certain Articles of the Constitution enact a

Code dealing exclusively with matters dealt with therein and

the protection which an aggrieved person may claim is

circumscribed by the object of the State action. The deci-

sion in A. K. Gopalan v. The State of Madras, [1950] S.C.R.

88, given early in the history of the Court. has formed the

nucleus of this theory. The principle underlying the

opinion of the majority in Gopalan was extended to the

protection of the freedom in respect of property and it was

held that Art. 19(1)(f) and 31(2) were mutually exclusive in

their operation and that the substantive provisions of a law

relating to acquisition of property were not liable to be

challenged on the ground that they imposed unreasonable

restrictions on. the right to hold property. With the

decision in Kavalappara Kochuni v. State of Kerala, [1960] 3

S.C.R. 887, there arose two divergent lines of authority :

(i) "authority of law" in Art. 31 ( 1 ) is liable to be

tested on the ground that it violates other fundamental

rights and freedoms including the right to hold property

guaranteed 'by Art. 19(1)(f); and (ii) "authority of a law"

within the meaning of Art. 3 1(2) is not liable to be tested

on the ground that it impairs the guarantee of Art. 19( 1)

(f), in so far as it imposed substantive restrictions

through it may be tested on the ground of impairment of

other guarantees. The expression "law" in the two clauses

of Article 31 had, therefore, two different meanings. [570

C-576 B]

The theory that the object and form of the State action

determined the extent of the protection which the aggrieved

party may claim is not consistent with the constitutional

scheme. Clause (5) of Art. 19 and cls. (1) & (2) of Art. 31

prescribes restrictions upon State action subject to which

the right to property may be exercised. Article 19(5) is a

broad generalisation dealing with the nature of limitations

which may be placed by law on the 'right to property. The

guarantees, under Art. 31(1) & (2) arise out of the

limitations imposed on the authority of the State, by law,

to take over the individual's property. The true character

of the limitations under the two provisions is not

different. Clause (5) of Art. 19 and cls, (1) & (2) of Art.

31 are parts of a single pattern-, Art. 19(1)(f) enunciating

the basic right to property of the citizen and Art. 19(5)

and cls. (1) & (2) of Art. 31 dealing with the limitations

which may be placed by law subject to which the rights may

be exercised. 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 Art. 19(1)(f). In the

Constitution the enunciation of rights either expressly or

by implication does not follow a uniform pattern. But one

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thread runs through them; they seek to protect the 'rights

of the individual or groups of individuals against

infringement of those rights within specific limits. [576E-

577 G]

Formal compliance with the conditions under Article 31(2) is

not sufficient to negative the protection of the guarantee

of the right to pro-

535

perty. The validity of "law" which authorises deprivation

of property and a "law" which authorises compulsory

acquisition of property for a public purpose must be

adjudged by the application of the same tests. 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. if property is compulsorily acquired for a

public purpose and the law satisfies the 'requirements of

Art. 31(2) and 31(2A), the -court may presume that by the

acquisition a reasonable restriction on the exercise of the

right to hold' property is imposed in the interest of the

general public. This is so, not because the claim to plead

infringement of the fundamental right under Art. 19(1)(f)

does not avail the owner; it is because the acquisition im-

poses permissible restriction on the right of the owner of

the, property compulsorily acquired. [577 H-578 D]

The assumption in A. K. Gopalan v. The State of Madras,

[1950] S.C.R. 88, held incorrect. [578 E]

Kavalappara Kottarathi Kochuni & Ors. v. State of Madras,

[1960] 3 S.C.R. 887, Swami Motor Transport Co.. (P) Ltd. v.

Sri Sankaraswamigal Mutt, [1963] Supp. 1 S.C.R. 282,

Maharana Shri Javavantsingji v. State of Gujarat, [1962]

Supp. 2 S.C.R. 411, 438, Ram Singh & Ors. v. State of Delhi,

[1951] S.C.R. 451, State of West Bengal v. Subodh Gopal,

[1954] S.C.R. 587. State of Bombay v. Bhanji Munji & Anr.

[1966] 1 S.C.R. 777, Babu Barkya Thakur v. State of Bombay,

[1961] 1 S.C.R.. 128, Smt. Sitabati Debi v. State of West

Bengal, [1967] 2 S.C.R.940 and State of Madhya Pradesh v.

Ranojirao Shinde, [19681 3 S.C.R.489, referred to.

(b) The law which prohibited, after July 19, 1969,the

named Banks from carrying on banking business, being a

necessary incident of the right assumed by the Union, could

not be challenged because of Art.19(6)(ii) in so far as it

affected the right to carry on business. [583 C]

Clause (6) of Art. 19 consists of two parts : (i) -the right

declared by sub-cl. (g) is not protected against the

operation of any law imposing, in the interests of the

general public, reasonable restrictions on the exercise of

the right conferred by that sub-clause; and (ii) in

particular sub-cl. (g) does not affect the operation of. any

law relating inter alia, to carrying on by the State or by a

Corporation owned or controlled by the State, of any. trade,

business, industry or service whether or not such law

provides for the exclusion, complete or partial, of

citizens. It cannot be held that the expression "in

particular" used in cf. (6) is intended' either to

particularise or to illustrate the general law set out in

the first limb of the clause and, therefore, is subject to

the enquiry whether it imposes reasonable restrictions on

the exercise of the right in the interest of the general

public. The rule enunciated by this Court in Akadasi Padhan

v. State of Orissa, [1963] Supp. 12 S.C.R. 691, applies to

all laws relating to the carrying on by the State of any

trade, business,. industry or service. The basic and

essential provisions of law which are "integrally and

essentially connected" with the carrying of trade by the

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State wilt not be exposed to the challenge that they impair

guarantee under Art. 19(1)(g), whether the citizens are

excluded completely or partially from carrying on that

trade, or the trade is competitive. Imposition of restric-

tions which are incidental or subsidiary to the carrying on

of trade by the State whether to the exclusion of the

citizen or not must however. satisfy the test of the main

limb of the Article. [580 F, H; 581 H]

Akadasi Padhan v. State of Orissa, [1963] Supp. 2 S.C.R.

691,. followed.

536

Early Fitzwilliam's Wentworth Estates Co. v. Minister of

Housing & Local Government & Anr. [1952] 1 All E.R. 509,

Saghir Ahmad v. State of U.P. [1955] 1 S.C.R. 707, 727,

Rasbihari Panda v., State of Orissa [1969] 3 S.C.R. 374,

Vrajlal Manilal & Co. v. State of Madhya Pradesh & Ors.

[1970] 1 S.C.R. 400 and Municipal Committee Amritsar v.

State of Punjab, [1969] 3 S.C.R. 447, referred to..

(c) The restrictions- imposed upon the right of the named

Banks to ,carry "non-banking" business were plainly

unreasonable.

By s. 15(2) (e) of the Act the Banks were entitled to engage

in business other than banking. But a business organisation

deprived of its entire assets and undertaking, its

managerial and other staff, its premises and its name, even

if it had a right to carry on non-banking business would not

be able to do so, specially, when even the portion of the

value of its undertaking made payable to it as compensation

was not made immediately payable. Where restrictions

imposed upon the carrying on of a business are so stringent

that the business cannot, in practice, be carried on, the

Court will regard imposition of the restrictions as

unreasonable. [579 F, 586 H]

Mohammad Yasin v. Town Area Committee, Jalalabad & Anr.

[1952] S.C.R. 572 and Dwarkadas Shrinivas v. Sholapur

Spinning & Weaving Co. Ltd. & Ors., [1954] S.C.R. 674,

referred to.

(iv) When, after acquiring the assets, undertaking,

organisation, goodwill and the names of the named Banks they

are prohibited from carrying on banking business, whereas,

other banks, Indian as well as foreign, are permitted to

carry on banking business, a flagrantly hostile discri-

mination is practised. There is no explanation why the

named Banks are specially selected for being subjected to

this disability. Section 15(2) of the Act-which by the

clearest implication prohibited the named Banks from

carrying on banking business is, therefore, liable to be

struck down.

The named Banks, though theoretically competent are, in

substance, prohibited from carrying on non-banking business.

For reasons set out for holding that the restriction is

unreasonable, the guarantee of equality was impaired by

preventing the named Banks from carrying on nonbanking

business. [590 E-H]

[In the absence of any reliable data the Court did not

express any opinion on the question whether selection of the

undertaking of some out of many banking institutions for

compulsory acquisition is liable to be struck down as

hostile discrimination.] [589 F]

Chiranjit Lal Chowdhuri v. The Union of India, [1950] S.C.R.

869. State of Bombay v. F. N. Balsara, [1951] S.C.R. 682,

State of West Bengal v. Anwar Ali Sarkar, [1952] S.C.R. 284,

Budhan Choudhry and Ors. v. State of Bihar, [1955] 1 S.C.R.

1045, Shri Ram Krishna Dalmia v. Shri Justice S. R.

Tendolkar, [1959] S.C.R. 279 and State of Rajasthan v.

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Mukanchand, [1964] 6 S.C.R. 903, 910, referred to.

(v) The Act violated the guarantee of compensation under

Art. 31(2) in that it provided for giving certain amounts

determined according to principles which were not relevant

in the determination of compensation of the undertaking of

the named Banks and by the method prescribed the amounts so

declared could not be regarded as compensation. [610 F]

In P. Vajravelu Mudalkar v. Special Deputy Collector,

Madras, [1965] 1 S.C.R. 614, and in the cases following it

arising under statutes enacted.

537

after the coming into force of the Constitution (Fourth

Amendment) Act, 1955 this Court held that the expression

compensation in Art. 31(2) after the Constitution (Fourth

Amendment) Act continued to have the same meaning it had in

Art. 31(2) before it was amended viz., "just equivalent" or

"full indemnification". But this Court in Tile State of

Gujarat v. Shantilal Mangaldas, [1969] 3 S.C.R. 341,

observed that compensation payable as compulsory acquisition

of property was 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 the rules relating to determination of value

of lands, buildings, machinery and other classes of property

differed, and the application of several methods or

principles lead to widely divergent amounts; that principles

could be challenged on the ground that they were irrelevant

to the determination of compensation but not on the plea

that what was awarded as a result of the application of

those principles was not just or fair compensation; and that

a challenge to a statute that the principles specified by it

did not award a just equivalent would be in clear violation

of the constitutional declaration that inadequacy of

compensation provided is not justiciable. Notwithstanding

the difference in Vajravelu and Shantilal Mangaldas, 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 Vajravelu and

Shantilal Mangaldas cases the Act had to be struck down as

it failed to provide the expropriated Banks compensation

determined according to relevant principles. [594 G, 595 C,

598 F-H]

P. Vajravelu Mudaliar v. Special Deputy Collector, Madras,

[1965] 1 S.C.R. 614 and State of Gujarat v. Mangaldas & Ors.

[1969] 3 S.C.R. 341 applied.

Attorney-General v. De Keyser's Royal Hotel, L.R. [1920]

A.C. 508. State of West Bengal v. Mrs. Bela Banerjee, [1954]

S.C.R. 558, N. B. Jeejeebhoy v. Assistant Collector, Thana

Prant, [1965] 1 S.C.R. 636. Union of India v. Kamalabai

Harjiwandas Parekh & Ors., [1968] 1 S.C.R. 463, Union of

India v. Metal Corporation of India, [1967] 1 S.C.R. 255,

State of Madras v. D. Namasivaya Mudaliar, [1964] 6 S.C.R.

936, Lachman Dass v. Municipal Committee, Jalalabad A.I.R.

1969 S.C. 1126, Trego v. Huni, L.R. [1896] A.C. 7, State of

Bihar v. Maharajadhiraja Sir Kameshwar Singh of Darbhanga,

[1952] S.C.R. 889 and Bombay Dyeing & Manufacturing Co. Ltd.

v. State of Bombay, [1958] S.C.R. 1122. referred to.

There are different methods applicable to different classes

of property and a method appropriate to the determination of

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value of one class of property may be wholly inappropriate

in determining the value of another class. A principle

specified by Parliament for determining compensation for the

property to be acquired is not conclusive. But if several

principles are appropriate and one is selected for

determination of the value of the property to be acquired,

selection of that principle to the exclusion of other

principles is not open to challenge, for, the selection must

be left to the wisdom of the Parliament. [599 C, F]

The object underlying the principles of valuation is to

award, the owner the equivalent of his property with its

existing advantages and its

538

potentialities. Where there is an established market for

the property acquired the problem of valuation presents

little difficulty. Where there is no established market for

the property acquired, the object of the principle of

valuation must be to pay to the owner for what he has lost,

including the benefit of advantages present as well as

future, without taking into account the urgency of the

acquisition, the disinclination of the owner to part with

the property and the benefit which the acquirer is likely to

obtain by the acquisition. [599 G]

Compensation to be determined under the Act was for

acquisition of the undertaking and when an undertaking is

acquired as a unit the principles for determination of

compensation must be relevant and appropriate to the

acquisition of the entire undertaking. But the Act instead

of providing for valuing the entire undertaking as a unit

provided for determining the value, reduced by the

liabilities, of only some of the components which

constituted the undertaking and also provided different

methods of determining compensation in respect of each such

component. This method is prima facie not a method relevant

to the determination of compensation for acquisition of the

undertaking, for, the aggregate value of the component-, 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 this ground alone

acquisition of the undertaking was liable to be declared

invalid for it impaired the constitutional guarantee for

payment of compensation for acquisition of property by law.

[601 D]

Even if it be assumed that the aggregate value of the

different components was equal to the value of the

undertaking of the named banks as a going concern, the

principles specified did not give a true recompense to the

bank for loss of the undertaking. In determining the com-

pensation for the undertaking (i) certain important classes

of assets were omitted from the heads (a) to (h); (ii) the

method specified for valuation of lands and buildings was

not relevant to determination of compensation and the value

determined thereby in certain circumstances was illusory as

compensation; and (iii) the principle for determination of

the aggregate Value of liabilities was also irrelevant. 1602

B]

The undertaking of a Banking Company taken once as a going

concern would ordinarily include the good-will and the value

of the unexpired long-term leases in the prevailing

conditions in the urban areas. But good-will of the banks

was not one of the items in the assets in the schedule.

Thus, the value determined by excluding important components

of the undertaking such as the good-will and the value of

the unexpired period of cases would not be compensation for

the undertaking. The view of this Court in Vajravelu

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Mudaliar that exclusion of potential value amounted to

giving inadequate compensation and was not fraud on power

had no application 'when valuation of an undertaking was

sought to be made by breaking it up -into several heads of

assets, and important heads were excluded and others valued

by the application of irrelevant principles. [602 C, 608 B]

Trego v. Hunt, L.R. [1896] A.C. 7, referred to.

Making a provision 'for payment of capitalised annual rental

at twelve time the amount of rent cannot reasonably be

regarded as payment of compensation having regard to the

conditions prevailing in the money market. Again, the

annual rent was reduced by several outgoings and the balance

was capitalised. The vice of items (v) & (vi) of cl. (1) of

Explanation 2 was that they provided for deduction of a

capital charge

539

out of the annual rental which according to no rational

system of valuing property by capitalisation of the rental

method was admissible. The method provided by the Act

permitted the annual interest on the amount of the

encumbrance to be deducted before capitalisation and the

capitalised value was again reduced by the amount of the

encumbrance because, the encumbrance included not only those

mortgages or capital charges in respect of which the amount

had fallen due but also the liability under the mortgage or

capital charge whether the period stipulated under the deed

creating the encumbrance had expired or not. In effect a

single debt was, in determining the compensation, debited

twice, first, in computing the value of assets and, again,

in computing the liabilities. By the Act, the corresponding

new banks took over vacant possession of the lands and

buildings belonging to the named banks. The Act instead of

taking into account the value of the premises as vacant

premises adopted a method which could not be regarded as

relevant. Under cl. 3 of Explanation 2 the value of the

open land was to be the market value whereas the value of

the land with buildings to be taken into account was the

value determined by the method of capitalisation of annual

rent or market value whichever was less. The Act,

therefore, did not specify a relevant principle for

determination of compensation for lands and buildings. [604

B605 B, 606 B-607 F]

The deficiencies in the Act did not result merely in

inadequate compensation within the meaning of Art. 31(2).

The Constitution 'guarantees a right to compensation-an

equivalent in money of the property compulsorily acquired.

That is the basic guarantee. The law must, therefore,

provide compensation and for determining compensation

relevant principles must be specified : if the principles

are not relevant the ultimate value determined is not

compensation. Therefore, determination of compensation to

be paid for the acquisition of an undertaking as a unit

after awarding compensation :for some items which go to make

up the under-, taking and omitting important items amounted

to adopting an irrelevant principle in the determination of

the value of the undertaking and did not furnish

compensation to the expropriated owner. [607 H, 608 E]

Further, by giving 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 was 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 Art. 31 (2) is impaired.

[609 D-E]

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[In view of the finding that there was no evidence that the

named banks owned distinct assets apart from the assets of

the banking business the Court did 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 the acquisition of the assets of one

or more lines of business but not in respect-of all the

lines of business. [591 F]

The Court did not also express any opinion on the question

whether in adopting the method of determination of

compensation, by aggregating the value of assets which

constitute the undertaking, the rule that cash, and choses-

in-action are incapable of compulsory acquisition may be

applied. [604 B]

In view of the decision that the provisions relating to

determination and payment of compensation impaired the

guarantee under Art. 31(2). the Court did not consider

whether the Act violated the freedom of trade, commerce and

intercourse in respect of (i) agency business (ii) the

business of guarantee and indemnity carried on, by the named

banks..

540

For the same reason the court did not consider the validity

of the retrospective operation given to the Act by ss. 1 (2)

and 27.] [609 H]

Section 4 is the kingpin in the mechanism of the Act.

-Sections 4, 5 and 6 read with Sch. 11 provide for the

statutory transfer and vesting of the undertaking of the

named banks in the corresponding new batiks and prescribe

the method of determining of compensation for expropriation

of The undertaking. Those provisions are void as they

impair the fundamental guarantee under Art. 31(2). Sections

4, 5 and 6 and Sch. 11 are not severable from the rest of

the Act. The Act in its entirely had to be declared void.

[610 G]

Per Ray, J. dissenting

[His Lordship did not deal with the preliminary objection

based on the petitioner's locus standi since the petitions

were heard on merits.]

(i) The interpretation of Article 123 is to be made first,

on the language of the Article and, secondly, the context in

which that power Is reposed in the President, The power is

vested in the President who the executive head and the

circumstances contemplated in the Article are a guide to the

President for exercise of such power. Parliament is not In

session throughout the year and during the gaps between

sessions the legislative power of promulgating Ordinance is

reposed in the Presidence, in cases of urgency and

emergency. The President is the sole, judge whether he will

make the Ordinance. The President under Article 74(1) of

the Constitution, acts on the advice of Ministers who are

responsible to Parliament and under Article 74(2) such

advice is not to be enquired into by any Court. The

Ordinances promulgated under Article 123, are limited in

life and the Ordinance must be laid before Parliament and

the life of the Ordinance may be further shortened. The

President, under Article 361(1), is not answerable to any

Court for acts done in the performance of his duties. The

power under Article 123 relates to policy and to an

emergency when immediate action is considered necessary and

it an objective test is applied the satisfaction of the

President contemplated in the Article will be shorn of the

power of the President himself and as the President will be

acting on the advice of Ministers it may lead to disclosure

of facts which under Article 75(4) are not to be disclosed.

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For these reasons it had to he held that the satisfaction of

the President under Article 123 is subjective. [657 D-H]

The only way in which the exercise of power by the President

can be challenged is by establishing bad 'faith or mala fide

or corrupt motive. The fact that the Ordinance was passed

shortly before the Parliament session -began, did not show

any mala fide. Besides, the respondent was not called upon

to meet any case of mala fides. [659 G]

Bhagat Singh v. King Emperor, 58 I.A. 169, King Emperor v.

Sibnath Banerjee, 72 I.A. 241, Lakhi Narayan Das v. Province

of Bihar, [1949] S.C.R. 693, Liversidge v. Sir John

Anderson, [1942] A.C. 206, Point of Ayr Collieries Ltd. v.

Lloyd-George, [1943] 2 All E.R. 546 and Carltona, Ltd. v.

Commissioners of Works, [1943] 2 All E.R. 5610, Hugli

Electricity Co., Ltd. v. Province of Bombay, 76 I.A. 57 and

Padfield v. Minister of Agriculture, Fisheries and Food,

[1968] 1 All E.R. 604, referred to.

Barium Chemicals Ltd. v. The Company Law Board, [1966] Supp.

S.C.R. 311 and Rohtas Industries case, [1969] 3 S.C.R. 108,

distinguished.

(ii) The Act was one for acquisition of property and was

also in relation to banking. The legislation was valid with

reference to entry 42 List III (Acquisition and

requisitioning of property) and entry 45 List I (Banking)

and it did not trench upon entry 26 List II, namely, trade

and ,commerce within the State. [633 D-F]

541

Under s. 6(1) of the Banking Regulation Act, 1949, the four

types of businesses, namely, (i) the receiving of scrips or

other valuables on deposit or for safe custody and providing

of safe deposit vaults, (ii) agency business, (iii) business

of guarantee, giving of indemnity and underwriting and (iv)

business of acting as executors and trustees, disputed by

the petitioner not to be banking business, are recognised as

legitimate forms of business of a banking company. The

provisions contained in s. 6(1) are the statutory

restatement of the gradual evolution, over a century, of the

various kinds of business of banking companies. By cl. (n)

of s. 6(1), in addition to the forms of business mentioned

in cls;. (-a) to (n), a banking company may engage in "doing

all such other things as are incidental or conducive, to the

promotion or advancement of the business of the company".

The words "other things" 'appearing in cl. (n), after

enumerating the various types of business in cls. (a) to

(n), point to the inescapable conclusion that the business

mentioned in cls. (a) to (n) are all incidental or conducive

to the promotion or advancement of the business or the,

banking company. Entry 45 in List I of Seventh Schedule is

only "banking" and it does not contain any qualifying words

like "the conduct of business" occurring in entry 38 of the

Government of India Act, 1935. "Banking will therefore have

the wide meaning to include all legitimate business of a

banking company referred to in s. 5(b) as well as in s. 6(1)

of the 1949 Act. Further, the restriction contained in s.

6(2) of the 1949 Act that no banking company shall engage in

any form of business other than those referred to in sub-s.

(1) establishes that the various types of business mentioned

in sub-s. (1) are, normal recognised business of a banking

company and, as such, are comprised in the Undertaking of

the bank. [624 F, 625 F-G, 627 D-E]

Tennant v. The Union Bank of Canada, [1894] A.C. 51, Banbury

v. Bank of Montreal, [1918] A.C. 624, Commonwealth of

Australia and Others v. Bank of New South Wales and Others,

[1950] A.C. 235, Bank of Chettinad v. T.C. of Colombo [1948]

A.C. 378 P.C., United Dominions Trust Ltd. v. Kirkwood,

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[1966] 1 Q.B. 783, United Provinces v. Mst. Atiqa Begum and

Others, [1940] F.C.R. 110 and Union Colliery Company of

British Columbia v. Bryden, [1899] A.C. 580, referred to.

The Undertaking of a banking company is property which can

be validly acquired under Article 31(2) of the Constitution.

The word " property" should be given a liberal and wide

connotation and would take in those well recognised types of

interest which have the insignia or characteristics of

proprietary right. By Undertaking of a bank is meant the

entire integrated Organisation consisting of all property,

movable or immovable and the totality of undertaking is one

concept which is not divisible into components or

ingredients. [635 H, 636 D]

Gardner v. London Chatham and Dover Railway Co., [1867] Vol.

II Chancery Appeals 201, Re : Panama, New Zealand and

Australian Royal Mail Company, Re : Portsmouth (Kingston

Fratton and Southsea) Tramsway Co., [1892] 2 Ch. 362, H. H.

Vivian and Company Ltd., [1900] 2 Ch. 654, Doughty v.

Lomagunda Reefs Ltd. [1902] 2 Ch. D. 837. Minister for

State for the Army v. Datziel, 68 C.L.R. 261, Commissioner,

Hindu Religious Endowments, Madras v. Sri Lakshmindra

Thirtha Swamiar of Sri Shirur Mutt, [1954] S.C.R. 1005 and

J. K. Trust Bombay v. The Commissioner of Income-tax Excess

Profits Tax, Bombay [1958] S.C.R. 65, referred to.

State of Madhya Pradesh v. Ranojirao Shinde & Anr., [1968] 3

S.C.R. 489, held inapplicable.

542

(iii) (a) Article 19(1) (f) and (g) do not at all enter

the domain of Art. 31(2).

The view of this Court in Kavalappar Kochunni v. Slate of

Madras ;and Sitabati Devi v. State of West Bengal was; that

Art. 31(2), after the Constitution Fourth Amendment Act,

1955, related entirely to acquisition or requisition of

property by the State and was totally distinct from .the

scope and content of Art. 31(1) with the result that Art.

19(1)(f) ,did not enter the area of acquisition or

requisition of property by the .State. Again, in State of

Gujarat v. Shantilal Mangaldas the Court observed :

["Sitabati Devi] unanimously held that the validity of the

Act ,relating to acquisition and requisition cannot be

questioned on the ground 'hat it offended Art. 19(1)(f) and

cannot be decided by the criterion ,under Article 19(5)".

[621 C. H]

The provisions of the Constitution are to be interpreted in

a harmonious manner, that is, each provision must be

rendered free to operate with full vigour in its own

legitimate field. If acquisition or requisition of property

for a public purpose has to satisfy again the test of

reasonable restriction in the interest of the general

public, harmony is repelled and Art. 31(2) -becomes a mere

repetition and meaningless. A reasonable restriction is

inherent and implicit in public purpose. That is why public

purpose is dealt with separately in Art. 31 (2). It will be

pedantry to say that acquisition for public purpose is not

in the interest of the public. Articles 31(2) and 31(2)(A.)

form a self contained code, because : (i) it provides for

acquisition or requisition with authority of a law; (ii) the

acquisition or requisition is to be for a public purpose;

(ii) the law should provide for compensation; (iv) the

adequacy of compensation is not to be questioned; and,

finally, the amendment of Art. 31 indicates in bold relief

the separate and distinctive field of law for acquisition

and requisition, by the State, of property for public

purpose. [622 C-623 C]

A public purpose is a purpose affecting the interest of the

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general public and, therefore, the welfare State is given

powers of acquisition or requisition of property for public

purpose. One cannot be guided either by passion and

property on the one hand or prejudice against deprivation on

the other. Public purpose steers clear of both passion and

prejudice The object of the Act according to the legislation

is to use the deposits in wider public interest and what was

true of public purpose when the Constitution was ushered in

the mid-century is a greater truth after two decades.[623 H]

A. K. Gopalan v. State of Madras, [1950] S.C,R. 88. State

of West Bengal v. Subodh Gopal Bose, [1954] S.C.R. 587,

State of Bombay V. Bhanji Munji and Anr., [1955] 1 S.C.R.

777, Kavalappara Kottarthil Kochuni and Ors. v. The State of

Madras and Ors., [1960] 3 S.C.R. 887, Smt. Sitabati Devi

and Anr. v. State of West Bengal and Anr. [1967] 2 S.C.R.

940, State of Gujarat v. Shantilal Mangaldas and Others,

A.I.R. 1969 S.C. 634, State of Bihar v. Maharaja Darbhanga,

[1952] S.C.R. 889 and Iswari Prasad v. N. R. Sen A.I.R. 1952

Cal. 273. referred to.

Even on the assumption that Article 19(1)(f) or (g) is

attracted in case of acquisition or requisition of

property dealt with by Article 31(2), the Act had to be

upheld as a reasonable -restriction in the interest of the

general public. [654 H]

(b) Article 19(6) in the two limbs and in the two sub-

articles of the second limb deals with separate matters and

state monopoly in respect of

543

trade or 'business is not open to be reviewed in courts on

the ground of reasonableness. [638 D]

Akadasi Padhan v. State of Orissa, [1963] Supp. 2 S.C.R,

691, followed,

Motilal v. Government of the State of Uttar Pradesh I.L.R.

[1951] 1 All. 269 and Municipal Committee of Amritsar v.

State of Punjab, Writ Petition No. 295 of 1965 decided on-

30 January, 1969, referred to.

Earl Fitzwilliant's Wentworth Estates Co. v. Minister of

Housing and Local Government and Another, [1952] A.C. 362,

distinguished.

(c) Section 15(2) of the Act allowed the named Banks to

carry on business other than banking. if the entire

undertaking of a banking company was -taken by way of

acquisition, the assets could not be separated to

distinguish those belonging to the banking business from,

others belonging to non-banking business, because, assets

were not in fact divisible on any such basis. Furthermore,

that would be striking at the root of acquisition of the

entire undertaking. No acquisition or requisition of the

undertaking of a banking company is complete or

comprehensive without all businesses which are incidental

and conducive to the entire business of the bank. It would

be: strange to hold that in the teeth of express provisions

in the Act permitting the banks to carry on businesses other

than banking that the same would amount to a prohibition On

the bank to carry on those businesses. Constitutionality of

the Act could not be impeached on the ground of lack of

immediate resources to carry on. business. The petitioners

contention based on Art. 19(6) therefore had to fail. [639B-

E]

(iv) The acquisition of the undertaking did not offend Art.

14 because of intelligible differentia and their rational

relation to the object to be achieved by the Act and it

followed that these Banks could not, therefore, be, allowed

to carry on banking business to nullify the very object of

the Act. The fourteen banks were not in the same class as

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other scheduled banks. The classification, was on the basis

of the fourteen Banks having deposit of Rs. 50 crores and

over. The object of the Act was to control the deposit

resources for developing national economy and as such the

selection of fourteen Banks, having regard to their larger

resources, their greater coverage,, their managerial and

personal resources and the administrative and organisational

factors involved in expansion, was both intelligible and

sound and related to the object of the Act. From the point

of view of resources these fourteen banks were better suited

than others and, therefore, speed and efficiency which were

necessary for implementing the objectives of the Act 'Could

be ensured by such classification. The legislature is the

best judge, of what should subserve public interest. [644 E,

642 E-H]

Shri Ram Krishna Dalmia v. Shri Justice S. R, Tendolkar,

[1959] S.C.R. 279, P. V. Sivarajan v. The Union of India,

[1959] 1 Supp. 779, Kathi Raning Rawat v. State of

Saurashtra [1952] S.C.R. 435, The Board of Trustees,

Ayurvedic and Unani Tibia College, Delhi v. The State of

Delhi, [1962] Supp. 1 S.C.R. 156, Mohd. Hanif Quareshi v.

State of Bihar, [1959] S.C.R. 628 and Harnam Singh v.

Regional Transport Authority, Calcutta, 1954 S.C.R. 371,

referred to.

(v) When principles are laid down in a statute and those

principles. are relevant to determination of compensation,

namely, they are principles in relation' to the, property

acquired or are principles relevant to the time of

acquisition of property or the amount fixed is not obviously

and shockingly

544

illusory, there is no infraction of Art. 31(2) and the owner

cannot impeach it on the ground of "just equivalent" of the

property acquired. The relevancy is to compensation and not

to adequacy. It is unthinkable that Parliament, after the

Constitution Fourth Amendment Act, intended that the word

compensation should mean 'just equivalent' when Parliament

had put a bar on challenge to the adequacy of compensation.

Just compensation cannot be inadequate, and anything which

is impeached as unjust or unfair is impinging on adequacy.

[649 C-E]

Vajravelu Mudaliar v. Special Deputy Collector, Madras,

[1965], 1 S.C.R. 614, Shantilal Mangaldas v. State of

Gujarat, [1969] 3 S.C.R. 341, Bela Banerjee's case, [1954]

S.C.R. 558, Union of India v. The Metal Corporation of India

Ltd., [1967] 1 S.C.R. 255 and Cruttwell v. Lye, 17 Ves. 335,

referred to.

Under the Act entire undertaking was the subject matter of

acquisition and compensation was to be paid for the

undertaking and not for each of the assets of the

undertaking. There is no uniform established principle for

valuing an undertaking as a going concern but the usual

principle is assets minus liabilities. If it be suggested

that no compensation was provided for any particular asset

that would be Questioning adequacy of compensation, because,

compensation was provided for the entire undertaking. When

the relevant principle set out was ascertained value it

could not be urged that market value should have been the

principle. It would really be going into adequacy of

compensation by preferring the metrits of one principle to

that of the other for the oblique purpose of arriving at

what was suggested to be just equivalent. [650 G, 651 F-G.

649 D]

The contention as to exclusion of good-will amounted to

questioning adequacy and would not vitiate the principle of

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valuation which had been laid down. Good-will can arise

when the undertaking is sold as a going concern. The

fourteen banks carried on business under licence by reason

of s. 22 of the Banking Regulation Act, and the concept of

sale in such it situation is unreal. In case of compulsory

acquisition no goodwill passes to the acquiring authority.

Besides, no facts were pleaded in the petition to $.how what

goodwill the banks had. [653 F]

In the valuation of lands and buildings market value is not

the, only principle. That is why the Constitution has left

the laying down of the principles to the legislature.

Ascertained value; is a relevant and sound principle based

on capitalisation method which is accepted for valuation of

land and properties. The contention that twelve times the

annual rent was not a relevant principle and was not an

absolute rule and compensation might be illusory could not

be accepted. Capitalisation method is not available to land

because land is not generally let out. Nor can it he said

that the principle is irrelevant when there are two plots

side by side one with building and the other vacant because

standard rent necessarily takes into account value of land

on which the building is situated. If rental method be

applied to land the value may be little, but it is a

principle relevant to' determination of compensation.

Furthermore, there was no case in the petition that there

was land with building side by side with vacant land. [651

F-H, 652 A-C]

As to securities shares and debentures Explanation (iv) and

(v) to Part 1(c) would be operative only when market value

of shares; and debentures was considered reasonable by

reason of its having been affected by abnormal factors or

when market value of shares and debentures was not

ascertainable. In both cases principles were. laid down,

namely, how

545

valuation had to be made taking into account various factors

and these principles were relevant to determination of

compensation.

Deductions on account of maintenance and repairs is

essential in the capitalization method. Insurance would

also be an essential deduction in the capitalisation method

and it could not be assumed that the Bank would insure for a

value higher than what was necessary; also payment of tax or

ground rent might be out of income but these had to be

provided for in ascertaining value of the building under the

capitalisation method.

There was no basis for the argument that Explanation 2 (i)

(vi) which dealt with deduction of interest on borrowed

capital was included twice, namely, under Explanation 2(i)

(vi) and also under liabilities in Part II. Interest on

mortgage or borrowed capital is one of the deductions in

calculating outgoings under capitalisation method. In Part

11 the liabilities were those existing at the commencement

of the Act and contingent liabilities which corresponding

new Bank might reasonably be expected to be required to meet

out of its own resources on or after the commencement of the

Act. Interest payable on mortgage or borrowed capital on or

after the commencement of the Act would not be taken into

account as outground for saying that the principle was not

relevant. [654 G]

The contentions that no time limit was mentioned with regard

to payment of compensation in s. 6(1) and that s. 6(6) was

an unreasonable: restriction had no force because (i) there

was no question of fixing time within which agreement was to

be reached or determination was to be, made by a tribunal

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and (ii) 'under s. 6(6) the government would pay the money

to the Bank only if the Bank agreed to pay to the share-

holders; therefore, s. 6(6) was a provision for the benefit

of the Bank and the, share-holders and there was no

unreasonableness in it. [652 D-653 D]

The principles set out in the Act was relevant to the

determination of compensation. It might be that adoption of

one principle conferred lesser sum of money than adoption of

another; but that would not be. a ground for saying that the

principle was not relevant. [654 G]

(vi) Article 305 directly applies to a law relating to

banking and all business necessarily incidental to it

carried on by the State to the complete or partial exclusion

of the fourteen banks. Article 302 can have no application

and an individual cannot complain of violation of Art. 301

in such a case. Article 305 applied in the present case

arid, therefore neither Art. 301 nor Art. 302 was

applicable. [641 H]

(vii) A legislation which has retrospective effect

affecting acquisition or requisition of property is not

unconstitutional and is valid. The Act which was

retrospective in operation did not violate article 31(2)

because the Article speaks of "authority of law" without any

words of limitation or restriction as to law being in force

at the time. Further, the vital distinction between Art.

20(1) and Art. 31(2), namely, that the former cannot have by

its own terms have any retrospective operation while the

latter can, is to be kept in the forefront in appreciating

the soundness of the proposition that retrospective

legislation as to acquisition of property does not Violate

Art. 31(2). [615 A-B, 617 B]

M/S. West Ramand Electric Distribution Company Ltd. v.

State of Madras, [1963] 2 S.C.R. 747, and State of Mysore v.

Achiah Chetty, A.I.R. 1969 S.C. 477. followed.

Punjab Province v. Daulat Singh & Others, 73 I.A. 59,

explained.

Sup. CI/70-5

546

(viii) The Act contained enough guidelines for reaching

the objectives set out in the preamble. First, the

government could give directions only in regard to policy

involving public interest; secondly, directions could only

be given by the Central Government and no one else; thirdly,

these directions could only be given after consultations

with the Governor of the Reserve Bank; the Central

Government and the Governor of the Reserve Bank are high

authorities; fourthly, matters involving public interest are

objective and subject to judicial scrutiny. In working the

Act directions from the Central Government were necessary to

deal with policy and other matters to serve the needs of

national economy. [640D]

Harishankar Bagla v. The State of Madhya Pradesh, [1955] 1

S.C.R. 380, reffered to.

JUDGMENT:

ORIGINAL JURISDICTION : Writ Petitions Nos. 222, 300 and 298

of 1969.

Writ Petitions under Art. 32 of the Constitution of India

for enforcement of the fundamental rights.

N. A. Palkhivala, M. C. Chagla, A. J. Raja, N. N.

Palkhivala,

R. N. Bannerjee, S. Swarup, B. Datta, J.B. Dadachanji, 0.

C. Mathur, -and Ravinder Narain, for the petitioner (in W.P.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 19 of 108

Nos. 222 -and 300 of 1969).

R. V. S. Mani, for the petitioner (in W.P. No. 298 of

1969).

Niren De, Attorney-General, Jagadish Swarup, Solicitor-

General, M. C. Setalvad, C. K. Daphtary, R. H. Dhebar R. N.

Sachthey and S. P. Nayar, for the respondent (in W.P. No.

222 of 1969).

Niren De, Attorney-General, Jagadish Swarup, Solicitor-

General, M. C. Setalvad, C. K. Daphtary, N. S. Bindra, R. H.

Dhebar, R. N. Sachthey, S. P. Nayar and N. H. Hingorani, for

respondent (in W.P. No. 300 of 1969).

Niren De, Attorney-General, Jagadish Swarup, Solicitor-Gene-

ral" M. C. Setalvad, C. K. Daphtary, V. A. Seyid Muhammad,

R. H. Dhebar, R. N. Sachthey and S. P. Nayar, for the

respondent (in W.P. No. 298 of 1969).

M. C. Setalvad, S. Mohan Kumaramangalam, R. K. Garg,

S. C. Agarwal and V. J. Francis, for intervener No. 1.

M. C. Setalvad, R. H. Dhebar and S. P. Nayar, for

intervener No. 2.

S. Mohan Kumaramangalam and A. V. Rangam, for intervener

No. 3.

Lal Narain Sinha, Advocate-General, Bihar, R. K. Garg and D. P.

Singh, for interevener No. 4.

V. K. Krishna Menon, M. R. K. Pillai and D. P. Singh, for

intervener No. 5.

547

P. Ram Reddy and P. Parameswara Rao, for intervener No. 6.

M. C. Chagla, Santosh Chatterjee and G. S. Chatterjee, for

intervener No. 7.

The Judgment of J. C. SHAH, S. M. SIKRI, J. M. SHELAT,

V. BHARGAVA, G. K. MITTER, C. A. VAIDIALINGAM, K. S.

HEGDE,

A. N. GROVER, P. JAGANMOHAN REDDY AND 1. D. DUA, JJ. was

delivered by SHAH J. A. N. RAY, J. gave a dissenting

Opinion.

Shah, J. Rustom Cavasjee Cooper-hereinafter called 'the

petitioner'-holds shares in the Central Bank of India Ltd.,

the Bank of Baroda Ltd., the Union Bank of India Ltd., and

the Bank of India Ltd., and has accounts-current and fixed

deposit -with those Banks : he is also a director of the

Central Bank of India Ltd. By these petitions he claims a

declaration that the Banking Companies (Acquisition and

Transfer of Undertakings) Ordinance 8 of 1969 promulgated on

July 19, 1969, and the Banking Companies (Acquisition and

Transfer of Undertakings) Act 22 of 1969 which replaced the

Ordinance with certain modifications impair his rights

guaranteed under Arts. 14, 19 and 31 of the Constitution,

and are on that account invalid.

In India there was till 1949 no comprehensive legislation

governing banking business and banking institutions. The

Central Legislature enacted the Banking Companies Act 10 of

1949 (later called "The Banking Regulation Act") to

consolidate and amend the law relating to certain matters

concerning banking. By s. 5 (b) of that Act, "banking" was

defined as meaning "the accepting, for the purpose of

lending or investment, of deposits of money from the public,

repayable on demand or otherwise",, and by s. 5(c) a

"banking company" meant "any company which transacts the

business of banking in India". By s. 6 it was enacted that

in addition to the business of banking as defined in s. 5(b)

a banking company may engage in one or more of the forms of

business specified in cls. (a) to (o) of sub-s. (1). By

sub-s. (2) of s. 6 banking companies were prohibited from

engaging "in any form of business other than those referred

to in sub-section (1)". The Act applied to commercial

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banks, and enacted provisions, amongst others, relating to

prohibition of employment of managing agents and

restrictions on certain forms of employment; minimum paid-up

capital and reserves; regulation of voting rights of

shareholders and election of Board of Directors; prohibition

of charge on unpaid capital; restriction on payment of

dividend; maintenance of a percentage of assets; return of

unclaimed deposits; and accounts and balance sheets. It

also enacted provisions authorising the Reserve Bank to

issue directions

548

to and for trial of proceedings against the Banks and for

speedy disposal of winding up proceedings of Banks.

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

s. 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.

During the last two decades the Reserve Bank reorganised the

banking structure. A number of units which accounted for a

small section of the banking business were, amalgamated

under directions of the Reserve Bank. The total number of

commercial banking institutions was reduced from 566 in 1951

to 89 in 1969, 73 scheduled and 16 non-scheduled.

In exercise of the authority conferred by the State Bank of

India Act 21 1955 the undertaking of the former Imperial

Bank of India was taken over by a public corporation

controlled by the

549

Central Government. The State Bank took over seven subsi-

diaries under authority conferred by Act 38 of 1959. There

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were in June 1969 14 commercial banks operating in India

each having deposits exceeding Rs. 50 crores. The following

is an analysis of the commercial banking structure in India

in June 1969 :

No. of No. of Deposits Credit

Banks Offices (in crores) (in crores)

State Bank of India 1 1,566 948967

Subsidiaries of State

Bank of India 7 888 291 219

Indian scheduled com-

mercial banks (each with

deposit exceeding Rs. 50

cores) 14 4,130 2,632 1,829

Banks incorporated in

foreign countries 15* 130 478 385

Other Indian Scheduled

Banks ....... . 36 1,324 296 197

Non-scheduled commer-

cial Banks 16 216 28 16

---------------------------------

*Only 13 were operating.

Late in the afternoon of July 19, 1969 (which was a Satur-

day) the Vice-President (acting as President) promulgated,

in exercise of the power conferred by cl. (1) of Art. 123 of

the Constitution, Ordinance 8 of 1969 transferring to and

vesting the undertaking of 14 named commercial banks in

corresponding new banks set up under the Ordinance. The

long little of the Ordinance read as follows

"An Ordinance to provide for the acquisition and transfer of

the undertakings of certain banking companies in order to

serve better the needs of development of the economy in

conformity with national policy and objectives and for

matters connected therewith or incidental thereto."

By S. 2 "banking company" was defined as not including a

foreign company within the meaning of S. 591 of the

Companies Act, 1956. An "existing bank" was defined by s.

2(b) as meaning " a banking company specified in column 1 of

the First Schedule, being a company the deposits of which,

as shown in the return as on the last Friday of June, 1969,

furnished to the Reserve Bank

550

under section 27 of the Banking Regulation Act, 1949, were

not less than rupees fifty crores". In the Schedule to the

Act were included the names of fourteen commercial banks

1. The Central Bank of India Ltd.

2. The Bank of India Ltd.

3. The Punjab National Bank Ltd.

4. The Bank of Baroda Ltd.

5. The United Commercial Bank Ltd.

6. Canara Bank Ltd.

7. United Bank of India Ltd.

8. Dena Bank Ltd.

9. Syndicate Bank Ltd.

10. The Union Bank of India Ltd.

11. Allahabad Bank Ltd.

12. The Indian Bank Ltd.

13. The Bank of Maharashtra Ltd.

14. The Indian Overseas Bank Ltd.

These banks are hereinafter referred to as the named banks.

A "corresponding new bank" was defined in relation to an

existing bank as meaning "the body corporate specified

against such bank in column 2 of the First Schedule". By s.

2 (g) it was provided that the words and expressions used in

the Ordinance and not defined, but defined in the Banking

Regulation Act, 1949, had the meaning respectively assigned

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to them in that Act. Thereby the definitions of "banking"

and "banking company" in s. 5 (b) and s. 5 (c) of the

Banking Regulation Act were incorporated ill the Ordinance.

The principal provisions of the Ordinance were

(1) Corporations styled in the ordinance "corresponding new

banks" shall be established, each such corporation having

paid up capital equal to the paid-up capital of the named

bank in relation to which it is a corresponding new bank.

The entire capital of the new bank shall stand vested in the

Central Government. The corresponding new banks shall be

authorised to carry on and transact the business of banking

as defined in cl. (b) of s. 5 of the Banking Regulation Act,

1949, and also to engage in one or more forms of business

specified in sub-s. (1) of s. 6 of that Act. The Chairman

of the named bank holding office immediately before the

commencement of the Ordinance; shall be the Custodian of the

corresponding new bank. The general superintendence and

direction of the affairs and business of a corresponding

bank shall be vested in the Custodian, who shall be the

chief executive officer of that bank.

551

(2) The undertaking within or without India of every named

bank on the commencement of the Ordinance shall stand trans-

ferred to and vested in the corresponding new bank. The ex-

pression "undertaking" shall include all assets, rights,

powers, authorities and privileges, and all property,

movable and immovable, cash balances, reserve fund

investments and all other rights and interests arising out

of such property as are immediately before the commencement

of the Ordinance in the ownership, possession, power or

control of the named bank in relation to the undertaking,

including -all books of accounts, registers, records and all

other documents of whatever nature relating thereto. It

shall also include all borrowings, liabilities and

obligations of whatever kind then subsisting of the named

bank in relation to the under-taking. If according to the

law of any foreign country, the provisions of the Ordinance

by themselves do not effectively transfer or vest any asset

or liability situated in that country in the corresponding

new bank, the affairs of the named bank in relation to such

asset or liability shall stand entrusted to the chief

executive officer of the corresponding new bank with

authority to take steps to wind up the affairs of that bank.

All contracts, deeds, bonds, agreements, powers of attorney,

grants of legal representation and other instruments of

whatever nature subsisting or having effect immediately

before the commencement of the Ordinance, and to which the

named bank is a party or which are in favour of the named

bank shall be of as full force and effect against or in

favour of the corresponding new bank, and be enforced or

acted upon as fully and effectively as if in the place of

the named bank the corresponding new bank is a party thereto

or as if they are issued in favour of the corresponding new

bank. In pending suits or other proceedings by or against

the named bank, the corresponding new bank shall be

substituted in those suits or proceedings. Any reference to

any named bank in any law, other than the Ordinance, or in

any contract or other instrument shall be construed as a

reference to the corresponding new bank in relation to it.

(3) The Central Government shall have power to frame a

scheme for carrying out the provisions of the Act, and for

that purpose to make provisions for the corresponding new

banks relating to capital structure, constitution of the

Board of Directors, manner of payment of compensation to the

shareholders, and matters incidental, consequential and

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supplemental. Corresponding new banks shall also be guided

in the discharge of their functions by such directions in

regard to matters of policy involving public interest as the

Central Government may give.

(4) On the commencement of the Ordinance, every person

holding office as Chairman, Managing Director, or other

Direc-

552

tor of a named bank, shall be deemed to have vacated office,

and all officers and other employees of a named bank shall

become officers or other employees of the corresponding new

banks. Every named bank shall stand dissolved on such date

as the Central Government may by notification in that behalf

appoint.

(5) The Central Government shall give compensation to the

named banks determined according to the principles set out

in Second Schedule, that is to say,-

(a) where the amount of compensation can be fixed by

agreement, it shall be determined in accordance with such

agreement;

(b) where no such agreement can be reached, the Central

Government shall refer the matter to the Tribunal within a

period of three months from the date on which the Central

Government and the existing bank fail to reach an agreement

regarding the amount of compensation.

Compensation so determined shall be paid to each named bank

in marketable Central Government securities. For the

purpose of determining compensation, Tribunals shall be set

up by the Central Government with certain powers of a Civil

Court.

(6) The Central Government shall have power to make such

orders not inconsistent with the provisions of the Ordinance

which may be necessary for the purpose of removing defects.

Under the Ordinance the entire undertaking of every named

commercial bank was taken over by the corresponding new

bank, and all assets and contractual rights and all

obligations to which the named bank was subject stood

transferred to the corresponding new bank. The Chairman and

the Directors of the Banks vacated their respective

officers. To the named banks survived only the right to

receive compensation to be determined in the manner

prescribed. Compensation, unless settled by agreement, was

to be determined by the Tribunal, and was to be given in

marketable Government securities. The entire business of

each named bank was accordingly taken over, its chief

executive officer ceased to hold office and assumed the

office of Custodian of the corresponding new bank, its

directors vacated office; and the services of the ad-

ministrative and other staff stood transferred to the

corresponding new bank. The named bank had thereafter no

assets, no business, and no managerial, administrative or

other staff, it was incompetent to use the word "Bank" in

its name, because of the provisions contained in s. 7 (1) of

the Banking Regulation Act, 1949, and was liable to be

dissolved by a notification of the Central Government.

553

Petitions challenging the competence of the President to

promulgate the Ordinance were lodged in this Court on July

21, 1969. But before the petitions could be heard by this

Court, a Bill to enact provisions relating to acquisition

and transfer of undertakings of the existing banks was

introduced in the Parliament, and was enacted on August 9,

1969, as "The Banking Companies (Acquisition and Transfer of

Undertakings) Act 22 of 1969". The long title of the Act

was in terms identical with the long title of the Ordinance.

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By sub-s. (1) of s. 27 of the Act, Ordinance 8 of 1969 was

repealed. In the First Schedule were included the-names of

the 14 banks named in the Ordinance in juxtaposition with

the names of the corresponding new banks. By sub-s. (2) of

s. 1, the Act came into force on July 19, 1969, and the

undertaking of every named bank was deemed, with effect from

that date, to have, vested in the corresponding new bank.

By s. 27 (2), (3) and (4) actions taken or things done under

the Ordinance inconsistent with the provisions of the Act

were not to be of any force or effect, and no right,

privilege, obligation or liability was to be deemed to have

been acquired, accrued or incurred under the Ordinance.

The general scheme of the Ordinance relating to the transfer

to and vesting in the corresponding new bank of the

undertaking of each named bank, payment of compensation, and

management of the corresponding new bank, remained

unaltered. The Act departed from the Ordinance in certain

matters :

(1) Under the Act the named banks remain in existence for

certain purposes and they are not liable to be dissolved by

order of the Government. If under the laws in force in any

foreign country it is not permissible for a banking company-

, owned or controlled by Government, to carry on the

business of banking in that country, the assets, rights,

powers, authorities and privileges and property, movable and

immovable, cash balances and investments of any named bank

operating in that country shall not vest in the

corresponding new bank. The directors of the named banks

shall remain in office and may register transfers or

transmission of, shares; arrive at an agreement about the

amount of compensation payable under the Act or appearing

before the Tribunal for obtaining a determination as to the

amount of compensation; distribute to shareholders the

amount of compensation received by the Bank under the Act

for the acquisition of its undertaking; carry on the

business of banking in any country outside India if under

the law in force in that country any bank, owned or

controlled by Government, is prohibited from carrying on the

business of banking there; an carry on any business other

than the business of banking. The Central Government has

power to authorise the corresponding new bank to advance the

amount required by the named bank in connection with the

functions which the directors may perform. Reference to any

named bank in any law, or in any

554

contract or other instrument shall be construed as a

reference to the corresponding new bank in relation to it,

but not in cases where the named bank may carry on any

business and in relation to that business.

(2) Principles for determination of compensation and the

manner of payment are modified. Interim compensation may be

paid to a named bank if it agrees to distribute to its

shareholders in accordance with their rights and interests.

A major change is made in the principles for determining

compensation set out in Sch. 11. By Explanation I to cl.

(e) of Part I of Sch. II, the value of any land or

buildings to be taken into account in valuing the assets is

to be the market value of the land or buildings, but where

such market value exceeds the "ascertained value", that

"ascertained value" is to be taken into account, and by

Explanation II the "ascertained value" of any building

wholly occupied on the date of the commencement of the Act

is to be twelve times the amount of the annual rent or the

rent for which the building may reasonably be expected to be

let out from year to year, and reduced by one-sixth of the

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amount of the rent on account of maintenance and repairs,

annual premium paid to insure the building against risk of

damage or destruction, annual charge, if any, on the

building, ground rent, interest on any mortgage or other

capital charge on the building, interest on borrowed capital

if the building has been acquired, constructed, repaired,

renewed or re-constructed with borrowed capital, and the

sums paid on account of land revenue or other taxes in

respect of such building.

(3) The Central Government may reconstitute any correspond-

ing new bank into two or more corporations; amalgamate any

corresponding new bank with another banking institution;

transfer the whole or any part of the undertaking of a

corresponding new bank to any other banking institution; or

transfer the whole or any part of the undertaking of any

other banking institution to a corresponding new bank. The

Board of Directors of the corresponding new banks are to

consist of representatives of the depositors of the

corresponding new bank, employees of such banks, farmers,

workers and artisans to be elected in the prescribed manner

and of other persons as the Central Government may appoint.

(4) The profits remaining after making provision for bad

and doubtful debts, depreciation in assets, contributions to

staff and superannuation funds and all other matters for

which provision is necessary under any law, the

corresponding new bank shall transfer the balance of profits

to the Central Government.

(5) Provision of law relating to winding up of corporations

do not apply to the corresponding new banks, and a

corresponding new bank may be ordered to be liquidated only

by the order of the Central Government.

555

The petitioner challenges the validity of the Ordinance and

the Act on the following principal grounds :

(i) The Ordinance promulgated in exercise of the power

under Art. 123 of the Constitution was invalid, because the

condition precedent to the exercise of the power did not

exist;

(ii) That in enacting the Act the Parliament encroached upon

the State List in the Seventh Schedule of the Constitution,

and to that extent the Act is outside the legislative

competence of the Parliament;

(iii) That by enactment of the Act, fundamental rights

of the petitioner guaranteed by the Constitution- under

Arts. 14, 19 (1) (f) & (g) and 31(2) are impaired;

(iv) That by the Act the guarantee of freedom of trade under

Art. 301 is violated; and

(v) That in any event retrospective operation given to Act

22 of 1969 is ineffective, since there was no valid

Ordinance in existence. The provision in the Act

retrospectively validating infringement of the fundamental

rights of citizens was not within the competence of the

Parliament. That sub-sections (1) & (2) of s. 11 and s. 26

are invalid.

The Attorney-General contended that the petitions are not

maintainable, because no fundamental right of the petitioner

is,' directly impaired by the enactment of the Ordinance and

the Act, or by any action taken thereunder. He submitted

that 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 Arts. 14, 19 and 31 of the

Constitution were impaired.

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A company registered under the Companies Act is a legal

person, separate and distinct from its individual members.

Property of the Company is not the property of the

shareholders. A shareholder has merely an interest in the

Company arising under its Articles of Association, measured

by a sum of money for the purpose of liability, and by a

share in the profit. Again a director of a Company is

merely its agent for the purpose of management. The holder

of a deposit account in a Company is its creditor : he is

not the owner of any specific fund lying with the Company.

A

556

shareholder, a depositor or a director may not therefore be

entitled to move a petition for infringement of the rights

of the Company, unless by the action impugned by him, his

rights are also infringed.

By a petition praying for a writ against infringement of

fundamental rights, except in a case where the petition is

for a writ of habeas corpus and probably for infringement of

the guarantee under Arts. 17, 23 and 24, the petitioner may

seek relief in respect of his own rights and not of others.

The shareholder of a ,Company, it is true, is not the owner

of its assets; he has merely a right to participate in the

profits of the Company subject to the ,contract contained in

the Articles of Association. But on that account the

petitions will not fail. A measure executive or legislative

may impair the rights of the Company alone, and not of its

shareholders; it may impair the rights of the shareholders

and not of the Company : it may impair the rights of the

shareholders as well as of the Company. Jurisdiction of the

Court to grant relief cannot be denied, when by State action

the rights of the individual shareholder are impaired, if

that action impairs the rights of the Company as well. The

test in determining whether the shareholder's right is

impaired is not formal: it is essentially qualitative: if

the State action impairs the right of the shareholders as

well as to the Company, the Court will not, concentrating

merely upon the technical operation of the action, deny

itself jurisdiction to grant relief.

The petitioner claims that by the Act and by the Ordinance

the rights guaranteed to him under Arts. 14, 19 and 31 of

the Constitution are impaired. He says that the Act and the

Ordinance are without legislative competence in that they

interfere with the guarantee of freedom of trade and are not

made in the public interest; that the Parliament had no

legislative competence, to enact the Act and the President

had no power to promulgate the Ordinance, because the

subject-matter of the Act and the Ordinance is (partially at

least) within the State List; and that the Act and Ordinance

are invalid because they vest the undertaking of the named

banks in the new corporations without a public purpose and

without setting out principles and the basis for

determination and payment of a just equivalent for the pro-

perty expropriated. He says that in consequence of the

hostile discrimination practised by the State the value of

his investment in the shares is substantially reduced, his

right to receive dividend from his investment has ceased,

and he has suffered great financial loss, he is deprived of

the right as a shareholder to carry on business through the

agency of the Company, and that in respect of the deposits

the obligations of the-- corresponding new banks -not of his

choice are substituted without his consent.

(1) [1954] S. C. R. 674.

557

In Dwarkadas Shrinivas v. The Sholapur Spinning & Weaving

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Co. Ltd. and Others(1) this Court held that a preference

shareholder of a company is competent to maintain a suit

challenging the validity of the "Sholapur Spinning and

Weaving Company (Emergency Provisions) Ordinance" 2 of 1950

(which was later replaced by Act 27 of 1950), which deprived

the Company of its property without payment of compensation

within the meaning of Art. 31. Mahajan, J., observed :

"The plaintiff and the other preference shareholders are in

imminent danger of sustaining direct injury as a result of

the enforcement of this Ordinance, the direct injury being

the amount of the call that they are called upon to pay and

the consequent forfeiture of their shares."

Das, J., in the same case examined the matter in some detail

and observed at p. 722 :

"The impugned Ordinance,......the preference shareholders by

imposing on them this liability, or the risk- of it, and

gives them a sufficient interest to challenge the validity

of the Ordinance, . . . . Certainly he can show that the

Ordinance under which these persons have been appointed was

beyond the legislative competence of the authority which

made it or that the Ordinance had not been duly promulgated.

If he can, with a view to destroy the locus standi of the

persons who have made the call, raise the question of the

invalidity of the Ordinance .... I can see no valid reason

why, for the self same purpose, he should not be permitted

to challenge the validity of the Ordinance on the ground of

its unconstitutionality for the breach of the fundamental

rights of the company or of other persons."

A similar view was also taken in Chiranjit Lal Chowduri v.

The Union of India(1) by Mukherjea, J., at p. 899, by Fazl

Ali, J., at p. 876, by Patanjali Sastri, J., at p. 889 and

by Das, J., at p. 922.

The judgment of this Court in The State Trading Corporation

of India Ltd. & Others v. The Commercial Tax Officer,

Visakhapatnam & Ors.(2) has no bearing on this question. In

that case in a petition under Art. 32 of the Constitution

the State Trading Corporation challenged the infringement of

its right to hold property and to carry on business under

Art. 19 (1) (f) & (g) of

(1) [1950] S. C. R. 869. (2) [1964] 4

S.C.R. 99.

558

the Constitution and this Court opined that the Corporation

not being a citizen was incompetent to enforce the rights

guaranteed by Art. 19. Nor has the judgment in Tata

Engineering and Locomotive Co. Ltd. v. State of Bihar and

Ors. (1) any bearing on the question arising in these

petitions. In a petition under Art. 32, of the Constitution

filed by a Company challenging the levy of sales-tax by the

State of Bihar, two shareholders were also impleaded as

petitioners. It was urged on behalf of the shareholders

that in substance the interests of the Company and of the

shareholders were identical and the shareholders were

entitled to maintain the petition. The Court rejected that

contention, observing that what the Company could not

achieve directly, it could not relying upon the "doctrine of

lifting the veil" achieve indirectly. The petitioner seeks

in this case to challenge the infringement of his own rights

and not of the Banks of which he is a shareholder and a

director and with which he has accounts-, current and fixed

deposit.

It was urged that in any event the guarantee of freedom of

trade does not occur in Part III of the Constitution, and

the petitioner is not entitled to maintain a petition for

breach of that guarantee in this Court. But the petitioner

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does not seek by these petitions to enforce the guarantee of

freedom of trade and commerce in Art 301: he claims that in

enacting the Act the Parliament has violated a

constitutional restriction imposed by Part XIII of its

legislative power and in determining the extent to which his

fundamental freedoms are impaired, the statute which the

Parliament is incompetent to enact must be ignored.

It is not necessary to consider whether Art. 31 A ( 1 ) (d)

of the Constitution bars the petitioner's claim to enforce

his rights as a director. The Act prima facie does not

(though the Ordinance purported to) seek to extinguish or

modify the right of the petitioner as a director : it seeks

to take away expressly the right of the named Banks to carry

on banking business, while reserving their right to carry on

business other than banking. Assuming that he is not

entitled to set up his right to enforce his guaranteed

rights as a director, the petition will not still fail. The

preliminary objection raised by the Attorney-General against

the maintainability of the petitions must fail.

I. Validity of Ordinance 8 of 1969-

Power to issue Ordinance is by Art. 123 of the Constitution

vested in the President. Article 123 provides :

"(1) If at any time, except when both Houses of Parliament

are in session, the President is satisfied that

(1) [1964] 6 S.C.R. 885.

559

circumstances exist which render it necessary for him to

take immediate action, he may promulgate such Ordinance as

the circumstances appear to him to require.

(2) An Ordinance promulgated under this Article shall have

the same force and effect as an Act of Parliament, but every

such Ordinance-

(a) shall be laid before both Houses of Parliament and

shall cease to operate at the expiration of six weeks from

the re-assembly of Parliament, or, if before the expiration

of that period resolutions disapproving it are passed by

both Houses, upon the passing of the second of those resolu-

tions; and

(b) may be withdrawn at any time by the President.

Explanation.-Where the Houses of Parliament are summoned to

reassemble on different dates, the period of six weeks shall

be reckoned from the later of those dates for the purposes

of this clause.

(3) If and so far as an Ordinance under this article makes

any provision which Parliament would not under this

Constitution be competent to enact, it shall be void."

Under the Constitution, the President being the

constitutional head, normally acts in all matters including

the promulgation of an Ordinance on the advice of his

Council of Ministers. Whether in a given case the President

may decline to be guided by the advice of his Council of

Ministers is a matter which need not detain us. The

Ordinance is promulgated in the name of the President and in

a constitutional sense on his satisfaction: it is in truth

promulgated on the advice of his Council of Ministers and on

their satisfaction. The President is under the Constitution

not the repository of the legislative power of the Union,

but with a view to meet extraordinary situations demanding

immediate enactment of laws, provision is made in the

Constitution investing the President with power to legislate

by promulgating Ordinances.

Power to promulgate such Ordinance as the circumstances

appear to the President to require is exercised-(a) when

both Houses of Parliament are not in session; (b) the

provision intended to be made is within the competence of

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the Parliament to enact; and (c) the President is satisfied

that circumstances exist which render it necessary for him

to take immediate action. Exercise of the power is strictly

conditioned. The clause relating to

560

the satisfaction is composite: the satisfaction relates to

the existence of circumstances, as well as to the necessity

to take immediate action on account of those circumstances.

Determination by the. President of the existence of

circumstances and the necessity to take immediate action on

which the satisfaction depends, is not declared final.

The Attorney-General contended that the condition of satis-

faction of the President in both the branches is purely

subjective and the Union of India is under no obligation to

disclose the existence of, or to justify the circumstances

of the necessity to take immediate action. He relied upon

the decisions of the Judicial Committee in Bhagat Singh v.

The King Emperor(1); King Emperor v. Benoari Lal Sarma(2).

and upon a decision of the Federal Court in Lakhi Narayan

Das v. The Province of Bihar(2), which interpreted the

analogous provisions of the Government of India Act, 1935,

conferring upon the GovernorGeneral in the first two cases,

and upon the Governor of a Province in the last case, power

to issue Ordinances. He also relied upon the judgment of

the, Judicial Committee in Hubli Electricity Co. Ltd. v.

Province of Bombay(3).

The Attorney-General said that investment of legislative

power upon the President being an incident of the division

of sovereign functions of the Union and a "matter of high

policy", the expression "the President is satisfied that

circumstances exist which render it necessary for him to

take immediate action" is incorporated as a guidance and not

as a condition of the exercise of power. He invited our

attention to the restraints inherent in the Constitution on

the exercise of the power to promulgate Ordinance in cls.

(1) & (2) of Art. 74; cls. (3) & (4) of Art. 75 and Art.

361, and submitted that the rule applicable to the interpre-

tation of parliamentary statutes conferring authority upon

officers of the State to act in a prescribed manner on being

satisfied about the existence of certain circumstances is

inept in determining the true perspective of the power of

the head of the State in situations of emergency.

,On the other hand, Mr. Palkhivala contended that the Presi-

dent is not made by Art. 123 the final arbiter of the

existence of the conditions on which the power to promulgate

an Ordinance may be exercised. Power to promulgate an

Ordinance being conditional, counsel urged, this Court in

the absence of a provision-express or necessarily implicit

in the Constitution-to the contrary, is competent to

determine whether the power was exercised not for a

collateral purpose, but on relevant circumstances

(1) L. R. 58 1. A. 169.

(2) L. R. 72 I. A. 57.

(3) [1949] F. C. R. 693.

(4) L. R. 76 I. A. 57.

561

which, prima facie, establish the necessity to take

immediate action. Counsel submitted that the rules

applicable to the interpretation of statutes conferring

power exercisable on satisfaction of the specified

circumstances upon the President and upon officers of the

State, are not different. The nature of the power to

perform an official act where the authority is of a certain

opinion, or that in his view certain circumstances exist or

that he has reasonable grounds to believe, or that he has

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reasons to believe, or that he is satisfied, springing from

a constitutional provision is in no manner different from a

similar power under a parliamentary statute, and no greater

sanctity may attach to the exercise of the power merely

because the source of the power is in the Constitution and

not in a parliamentary statute. There is, it was urged,

nothing, in the constitutional scheme which supports the

contention that the clause relating to satisfaction is not a

condition of the exercise of the power.

Counsel relied upon the judgments of this Court in

Barium Chemical Ltd. and Another v. The Company Law Board

and Ors.(1) and Rohtas Industries Ltd. v. S. D. Agarwal and

Anr;(2) upon the decisions of the House of Lords in Padfield

& Others v. Minister of Agriculture, Fisheries and Food and

Others (3) and of the Judicial Committee in Durayappah v.

Fernando and Others(4); Nakkuda Ali v. M. F. De S.

Jayaratne(5); RossClunis v. Papadopoullos(6), and contended

that the decisions of the Judicial Committee in Bhagat

Singh's case (7) and. Benoari Lal Sarma's case(8)

interpreted a provision which was in substance different

from the provision of Art. 123, that the decision in Lakhi

Narayan Das's case(9) merely followed the two judgments of

the Judicial Committee and since the status of the President

under the Constitution qua the Parliament is not the same as

the constitutional status of the Governor-General under the

Government of India Act, 1935, the decisions cited have no

bearing on the interpretation of Art. 123.

The Ordinance has been repealed by Act 22 of 1969, and the

question of its validity is now academic. It may assume

significance only if we hold that Act 22 of 1969 is valid.

Since the Act is, in our view, invalid for reasons

hereinafter stated, we accede to the submission of the

Attorney-General that we need express no opinion in this

case on the extent of the jurisdiction of the Court to

examine whether the condition relating to satisfaction of

the President was fulfilled.

1. [1966] Supp. S.C.R. 311.2.[1969] 3 S.C.R. 108.

3. [1968] 1 All E. R. 694.4. L.R. [1967] A.C. 337.

5. L.R. [1951] A.C. 66. 6. [1958] 2 All E.R. 23.

7. L.R. 58 I.A. 169. 8. L.R. 72 I.A. 57.

9. [1949] F.C.R. 693.

8SuPCI/70-6

562

II Authority of Parliament to enact Act 22 of 1969--

On behalf of the petitioner it is urged that the Act is not

within the legislative power of the Parliament and that, in

any event, to the extent to which it vests in the

corresponding new banks the assets of business other than

banking, it trenches upon the authority of the State

Legislature, and is on that account void. The relevant

legislative entries in the Seventh Schedule and the consti-

tutional provisions which have a bearing on the question of

acquisition and taking over of undertaking of a bank may

first be read.

The Parliament has exclusive legislative power with respect

to "Banking" Entry 45 List I; "Incorporation, regulation and

winding up of trading Corporations including banking,

insurance and financial corporations, but not including co-

operative societies" : Entry 43 List I; and "Incorporation,

regulation and winding up of corporations, whether trading

or not, with objects not confined to one State, but not

including Universities" : Entry 44 List I.

The States have exclusive legislative authority with respect

to the following subjects in List II :

Entry 26-"Trade and commerce within the Stale, subject to

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the provisions of entry 33 of List III;"

Entry 30-"Money-lending and money-lenders; relief of

agricultural indebtedness."

The Parliament and the States have concurrent legislative

authority with respect to the following subjects in List III

:

Entry 33-"Trade and commerce in, and the production, supply

and distribution of,-

(a) the products of any industry where the control of such

industry by the Union is declared by Parliament by law to be

expedient in the public interest, and imported goods of the

same kind as such products;

(b) foodstuffs, including edible oil-seeds and oils;

(c) cattle fodder, including oilcakes and other con-

centrates;

(d) raw cotton, whether ginned or unginned and cotton seed;

and

(e) raw jute."

Entry 42-"Acquisition and requisition of property."

563

The argument raised 'by Mr. Setalvad, intervening on behalf

of the State of Maharashtra and the State of Jammu and

Kashmir, that the Parliament is competent to enact Act 22 of

1969, because the subject-matter of the Act is "with respect

to" regulation of trading corporations and matters

subsidiary and incidental thereto, and on that account is

covered in its entirety by Entries 43 and 44 of List I of

the Seventh Schedule cannot be upheld. Entry 43 deals with

incorporation, regulation and winding up of trading

corporations including banking companies. Law regulating

the business of a corporation is not a law with respect to

regulation of a corporation. In List I entries expressly

relating to trade and commerce are Entries 41 & 42. Again

several entries in List I relate to activities commercial in

character. Entry 45 "Banking"; Entry 46 "Bills of exchange,

cheques, promissory notes and other like instruments; Entry

47 "Insurance"; Entry 48 "Stock exchanges and future

markets"; Entry 49 "Patents, inventions and designs". There

are several entries relating to activities commercial as

well as non-commercial in List II-Entry 21 "Fisheries".

Entry 24 "Industries . . . ."; Entry 25 "Gas and Gas works":

Entry 26 "Trade and commerce"; Entry 30 "Money lending and

money-lenders"; Entry 31 "Inns and Inn-keeping"; Entry 33

"Theatres and dramatic performances, cinemas etc.". We are

unable to accede to the argument that the State Legislatures

are competent to legislate in respect of the subject-matter

of those entries only when the commercial activities are

carried on by Individuals and not when they are carried on

by corporations.

The object of Act 22 of 1969 is to transfer the undertaking

of each named bank and to vest it in the corresponding new

bank set up with authority to carry on banking and other

business. Each such corresponding new bank is controlled by

the Central Government of which the entire capital is to

stand vested in and allotted to the Central Government. The

principal provisions of the Act which effectuate that object

relate to-setting up of "corresponding new banks" as

statutory corporations to carry on and transact the business

of banking as defined in s. 5 (b) of the Banking Regulation

Act, 1949, and one or more other forms of business specified

in s. 6 (1) of that Act, with power to acquire and hold

property for the purpose of the business, and to dispose of

the same; administration of the corresponding pew banks as

institutions carrying on banking and other business; the

undertaking of each named bank in its entirety stands

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transferred to and vested in a new corporation set up for

that purpose; principles for determination of compensation

and method of payment thereof to each named bank for

transfer of its undertaking; and that the named bank may not

carry on banking business, but may carry out business other

than banking.

564

Mr. Palkhivala submitted that the Parliament may legislate

in respect of the business of banking as defined in S. 5 (b)

of the Banking Regulation Act, 1949, and matters incidental

thereto, and also for acquisition of that part of the

undertaking of each named bank which relates to the business

of banking, but not in respect of any other business not

incidental to banking in which the named bank was engaged

prior to July 19, 1969, for the power to legislate in

respect of such other business falls within Entry 26 of List

II. As a corollary thereto, counsel submitted that power to

legislate in respect of acquisition under Entry 42 of List

III may be exercised by the Parliament only for effectuating

legislation under a head falling in List I or List III of

the Seventh Schedule.

It is necessary to determine the true scope of "banking" in

Entry 45 List I, the meaning of the expression "property",

and the limitations on the power of the Parliament to

legislate in respect of acquisition of property in Entry, 42

List III. Matters not in contest may be eliminated. Power

to legislate for setting up corporations to carry on banking

and other business and to acquire, hold and dispose of

property and to provide for administration of the

corporations is conferred upon the Parliament by Entries 43,

44 and 45 of the first list. Power to enact that the named

banks shall not carry on banking business (as defined ins.

5(b) of the Banking Regulation Act) is incidental to the

power to legislate in respect of banking. Power to

legislate for determination of compensation and method of

payment of compensation for compulsory acquisition of the

assets of the named banks, in so far as it relates to

banking business is also within the power of the Parliament.

The expression "banking" is not defined in any Indian

statute except the Banking Regulation Act, 1949. It may be

recalled that by s. 5(b) of that Act "banking" means "the

accepting for the purpose of lending or investment of

deposits of money from the public repayable on demand or

otherwise, and withdrawable by cheque, draft or otherwise".

The definition did not include other commercial activities

which a banking institution may engage in.

In support of his contention Mr. Palkhivala relied upon the

observation of Lord Porter in Commonwealth of Australia v.

Bank of New South Wales(1)that banking consists of the

creation and transfer of credit, the making of loans,

purchase and disposal of investments and other kindred

transactions; and upon the statement in Halsbury's Laws of

England, 3rd Edn., Vol 2, Art. 270 at pp. 150 & 151 that :

(1) L.R. [1950] A. C. 235.

565

"A 'banker' is an individual partnership or corporation,

whose sole or predominating business is banking, that is the

receipt of money on current or deposit account and the

payment of cheques drawn by and the collection of cheques

paid by a customer",

and in the foot-note (g) at p. 151 that

"Numerous other functions are undertaken at the present day

by banks such as the payment of domiciled bills, custody of

valuables, discounting bills, executor and trustee business,

or acting in relation to stock exchange transactions, and

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banks have functions under certain financial

legislation, . . . . These functions are not strictly

banking business."

The Attorney-General said that the expression "banking" in

Entry 45 List I means all forms of business which since the

introduction of western methods of banking in India, banking

institutions have been carrying on in addition to banking as

defined in s. 5(b) of the Banking Regulation Act, and on

that account all forms of business described in s. 6(1) of

the Banking Regulation Act in cls. (a) to (n) are, if

carried on in addition to the "hardcore of banking",

banking, and the Parliament is competent to legislate in

respect of that business under Entry 45 List I. In support

of his contention that apart from the business of accepting

money from the public for lending or investment, and with-

drawable by cheque, draft or otherwise, banking includes

many allied business activities which banking institutions

engaged in, the Attorney-General invited our attention to

cl. 21 of the Charter of the Bank of Bengal (Act VI of 1839)

: s. 27 of Act 4 of 1862; to ss. 36 & 37 of the Presidency

Banks Act XI of 1876; to s. 91(15) of the British North

America Act; to Paget's Law of Banking, 7th Edn., at p. 5;

to the standard form of memorandum of association of a

Banking Company in Palmer's Company Precedents Form 138; and

to the statement of objects and reasons in support of the

Bill which was enacted as the Indian Companies (Amendment)

Act, 1936.

The Charter of the Bank of Bengal, the Presidency Banks Act

4 of 1862, Ch. X-A of the Indian Companies Act, 1913, as

incorporated by the Indian Companies (Amendment) Act, 1936,

merely described the business which a banking institution

could carry on. It was not intended thereby to include

those activities within the expression "banking". The Acts

enacted after the Banking Regulation Act, 1949, also support

that inference. Under s. 33 of the State Bank of India Act,

1955, the State Bank is entitled to carry on diverse

business activities beside banking. Similarly the Banks

subsidiary to the State Bank were by s. 36

566

,of Act 38 of 1959 to act as agents of the State Bank, and

also to carry on and transact business of banking as defined

in S. 5(b) of the Banking Regulation Act, 1949, and were

also competent to engage in such one or more other forms of

business specified in s. 6 (1) of that Act. These

provisions do not aid in construing the Entry "Banking" in

Entry 45 List I.

In modern times in India as elsewhere, to attract business,

banking establishments render, and compete in rendering, a

variety of miscellaneous services for their constituents.

If the test for determining what "banking" means in the

constitutional entry is any commercial activity which

bankers at a given time engage in, great obscurity will be

introduced in the content of that expression. The coverage

of constitutional entry in a Federal Constitution which

carves out a field of legislation must depend upon a more

satisfactory basis.

The legislative entry in List I of the ;Seventh Schedule is

"Banking" and not "Banker" or "Banks". To include within

the connotation of the expression "Banking" in Entry 45 List

I, power to legislate in respect of-all commercial

activities which a banker by the custom of bankers or

authority of law engages in would result in re-writing the

Constitution. Investment of power to legislate on a

designated topic covers all matters incidental to the topic.

A legislative entry being expressed in a broad designation

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indicating the contour of plenary power must receive a mean-

ing conducive to the widest amplitude, subject however to

limitations inherent in the federal scheme which distributes

legislative power between the Union and the constituent

units. But the field of "banking" cannot be extended to,

include trading activities which not being incidental to

banking encroach upon the substance of the entry "trade and

commerce" in List II.

Rejection of the argument of the Attorney-General does not

lend any practical Support to the argument of Mr. Palkhivala

that Act 22 of 1969, to the extent it makes provisions in

respect of the undertaking of the named banks relating to

non-banking business, is ultra vires the Parliament. In the

first instance there is no evidence that the named banks

were before July 19, 1969, carrying on non-banking business

distinct and independent of the banking business, or that

the banks held distinct assets for any non-banking business,

apart from the assets of the banking business. Again by

Act-22 of 1969 the corresponding banks are entitled to

engage in business of banking and non-banking which the

named banks were engaged in or competent to engage in prior

to July 19, 1969, and the named banks are entitled to engage

in business other than banking as di.-fined in s. 5(b) of

the Banking Regulation Act, but not the business of banking.

By enacting that the corresponding new banks may carry on

business

567

specified in s. 6(1) of the Banking Regulation Act and that

the named banks shall not carry on banking business as

defined in s. 5 (b) of that Act, the impugned Act did not

encroach upon any entry in the State List. By s. 15 (2) (e)

of the impugned ,Act the named banks are expressly reserved

the right to carry on business other than banking, and it is

not claimed that thereby there is any encroachment upon the

State List. Exercise of the power to legislate for

acquisition of the undertaking of the named banks also does

not trespass upon the State List.

Before the Constitution (Seventh Amendment) Act, Entry 33

List I invested the Parliament with power to enact laws with

respect to acquisition or requisitioning for the purpose of

the Union, and Entry 36 List II conferred upon the State

Legislature the power to legislate with respect to

acquisition or requisitioning for the remaining purposes.

Those entries are now deleted, and a single Entry 42 List

III invests the Parliament and the State Legislatures with

power to legislate with respect to "acquisition and

requisitioning" of property. By Entry 42 in the Concurrent

List power \was conferred upon the Parliament and the State

Legislatures to legislate with respect to "Principles on

which compensation for property acquired or requisitioned

for the purpose of the Union or for any other public purpose

is to be determined, and the form in which such compensation

is to be given". Power to legislate for acquisition of

property is exercisable only under Entry 42 of List III, and

not as an incident of the power to legislate in respect of a

specific head of legislation in any of the three lists :

Rajahmundry Electric Supply Corporation Ltd. v. The State of

Andhra(1). Under that entry "property" can be compulsorily

acquired. In its normal connotation "property" means the

"highest right a man can have to anything, being that right

which one has to lands or tenements, goods or chattels which

does not depend on another's courtesy : it includes

ownership, estates and interests in corporeal things, and

also rights such as trade-marks, copyrights, patents and

even rights in personam capable of transfer or transmission,

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such as debts; and signifies a beneficial right to or a

thing considered as having a money value, I especially with

reference to transfer or succession, and to their capacity

of being injured". The expression "undertaking" in s. 4 of

Act 22 of 1969 clearly means a going concern with all its

rights, liabilities and assets-as distinct from the various

rights and assets which compose it. In Halsbury's Laws of

England, 3rd Edn., Vol. 6, Art. 75 at p. 43, it is stated

that "Although various ingredients go to make up an

undertaking, the term describes not the ingredients but the

completed work from which the earnings arise."

(1) [1954] S.C.R. 779 at p. 785.

568

Transfer of and vesting in the State Corporations of the

entire undertaking of a going concern is contemplated in

many Indian Statutes: e.g., Indian Electricity Act, 1910,

ss. 6, 7 & 7A; Air Corporation Act, 1953, ss. 16 & 17;

Imperial Bank of India: Act, 1920, ss. 3 & 4; State Bank of

India Act, 1955, S. 6(2), (3) & (4); State Bank of India

(Subsidiary Banks) Act, 1959; Banking Regulation Act, 1949,

S. 36 AE; and Cotton Textile Companies Act, 1967, ss. 4-(1)

& 5(1). Power to legislate for acquisition of "property" in

Entry 42 List III therefore includes the power to legislate

for acquisition of an undertaking. But, says Mr.

Palkhivala, liabilities of the banks which are included in

the connotation of the expression "undertaking", cannot be

treated as " property". It is however the assets, rights

and obligations of a going concern which constitute the

undertaking: the obligations and liabilities of the business

form an integral part of the undertaking, and for compulsory

acquisition cannot be divorced from the assets, rights and

privileges. The expression "property" in Entry 42 List III

has a wide connotation, and it includes not only assets, but

the organisation, liabilities and obligations of a going

concern as a unit. A law may, therefore, be enacted for

compulsory acquisition of an undertaking as defined in s. 5

of Act 22 of 1969.

The contention raised by Mr. Palkhivala that the Parliament

is incompetent to legislate for acquisition of the named

banks in so far as it relates to assets of the non-banking

business fails for two reasons-(i) that there is no evidence

that the named banks held, any assets for any distinct non-

banking business; and (ii) that the acquisition is not shown

to fall within an entry in List II of the Seventh Schedule.

III. Infringement of the fundamental rights of the

petitioner-

Clauses (1) & (2) of Art. 31 subordinate the exercise of the

power of the State to the basic concept of the rule of law.

Deprivation of a person of his property and compulsory

acquisition may be effectuated by the authority of law. It

is superflous to add that the law limiting the authority of

the State must be within the competence of the Legislature

enacting it, and not violative of a constitutional

prohibition, nor impairing the guarantee of a fundamental

right. This Court held in Kavalappara Kottarathil Kochuni &

Others v. The State of Madras and Others(1); Swami Motor

Transport Company (P) Ltd. v. Sri Sankaraswamigal Mutt (2)

and Maharana Shri Jayavantsingji v. The State of Gujarat (3)

that a person may. be deprived of his property by authority

of a statute only if it does not impair the fundamental

(1). [1960] 3 S.C.R. 887. (2) [1963] Supp. 1 S.C.R.

282.

(3) [1962] Supp. 2 S.C.R. 411, 433.

569

rights guaranteed to him. It is again not contested on

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behalf of the Union that the law authorising acquisition of

property must be within the competence of the law-making

authority and must not violate a constitutional prohibition

or impair the guarantee of any of the fundamental rights in

Part 111. But it is claimed that since Art. 31(2) and Art.

19(1) (f) while operating on the same field of the right to

property are mutually exclusive, a law directly providing

for acquisition of property for a public purpose cannot be

tested for its validity on the plea that it imposes

limitations on the right to property which are not

reasonable.

By Arts. 31 ( 1 ) & (2) the right to property of individuals

is protected against specific invasions by State action.

The function of the two clauses-cls. (1) & (2) of Art. 31-is

to impose limitations on the power of the State and to

declare the corresponding guarantee of the individual to his

right to property. Limitation on the power of the State and

the guarantee of right are plainly complementary.

Protection of the guarantee is ensured by declaring that a

person may be deprived of his property by "authority of

law": Art. 31 ( 1 and that private property may be

compulsorily acquired for a public purpose -and by the

"authority of a law" containing provisions fixing or

providing for determination and payment of compensation:

Art. 31(2). Exercise of either power by State action

results in abridgement-total or partial-of the right to

property of the individual. Article 19(1) (f) is a positive

declaration in the widest terms of the right to acquire,

hold and dispose of property, subject to restrictions (which

may assume the form of limitations or complete prohibition)

imposed by law in the interests of the general public. The

guarantee under Art. 19(1)(f) does not protect merely an ab-

stract right to property: it extends to concrete rights to

property as well Swami Motor Transport Co. (P) Ltd.'s

case(1).

The constitutional scheme declares the right to property of

the individual and then delimits it by two different

provisions : Art. 19(5) authorizing the State to make -laws

imposing reasonable restrictions on the exercise of that

right, and cls. (1) & (2) of Art. 31 recognizing the

authority of the State to make laws for taking the property.

Limitations under Art. 19(5) and Art. 31 are not generically

different, for the law authorizing the exercise of the power

to take the property of an individual for a public purpose

or to ensure the well-being of the community, and the law

authorising the imposition of reasonable restrictions under

Art. 19(5) are intended to advance the larger public

interest. It is true that the guarantee against deprivation

and compulsory acquisition operates in favour of all

persons, citizens as well as noncitizens, whereas the

positive declaration of the right to property

(1) [1963] Supp. 1 S.C.R. 282.

570

guarantees the right to citizens. But a wider operation of

the guarantee under Art. 31 does not after the true

character of the right it protects. Article 19(5) and Art.

31(1) & (2), in our judgment, operate to delimit the

exercise of the right to hold property.

Under the Constitution, protection against impairment of the

guarantee of fundamental rights is determined by the nature

of the right, the interest of the aggrieved party and the

degree of harm resulting from the State action. Impairment

of the right of the individual and not the object of the

State in taking the impugned action, is the measure of

protection. To concentrate merely on power of the State and

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the object of the State action in exercising that power is

therefore to ignore the true intent of the Constitution. In

this Court, there is, however, a body of authority that the

nature and extent of the protection of the fundamental

rights is measured not by the operation of the State action

upon the rights of the individual, but by its object.

Thereby the constitutional scheme which makes the guaranteed

rights subject to the permissible restrictions within their

allotted fields, fundamental, got blurred and gave impetus

to a theory that certain Articles of the Constitutions enact

a code dealing exclusively with matters dealt with therein,

and the protection which an aggrieved person may claim is

circumscribed by the object of the State action.

Protection of the right to property or personal freedom is

most needed when there is an actual threat. To argue that

State action which deprives a person permanently or

temporarily of his right to property, or personal freedom,

operates to extinguish the right or the remedy is to reduce

the guarantee to an empty platitude. Again to hold that

the extent of, and the circumstances in which, the

guarantee of protection is available depends upon the object

of the State action, is to seriously erode its

effectiveness. Examining the problem not merely in semantics

but in the broader and more appropriate context of the

constitutional scheme which aims at affording the Individual

the fullest protection of his basic rights and on that

foundation to erect a structure of a truly democratic

polity, the conclusion, in our judgment, is inevitable that

the validity of the State action must be adjudged in the

light of its operation upon the rights of the individual and

groups of individuals in all their dimensions.

But this Court has held in some cases to be presently

noticed that Art. 19 (1) (f) and Art. 31 (2) are mutually

exclusive.

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

571

v. The State of Madras(1) 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 Arts. 19, 21 & 22 of the Constitution.

The majority of the Court (Kania C.J., and Patanjali Sastri,

Mahajan, Mukherjea & Das, JJ) held that Art. 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 comers of that

Article". They held that a person detained may not claim

that the freedom guaranteed under Art. 19(1)(d) was in-

fringed 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 according 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 Arts. 19, 21, 22 & 31 are

exclusive-each article enacting a code relating to

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protection of distinct rights.

Kania, C.J., proceeded on the theory that different articles

guarantee distinct rights. He observed at p. 100

"...... it (Art. 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 Art. 19 (1) (d)

had nothing to do with detention, preventive or punitive,

and I the concept of personal liberty in Art. 21 being

entirely different

(1) [1950] S.C.R. 88.

572

from the concept of the right to move freely throughout the

territory of India, Art. 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 of crime."

Mahajan, J., was of the view that Art. 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 Art. 19 (1) (d) and Art. 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 Arts. 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, aman may be

prevented from exercising the right offree movement within

the territory of Indiabut that is merely incidental to

or consequential uponloss 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), in so far as they

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573

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 confer red 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, those 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:

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

article 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)

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 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 conclu-

sion that preventive detention is a direct

infringement of the right guaranteed in

article 19(1)(d)."

At p. 170 he observed :

" .... this article (Art. 22)

clude 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 in

574

so far as there are specific provisions therein regarding

preventive detention, but, where there are no such provi-

sions 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's case(1) was reaffirmed

in Ram Singh and Others v. The State of Delhi (2) .

The principle underlying the judgment of the majority was

extended to the protection of the freedom in respect of

property, and it was held that Art. 19 ( 1) (f) and Art. 31

(2) were. mutually exclusive in their operation. In A. K.

Gopalan's case(3), Das, J., suggested that if the capacity

to exercise the right to property was lost, because of

lawful compulsory acquisition of the subject of that right,

the owner ceased to have that right for the duration of the

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incapacity. In Chiranjit Lai Chowduri's case(4), Das, J.,

observed at p. 919 :

"...the right to property guaranteed by Art. 19( 1) (f)

would .... continue until the owner was under Art. 31

deprived of such property by authority of law."

In The State of West Bengal v. Subodh Gopal(1) the same

learned Judge observed that "Art. 19 (I ) (f) read with Art.

19 (5) presupposes that the person to whom the fundamental

right is guaranteed retains his property over or with

respect to which alone that right may be exercised." The

principle so stated was given a more concrete shape in a

later decision : State of Bombay v. Bhanji Munji & Another 5

In Bhanji, Munji's case(1), speaking for a unanimous Court,

Bose,, J., observed

" ...... it is enough to say that Art. 19 ( I ) (f ) read

with clause (5) postulates the existence of

property which can be enjoyed, and over which

rights can be exercised because otherwise -the

reasonable restrictions contemplated by clause

(5) could not be brought into play. If there

is no property which can be acquired, held or

disposed of, no restriction can be placed

on the exercise of the right to acquire, hold

or dispose it of, and as clause (5)

contemplates the placing of reasonable

restrictions on the exercise of those rights

it must

(1) [1950] S.C.R. 88. (2] [1951] S.C.R. 451. (3) [1950]

S.C.R. 869. (4) [1954] S.C.R. 587.

(5) [1955] 1 S.C.R. 777.

575

follow that the Article postulates the existence of property

over which the rights are to be exercised."

Bhanji Munji's case(1) was accepted without -any discussion

in Babu Barkya Thakur v. The State of Bombay (2) ; Smt.

Sitabati Debi and Anr. v. State of West Bengal and

Another(3), and other cases.

In these cases it was held that the substantive provisions

of a law relating to acquisition of property were not liable

to be challenged on the ground that they imposed

unreasonable restrictions on the right to hold property.

Bhanji Munji's, case, it must be remembered, arose under

Art. 31 before it was amended by the Constitution (Fourth

Amendment) Act. It was held by this Court that cls. (1) &

(2) of Art. 31 as they then stood dealt with the same

subjectmatter, i.e. compulsory acquisition of property;: see

Subodh Gopal's case(3) and Dwarkadas Shriniwas's case(4).

But since the amendment by the Constitution (Fourth

Amendment) Act it has been held that cls. (1) & (2) dealt

with different subjectmatters. In Kavalppara Kottarathil

Kochuni's case(3), Subba Rao, J.delivering the judgment of

the majority of the Court observed that cl. (2) of Art. 31

alone deals with compulsory acquisition of property by the

State for a public purpose, and not Art. 31 (1), and he

proceeded to hold that the expression "authority of law"

means authority of a valid law, and on that account validity

of the law seeking to deprive a person of his property is

open to challenge on the ground that it infringes other

fundamental rights, e.g., under Art. 19(1) (f). It was

broadly observed that Bhanji Munji's case(1) after the

Constitution (Fourth Amendment) Act "no longer holds the

field". But Kavalappara Kottarathil Kachuni's case(6) did

not deal with the validity of a law relating to compulsory

acquisition. With the decision in Kavalappara Kottarathil

Kochuni's case(1) there arose two divergent lines of

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authority (1) "authority of law" in Art. 31 (1) is liable to

be tested on the ground that it violates other fundamental

rights and freedoms including the right to hold property

guaranteed by Art. 19 (1) (f). and (2) "authority of a law"

within the meaning of Art. 31 (2) is not liable to be,

tested on the ground that it impairs the guarantee of Art.

19(1)(f) in so far as it imposes substantive restrictions-

though it may be tested on the ground of impairment of other

guarantees. The expression "law" in the two clauses had

therefore different meanings. It was for the first time

(obiter dicta apart) in The State of Madhya

(1) [1955] 1 S.C.R. 777. (2) [1961] 1 S.C.R. 128. (3)

[1967] 2 S.C.R. 940. (4) [1954] S.C.R. 587.

(5) [1954] S.C.R. 674.

(6) [1960] 3 S.C.R. 887.

576

Pradesh v. Ranojirao Shinde(1) this Court opined that the

validity of law in cl. (2) of Art. 31 may be adjudged in the

light of Art. 19 (1) (f ). But the Court in that case did

not consider the previous catena of authorities which

related to the inter-relation ,between Art. 31(2) and Art.

19(1) (f).

We have carefully considered the weighty pronouncements of

the eminent Judges who gave shape to the concept that the

extent of protection of important guarantees, such as the

liberty of person, and right to property, depends upon the

form and object of the State action, and not upon its direct

operation upon the individual's freedom. But it is not the

object of the authority making the law impairing the right

of a citizen, nor the form of .action that determines the

protection he can claim: it is the effect of the law and of

the action upon the right which attract the jurisdiction of

the Court to grant relief. If this be the true view, and we

think it is, in determining the impact of State action upon

constitutional guarantees which are fundamental, it follows

that the extent of protection against impairment of a

fundamental right is determined not by the object of the

Legislature nor by the form of the action, but by its direct

operation upon the individual's rights.

We are of the view that the theory that the object and form

of the, State action determine the extent of protection

which the aggrieved party may claim is not consistent with

the constitutional scheme. Each freedom has different

dimensions. Article 19 (1 ) (f ) enunciates the right to

acquire, hold and dispose of property: cl. (5) of Art. 19

authorize imposition of restrictions upon the right.

Article 31 assures the right to property and grants

protection against the exercise of the authority of the

State. Clause (5) of Art. 19 and cis. (1) & (2) of Art. 31

prescribe restrictions upon State action, subject to which

the right to property may be exercised. Article 19(5) is a

broad generalization dealing with the nature of limitations

which may be placed by law on the right to property. The

guarantees under Arts. 31 (1) & (2) arise out of the

limitations imposed on the authority of the State by law to

take over the individual's property. The true character of

the limitations under the two provisions is not different.

Clause (5) of Art. 19 and cls. (1) & (2) of Art. 31 are

parts of a single pattern : Art. 19 ( 1 ) (f ) enunciates

the, basic right to property of the citizens and Art. 19(5)

and cis. (1) & (2) of Art. 31 deal with limitations which

may be placed by law, subject to which the rights may be

exercised.

Limitations prescribed for ensuring due exercise of the

authority of the State to deprive a person of his property

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and of the

(1) [1968] 3S.C.R.489.

577

power to compulsorily acquire his property are, therefore,

specific classes of limitations on the right to property

falling within Art. 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 Art. 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 got be

excluded. For instance if a tribunal is authorised by an

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 Art. 19 (1 ) (f ).

In dealing with the argument that Art. 31 (2) is a complete

code relating to infringement of the right to property by

compulsory acquisition, and the validity of the law is not

liable to be tested in the light of the reasonableness of

the restrictions imposed thereby, it is necessary to bear in

mind the enunciation of the guarantee of fundamental rights

which has taken different forms. In some cages it is an

express declaration of a guaranteed right : Arts. 29(1),

30(1), 26, 25 & 32; in others to ensure protection of

individual rights they take specific forms of restrictions

on State action-legislative or executive--Arts. 14, 15, 16,

20, 21, 22(1), 27 and 28; in some others, it takes the form

of a positive declaration and simultaneously enunciates the

restriction there on : Arts. 19(1) and 19(2) to (6); in some

cases, it arises as an implication from the delimitation of

the authority of the State, e.g., Arts. 31(1) and 31(2); in

still others, it takes the form of a general prohibition

against the State as well as others : Arts. 17, 23 & 24.

The enunciation of rights either express or by implication

does not follow a uniform pattern. But one thread runs

through them : they seek to protect the rights of the

individual or groups of individuals against infringement -of

those rights within specific limits. Part III of the

Constitution weaves a pattern of guarantees on the texture

of basic human rights. The guarantees delimit the

protection of those rights in their allotted fields: they do

not -attempt to enunciate distinct rights.

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 Art. 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

L8Sup.CI/70

578

Art. 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 Ill. We

are unable, therefore, to agree that Arts. 19 ( 1 ) (f ) and

31 (2) are mutually exclusive.

The area of protection afforded against State action by the

freedom under Art. 19 (1) (f) and by the exercise of the

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power of the State to acquire property of the individual

without his consent must still be reconciled. If property

is compulsorily acquired for a public purpose, and the law

satisfies the requirements of Arts. 31(2) and 31 (2A), the

Court may readily presume that by the acquisition a

reasonable restriction on the exercise of the right to hold

property is imposed in the interests of the general public.

But that is not because the claim to plead infringement of

the fundamental right under Art. 19 (1) (f) does not avail

the owner; it is because the acquisition imposes a

permissible restriction on the, right of the owner of the

property compulsorily acquired.

We have found it necessary to examine the rationale of the

two lines of authority and determine whether there is

anything in the Constitution which justifies this apparently

inconsistent development of the law. In our judgment, the

assumption in A. K. Gopalan's case(1) that certain articles

in the Constitution exclusively deal with specific matters

and in determining whether there is infringement of the

individual's guaranteed rights, the object and the form of

the State action alone need be considered, and effect of the

laws on fundamental rights of the individuals in general

will be Ignored cannot be accepted as correct. We hold that

the validity "of law" which authorises deprivation of

property and "a law" which authorises compulsory acquisition

of property for a public purpose must be adjudged by the

application of the same tests. A citizen may claim in an

appropriate case that the law authorising compulsory

acquisition of property imposes fetters upon his right to

hold property which are not reasonable restrictions in the

interests of the general public. It is immaterial that the,

scope for such challenge. may be attenuated because of the

nature of the law of acquisition which providing as it does

for expropriation of property of the individual for' public

purpose may be presumed to impose reasonable restrictions in

the interests of the general public.

Whether the provisions of ss. 4 & 5 of Act 22. of 1969 and

the other related provisions of the Act impair the

fundamental

(1) [1950] S.C.R. 88.

579

freedoms under Art. 19 ( I ) (f ) & (g) now falls to, be

considered By s. 4 the entire undertaking of each named bank

vests in the Union, and the Bank is prohibited from engaging

in the business of banking in India and even in a foreign

country, except where by the laws of a foreign country

banking business owned or controlled by Government cannot be

carried on, the named bank will be entitled to continue the

business in that country. The business which the named

banks carried on was-(1) the business of banking as defined

in s. 5 (b) of the Banking Regulation Act, 1949, and

business incidental thereto; and (2) other business which by

virtue of s. 6(1) they were not prohibited from carrying on,

though not part of or incidental to the business of banking.

It may be recalled that by Act 22 of 1969 the named banks

cannot engage in business of banking as defined in s. 5(b)

of the Banking Regulation Act, 1949, but may engage in other

forms of business. By the Act, however, the entire

undertaking of each named bank is vested in the new

corporation set up with a name identical with the name of

that Bank, and authorised to carry on banking business

previously carried on by the named bank, and its managerial

and other staff is transferred to the corresponding new

bank. The newly constituted corresponding bank is entitled

to engage in business described in s. 6 ( 1 ) of the Banking

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Regulation Act, and for that purpose to utilize the assets,

goodwill and business connections of the existing bank.

The named banks are declared entitled to engage in business

other than banking : but they have no assets with which that

business may be carried on, and since they are prohibited

from carrying on banking business, by virtue of s. 7 of the

Reserve Bank of India Act, they cannot use in their title

the words "Bank" or "Bankine" and even engage in "non-

banking. business" in their old names. A business

organization deprived of its entire assets and undertaking,

its managerial and other staff, its premises, and its name,

even if it has a theoretical right to carry on non-banking

business, would not be able to do so, especially when even

the fraction of the value of its undertaking made payable to

it as compensation, is not made immediately payable to it.

Validity of the provisions of the Act which transfer the

undertaking of the named banks and prohibit those banks from

carrying on business of banking and practically prohibit

them from carrying on non-banking business falls to be

considered in the light of Art. 19(1)(f) and Art. 19(1)(g)

of the Constitution. By Art. 19(1)(f) right to acquire,

hold and dispose of property is guaranteed to the citizens;

and by Art. 19 (1) (g) the right to practise any profession,

or to carry on any occupation, trade or business is

guaranteed to the citizens. These rights are-

580

not absolute: they are subject to the restrictions

prescribed in ;the appropriate clauses of Art. 19. By cl.

(5) it is provided, inter alia, that nothing in sub-cl.(f)

of cl. (1) shall affect the -operation of any existing law

in so far as it imposes, or prevent -the State from making

any law, imposing in the interests of the general public,

reasonable restrictions on the exercise of the right

,conferred by that sub-clause either in the interests of the

general public or for the protection of the interests of any

Scheduled 'Tribe. Clause (6) as amended by the Constitution

(First -Amendment) Act, 1951, reads

" Nothing in sub-clause (g) of the said clause shall affect

the operation of any existing law in so far as it imposes,

or prevent the State from making any law imposing, in the

interests of the general public, reasonable restrictions on

the exercise of the right conferred by the said sub-clause,

and, in particular, nothing in the said sub-clause, shall

affect the operation of any existing law in so far as it

relates to, or prevent the State from making law relating

to-

(i) the professional or technical qualifications necessary

for practising any profession or carrying on any occupation,

trade or business, or

(ii).the carrying on by the State, or by a corporation owned

or controlled by the State, of any trade, business, industry

or service, whether to the exclusion, complete or partial,

of citizens or otherwise."

Clause (6) of Art. 19 consists of two parts : (1) the right

declared by sub-cl. (g) is not protected against the

operation of any law imposing, in the interests of the

general public, reasonable restrictions on the exercise of

the right conferred by that sub-clause; and (2) in

particular sub-cl. (g) does not affect the operation of any

law relating, inter alia, to carrying on by the State or by

a corporation owned or controlled by the State, of any

trade, business, industry or service, whether or not such

law provides for the exclusion, complete or partial, of

citizens.

According to Mr. Palkhivala it was intended by the use of

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the expression "in particular", to denote a special class of

trade, business, industry or service out of the general

class referred to in the first part, and on that account a

law which relates to the ,carrying on by the State of any

-particular business, industry 'or service, to the

exclusion-complete or partial--of citizens or -otherwise, is

also subject to the enquiry . whether it imposes

581

reasonable restrictions on the exercise of the right in the

interests, of the general public. Counsel urged that the

law imposing restrictions upon the exercise of the right to

carry on any occupation, trade or business is subject to the

test of reasonable restrictions imposed in the interests of

the general public, likewise, the particular classes

specified in the second part of the Article must also be

regarded as liable to be tested in the light of the same

limitations. Counsel strongly relied upon the decision of

the House of Lords in Earl Fitzwilliam's Wentworth Estates

Co. v. Minister of Housing and Local Government and Anr.(1)

The House of Lords in that case did not lay down any general

proposition. They were only dealing with the meaning of the

words "in particular" in the context in which they occurred,

and it was held that the expression "in particular" was not

intended to confer a separate and distinct power wholly

independent of that contained in the first limb. It cannot

be said that the expression "in particular" used in Art,.

19(1)(g) is intended either to particularise or to

illustrate the general law set out in the first limb.

It was observed in Saghir Ahmad v. The State of U.P. and'

Others (2) by Mukherjea, J. at p. 727 :

"The new clause-Art. 19(6)--has no doubt been introduced

with a view to provide that a State can create a monopoly in

its own favour in respect of any trade or business; but the

amendment does not make the establishment of such monopoly a

reasonable restriction within the meaning of the first

clause of Art. 19(6). The result of the amendment is that

the State would not have to justify such action as reason-

able at all in a court of law, and no objection could be

taken to it on the ground that it is an infringement of the

rights guaranteed under Art. 19 (1 ) (g) of the

Constitution."

In dealing with the validity of a law creating a State mono-

poly in Akadasi Padhan v. State of Orissa, (3 ) this Court

unanimously held, that the validity of a law creating a

State monopoly which "indirectly impinges on any other

right" cannot be challenged on the, -round that it imposes

restrictions which are not reasonable restrictions in the

interests of the general' public. But if the law contains

other incidental provisions, which do not constitute an

essential and integral part of the monopoly created by it,

the validity of those provisios is liable to be tested under

the first part of Art. 19(6) If they directly,

(1) [1952] 1 All E.R. 509.

(2) [1955] 1 S.C.R. 707, 727.

(3) [1963] Supp. 2 S.C.R. 691.

582

impair any other fundamental right guaranteed by Art. 19(1),

the validity of those provisions will be tested by reference

to the corresponding clauses of Art. 19. The Court also

observed that the essential attributes of the law creating a

monopoly will vary with the nature of the trade or business

in which the monopoly is created. They will depend upon the

nature of the commodity, the nature of trade in which it is

involved and other Circumstances. At p. 707,

Gajendragadkar, J. speaking for the Court, observed :

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.lm15

" 'A law relating to' a State monopoly cannot, in the,

context, include all the provisions contained in the said

law whether they have direct relation with the creation of

the monopoly or not. In our opinion, the said expression

should be construed to mean the law relating to the monopoly

in its absolutely essential features. If a law is passed

creating a State, monopoly, the Court should enquire what

are the provisions of the said law which are basically and

essentially necessary for creating the State monopoly. It

is only those essential and basic provisions which are

protected by the latter part of Art. 19(6). If there are

other provisions made by the Act which are subsidiary,

incidental or helpful to the operation of the monopoly, they

do not fall under the first part of Art. 19(6).

-He also observed at p. 705 :

that State monopoly in respect of any trade or business must

be presumed to be reasonable and in the interests of general

public, so far as Art. 19 (1) (g) is concerned."

This was reiterated in Rasbihari Panda and Others v. The

State of Orissa;(1) M/s. Vrajlal Manilal & Co. and Another-

v. The State of Madhya Pradesh & Others;(2) and Municipal

Committee, Amritsar and Others v. State of Punjab and

Others.(3) These ,cases dealt with the validity of laws

creating monopolies in the State. Clause (6) is however not

restricted to laws creating State monopolies, and the rule

enunciated in Akadasi Padhan's case(4) applies to all laws

relating to the carrying on by the State of any trade,

business, industry or service. By Art. 298 the State is

authorized to carry on trade which is competitive, or

excludes the citizens from that trade completely or

partially.

(1) [1969] 3 S.C.R. 374.

(2) [1970] 1 S.C.R. 400.

(3) [1969] 3 S.C.R, 447.

(4) [1963] Supp. 2 S.C.R. 691.

583

The "basic and essential" provisions of law which are

"integrally and essentially connected" with the carrying on

of a trade by the State will not be exposed - to the

challenge that they impair the guarantee under Art.

19(1)(g), whether the citizens are excluded completely or

partially from carrying on that trade, -or the trade is

competitive. Imposition of restrictions which are

incidental or subsidiary to the carrying on of trade by the

State whether to the exclusion of the citizens or not must,

however, satisfy the test of the main limb.

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 Art' 19 (6) (ii) in so far 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.

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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 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

584

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 resource resulting in economic

disparities, especially because the major banks catered to

the large-scale industries. ,

This Court is not the forum in which these conflicting

claims may be debated. Whether there is a genuine need for

banking facility in the rural areas, whether certain classes

of the community are deprived of the benefit of the

resources of the banking industry, whether administration by

the Government of the commercial banking sector will not

prove beneficial to the community and will lead to rigidity

in the administration, whether the Government administration

will eschew the profit-motive, and -even if it be eschewed,

there will accrue substantial benefits to the public,

whether an undue accent on banking as a means of social

regeneration, especially in the, backward areas, is a

doctrinaire approach to a rational order of priorities -for

attaining the national objectives enshrined in our

Constitution, and whether the policy followed by the

Government in office or the policy propounded by its

opponents may reasonably attain the national objectives are

matters which have little relevance in determining the

legality of the measure. It is again not for this Court to

consider the relative merits of the different political

theories or economic policies. The Parliament has under

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Entry 45 List I the power to legislate in respect of banking

and other commercial activities of the named banks

necessarily incidental thereto; it has the power to

legislate for acquiring the undertaking of the named banks

under Entry 42 List III. Whether by the exercise of the

power vested in the Reserve Bank under the preexisting laws,

results could be achieved which it is the object of the Act

to achieve,. is. in our judgment, not relevant in consi-

dering whether the Act amounts to abuse of legislative

power.

585

This Court has the power to strike down a law on the ground

of want of authority, but the Court will not sit in appeal

over the policy of the Parliament in enacting a law. The

Court cannot find fault with the Act merely on the ground

that it is inadvisable to take over the undertaking of banks

which, it is said by the petitioner, by thrift and efficient

management had set up an impressive and efficient business

organization serving. large sectors of industry.

By s. 15 (2) (e) of the Act the Banks are entitled to engage

in business other than banking. But by the provisions of

the Act they are rendered practically incapable of engaging

in any business. By the provisions of the Act, a named bank

cannot even use its name, and the compensation which is to

be given will, in the absence of agreement, be determined by

the Tribunal and paid in securities which will mature not

before ten years. A named bank may if it agrees to

distribute among the shareholders the compensation which it

may receive, be paid in securities an amount equal to, half

the paid-up share capital, but obviously the fund will not

be available to the, Bank. It is true that under s. 15(3)

of the Act the Central Government may authorise the

corresponding new banks to make advances to the named banks

for any of the purposes mentioned in s. 15(2). But that is

a matter which rests only upon the will of the Central

Government and no right can be founded upon it.

Where restrictions imposed upon the carrying on of a busi-

ness are so stringent that the business cannot in practice

be carried on, the Court will regard the imposition of the

restrictions as unreasonable.. In Mohammad Yasin v. The Town

Area Committee, Jalalabad and Another(1) this Court

-observed that under Art. 19(1)(g) of the Constitution a

citizen has the right to carry on any occupation, trade or

business and the only restriction on 'this right is the

authority of the State to make a law relating to the

carrying on of such occupation, trade or business as

mentioned in cl. (6) of that Article as amended by the

Constitution (First Amendment) Act, 1951. In Mohammad

Yasin's case by the, bye--laws of the Municipal Committee,

it was provided that no person shall sell or purchase any

vegetables or fruit within the limits of the municipal area

of Jalalabad, wholesale or by auction, without paying the

prescribed fee. It was urged on behalf of a wholesale

dealer 'in vegetables that although there was no prohibition

against carrying on business, in vegetables by anybody, in

effect the bye-laws brought about a total stoppage of the

wholesaler's business in a commercial sense, for, he had to

pay prescribed fee to the contractor, and under the bye-laws

the wholesale dealer could not charge a

(1) [1952] S.C.R. 572.

586

higher rate of commission than the contractor. The

wholesale ,dealer, therefore, could charge the growers of

vegetables and fruit only the commission permissible under

the bye-laws, and he had to make over the entire commission

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to the contractor without retaining any part thereof. The

wholesale dealer was -thereby converted into a mere tax-

collector for the contractor or the Town Area Committee

without any remuneration The bye-laws in this situation were

struck down as impairing the freedom to carry on business.

In Dwarkadas Shrinivas's(1) case the Sholapur Spinning and

Weaving Company " (Emergency Provisions) Ordinance 11 of

1950 and Act 28 of 1950 passed by the Parliament to replace

the Ordinance were challenged. Under the Ordinance the

managing agent and the elected directors were dismissed and

new directors were appointed by the State. The Company was

denuded of possession of its property and all that was left

to the Company was a bare legal title. In an appeal arising

out of a suit challenging the validity of the Ordinance and

the Act which replaced it, this Court held that the

Ordinance and the Act violated the fundamental rights of the

Company and of the plaintiff a preference shareholder upon

whom a demand was made for payment of unpaid calls. This

Court held that the Ordinance and the Act in effect deprived

the Company of its property within the meaning of Art. 31

without compensation. It was observed by Mahajan, J., that

practically all incidents of ownership were taken over by

the State and nothing was left with the Company but the mere

husk of title, and on that account the impugned statute' had

overstepped the limits of legitimate social control

legislation.

If compensation paid is in a form that it is not immediately

available for restarting any business, declaration of the

-right to carry on business other than banking becomes an

empty formality, when the entire undertaking of the named

banks is transferred to and vests in the new banks, together

with the premises and the names of the banks, and the named

banks are deprived of the services of its administrative and

other staff.

The restriction imposed upon the right of the named banks to

carry on "non-banking" business is' in our judgment, plainly

unreasonable. No attempt is made to Support the Act which

while theoretically declaring the right of the named banks

to carry on "non-banking" business makes it impossible in a

commercial sense for the banks to carry on any business,

(1) [1954] S.C.R. 674.

587

Protection of Art. 14--

By Art. 14 of the Constitution the State is enjoined not to

deny any person equality before the law or the equal

protection of the laws within the territory of India. The

Article forbids class legislation, 'but not reasonable

classification in making laws. The test of permissible

classification under an Act lies in two cumulative

conditions : (i) classification under the Act must be

founded on an intelligible differentia distinguishing

persons, transactions or things grouped together from others

left out of the group; and (ii) the differentia has a

rational relation to the object sought to be achieved by the

Act : there must be a nexus between the basis of

classification and the object of the Act : Chiranjit Lal

Chowduri's case(1); The State of Bombay v. F. N. Balsara(2);

The State of West Bengal v. Anwar Ali Sarar(3); Budhan

Choudhry and Others v. The State of Bihar(1); Shri Ram

Kishan Dalmia v. Shri Justice S. R. Tendolkar and

Others,(2); and State of Rajasthan v. Mukandchand & Ors.

The Courts recognize in the Legislature some degree of elas-

ticity in the matter of making a classification between

persons, objects and transactions. Provided the

classification is based on some intelligible ground, the

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Courts will not strike down that classification, 'because in

the view of the Court it should have proceeded on some other

ground or should have included in the class selected for

special treatment some other persons, objects or

transactions which are not included by the Legislature. The

Legislature is free to recognize the degree of harm and to

restrict the operation of a law only to those cases where

the need is the clearest. The Legislature need not extend

the regulation of a law to all cases it may possibly reach,

and may make a classification founded on practical grounds

of convenience. Classification to be valid must, however,

disclose a rational nexus with the object sought to be

achieved by the law which makes the classification.

Validity of a classification will be upheld only if that

test is independently satisfied. The Court in examining the

validity of a statute challenged as infringing the equality

clause makes an assumption that there is a reasonable

classification and that the classification has a rational

relation to the object sought to be achieved by the statute.

By the definition of "existing bank" in s. 2(d) of the Act,

fourteen named banks in the First Schedule are, out of many

commercial banks engaged in the 'business of 'banking,

selected for special treatment, in that the undertaking of

the named banks is taken over, they -are prevented from

carrying on in India and

(1) [1950] S.C.R. 869. (2) [1951] S.C.R. 682.

(3) [1952] S.C.R. 284. (4) [1955] I S.C.R. 1045.

(5) [1959] S.C.R. 279, 300.(6) [1964] 6 S.C.R. 903, 910.

588

abroad banking business and the Act operates in practice to

prevent those banks engaging in business other than banking.

By reason of the transfer of the undertaking of the named

banks, the interests of the banks and the shareholders are

vitally affected. Investment in bank-shares is regarded in

India, especially in the shares of larger banks, as a safe

investment on attractive terms with a steady return and

fluidity of conversion. Mr. Palkhivala has handed in a

statement setting out the percentage return of dividend on

market-rates in 1968. The rate works out at more than, 10%

in the case of. the shares of Bank of Baroda, Central Bank

of India, Dena Bank, Indian Bank, United Bank and United

Commercial Bank; and at more than 9% in the case of shares

of Bank of India, Bank of Maharashtra, Canara Bank, Indian

Bank, Indian Overseas Bank and United Bank of India. In the

case of Allahabad Bank it worked out at 5%, and in the case

of shares of Punjab National Bank and Syndicate Bank the

rates are not available. This statement is not challenged.

Since the taking over of the undertaking, there has resulted

a steep fall in the ruling market quotations of the shares

of a majority of the named banks. The market quotations

have slumped to less than 50% in the case of Bank of India,

Central Bank, Bank of Baroda and even at the quoted rates

probably there are no transactions. Dividend may no longer

be distributed, for the banks have no liquid assets and they

are not engaged in any commercial activity. It may take many

years before the compensation payable to the banks may even

be finalized, and be available to the named banks for

utilising it in any commercial venture open to the banks

under the Act. Under the scheme of determination of

compensation, the total amount payable to the banks will be

a fraction of the value of their net assets, and that

compensation will not be available to the banks immediately.

The ground for select-ion of the 14 banks is that those

banks held deposits, as shown in the return as on the last

Friday of June 1969 furnished to the Reserve Bank under s.

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27 of the Banking Regulation Act, 1949, of not less than

rupees fifty crores.

The object of Act 22 of 1969 is according to the long title

to provide for the acquisition and transfer of the

undertakings of certain banking companies in order to serve

better the needs of development of the economy in conformity

with the national policy and objectives and for matters

connected therewith or incidental thereto. The national

policy may reasonably be taken to be the policy contained in

the directive principles of State policy, especially Arts.

38 & 39 of the Constitution. For achieving the need s of a

developing economy in conformity with

589

the national policy and objectives, the resources of all

banks foreign as well as Indian-are inadequate. of the

total deposits with commercial banks 27% are with the State

Bank of India and its subsidiaries : the named commercial

banks of which the undertaking is taken over hold

approximately 56% of the deposits. The remaining 17% of the

deposits are shared by the foreign banks and the other

scheduled and non-scheduled commercial banks. 83% of the

total resources may obviously not meet wholly or even

substantially the needs of development of the, economy.

In support of the plea that there is a reasonable relation

between the differentia-ground for making the distinction

between the named banks and the other banks Indian and

foreign-and the object of the Act, it is urged that the

policy of the Union is to control the concentration of

private economic resources to ensure achievement of the

directive principles of State policy, and for that purpose,

selection has been made "with an eye, inter alia, to the

magnitude and concentration of the economic resources of

such enterprises for inclusion in such law as would be

essential or- substantially conducive to the achievement of

the national objectives and policy". it is apparently

claimed that the object of the Government-not of statute-is

to acquire ultimately all banking institutions, but the 14

named banks are selected for acquisition because they have

"larger business and wider coverage" in comparison with

other banks not selected, and had also larger organization,

better managerial resources and employees better trained and

equipped. These are primarily grounds for classification

and not for explaining the relation between the

classification and the object of the Act. But in the

absence of any reliable data, we do not think it necessary

to express an opinion on the question whether selection of

the undertaking of some out of many banking institutions,

for compulsory acquisition, is liable to be struck down as

hostile discrimination, on the ground that there is no

reasonable relation between the differentia and the object

of the Act which cannot be substantially served even by the

acquisition of the undertakings of all the banks out of

which the selection is made.

It is claimed that the depositors with the named banks have

also a grievance. Those -depositors who had made long-term

deposits, taking into account the confidence they had in the

management of the banks and the- service they rendered, are

now called upon to trust the management of a statutory

corporation not selected by them, without an opportunity of

being placed in the same position in which they would have

been if they were permitted to transfer their deposits

elsewhere. The

590

argument is based on several imponderables and does not

require any detailed consideration.

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But two other grounds in support of the plea of impairment

of the guarantee of equality clause require to be noticed.

The fourteen named banks are prohibited from carrying on

banking business--a disability for which there is no

rational explanation. Banks other than the named banks may

carry on banking business in India and abroad : new banks

may be floated for carrying on banking business, but the

named banks are prohibited from carrying on banking

business. Each named bank had, even as claimed on behalf of

the Union, by its superior management established an

extensive business organization, and each bank had deposits

exceeding Rs. 50 crores. The undertakings of the banks are

taken over and they are prohibited from doing banking

business. In the affidavit filed on behalf of the Union no

serious attempt is made to explain why the named banks

should be specially selected for being subjected to this

disability.

The petitioner also contended that the classification is

made on a wholly irrational ground, viz., penalizing

efficiency and good management, for the major fourteen banks

had made a sustained effort an had exceeded the Reserve Bank

target and had fully complied with the directives under the

social control legislation. This, it is said, is a reversal

of the policy underlying s. 36AE of the Banking Regulation

Act under which inefficient and recalcitrant banks are

contemplated to be taken over by the Government. We need

express no opinion on this part of the argument. But the

petitioner is on a firm ground in contending that when after

acquiring the assets, undertaking, organization, goodwill

and the names of the named Banks they are prohibited from

carrying on banking business, whereas other banks-Indian as

well as foreign-are permitted to carry on banking business,

a flagrantly hostile discrimination is practised. Section

15(2) of the Act which by the clearest implication prohibits

the named banks from carrying on banking business is,

therefore, liable to be struck down. It is immaterial

whether the entire sub-s. (2) is struck down, or as

suggested by the Attorney-General that only the 'words

"other than the business of banking" in s. 15(2)(e) be

struck down. Again, in considering the validity of s. 15

(2) (e) in its relation to the guarantee of freedom to carry

on business other than banking, we have already pointed out

that the named banks are also, (though theoretically,

competent) in substance prohibited from carrying on non-

banking business. For reasons set out by us for holding

that the restriction is unreasonable, it must also be held

that the guarantee of equality is impaired by

591

preventing the named banks carrying on the non-banking busi-

ness.

Protection of the guarantee under Art. 31(2)-

The guarantee under Art. 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 cl. 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 (2A) in substance provides a

definition of "compulsory acquisition or requisitioning of

property". Existence of a public purpose and provision for

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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

Art. 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 expressly excluded.

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.

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. The owner whose Property is

compulsorily acquired is 'guaranteed the right to receive

compensation and the amount of compensation must either be

fixed by the law or be 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 provide the law is

inadequate, be declared void.

592

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 Art. 31(2) does not mean a just

equivalent, and it is not predicated 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".

Two questions immediately arise for determination. What is

the true meaning of the expression "compensation" as used in

Art. 31(2), and what is the extent of the, jurisdiction of

the Court when the validity of a law providing for

compulsory acquisition of property for a public purpose is

challenged ?

In -its dictionary meaning "compensation" means anything

given to make things equal in value : anything given as an

equivalent, to make amends for loss or damage. In all

States where the rule of law prevails, the right to

compensation is guaranteed by the Constitution or regarded

as inextricably involved in the right to property.

By the 5th Amendment in the Constitution of the U.S.A. the

right of eminent domain is expressly circumscribed by

providing "Nor shall private property be taken for public

use, without just, compensation". Such a provision is to be

found also in every State Constitution in the United States

: Lewis Eminent Domain, 3rd Edn., (pp. 28-50). The Japanese

Constitution, 1946, by Art. 25 provides a similar guarantee.

Under the Commonwealth of Australia Constitution, 1900, the

Commonwealth Parliament is invested with the power of

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acquisition of property on "just terms" : s. 57 (XXXI).

Under the Common Law of England, principles for payment of

compensation for acquisition of property by the State are

stated by Blackstone in his "Commentaries on the-Laws of

England", 4th Edn., Vol. I, at p. 109

"So great moreover is the regard of the law for private

property, that it will not authorize the least violation of

it; no, not even for the general good of the whole

community........ Besides, the public good is in nothing

moire essentially interested, than in

593

the protection of. every individual's private rights, as

modelled by the municipal law. In this and similar cases

the legislature alone can, and indeed frequently does,

interpose, and compel the individual to, acquiesce. But how

does it interpose and compel ? Not by absolutely stripping

the subject of his property in an arbitrary manner; but

giving him a full indemnification and equivalent for the

injury thereby sustained The public is now considered as an

individual, treating with an individual for an exchange.

All that the legislature does, is to oblige the owner to

alienate his possession for a reasonable price......."

The British Parliament is supreme and its powers are not

subject to any constitutional limitations. But the British

Parliament has rarely, if at all, exercised power to take

property without payment of the cash value of the property

taken. In AttorneyGeneral v. De Keyser's Royal Hotel(1) the

House of Lords held that the Crown is not entitled as of

right either by virtue of its prerogative or under any

statute, to take possession of the land or building of a

subject for administrative purposes in connection with the

defence of the realm, without compensation for their use and

occupation.

Under the Government of India Act, 1935, by s. 299(2) it was

enacted that :

"Neither the Federal or' a Provincial Legislature shall have

power to make any law authorising the compulsory acquisition

for public purposes of any land, or any commercial or

industrial undertaking, or any interest in, or in any

company owning, any commercial or industrial undertaking,

unless the law provides for the payment of compensation for

the property acquired and either fixes the amount of the

compensation, or specifies the principles on which, and the

manner in which, it is to be determined."

Article 31(2) before it was amended by the Constitution

(Fourth Amendment) Act, 1955, followed substantially the

same pattern.

Prior to the amendment of Art. 31(2) this Court interpreted

the expression "compensation" as meaning "full

indemnification". Patanjali Sastri, C.J., in The State of

West Bengal v. Mrs. Bela Banerjee & Others (2) in

interpreting the guarantee under Art. 31(2), speaking on

behalf of the Court, observed :

" While it is true that the legislature is given the

discretionary power of laying " down the principles

(1) L.R. [1920] A.C. 508.

(2) [1954] S. C. R. 558.

L8Sup CI/70-8

594

which should govern the determination of the amount to be

given to the owner for the property appropriated, such

principles must ensure that what is determined as payable

must be compensation, that is, a just equivalent of what the

owner has been deprived of. Within the limits of this basic

requirement of full indemnification of the expropriated

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owner, the Constitution allows free play to the legislative

judgment as to what principles should guide the

determination of the amount payable. Whether such

principles take into account all the elements which make 'up

the true value of the property appropriated and exclude

matters which are to be neglected, is a justiciable issue to

be adjudicated by the court."

In the view of the learned Chief Justice the expression

"just equivalent" meant "full indemnification" and the

expropriated owner was on that account entitled to the

market value of the property on the date of deprivation of

the property. This case was decided under a statute enacted

before the Constitution (Fourth Amendment) Act, 1955. The

principle of that case was approved in N. B.Jeejeebhoy v.

Assistant Collector, Thalia Prant, Thana(1) - a case under

the Land Acquisition (Bombay Amendment) Act, 1948, and

invoking the guarantee under s. 299(2) of the Government of

India Act, 1935; in Union of India v. Kamlabai Harjiwandas

Parekh & Others (2) -a case under the Requisitioning and

Acquisition of Immovable Property Act, 1952; and in State of

Madras v. D. Namasivaya Mudaliar(3) - a case arising under

the Madras Lignite Acquisition of Land Act, 1953.

Article 31(2) was amended with effect from April 27, 1955,

by the Constitution (Fourth Amendment) Act, 1955. By sub-

cl. (2A) 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 Art. 31(2) as amended continued to mean

"just equivalent" as under the unamended clause: P.

Vajravelu Mudaliar v. Special Deputy Collector, Madras &

Another(4) under the Land Acquisition (Madras Amendment) Act

23 of 1961; Union of India V. The Metal Cor-

(1) [1965] 1 S.C.R. 636.

(2) [1968] 1 S.C.R. 463.

(3) [1964] 6 S.C.R. 936.

(4) [1965] 1 S.C.R. 614.

595

poration of India Ltd. & Another(1) under the Metal Corpora-

tion of India (Acquisition of Under-takings Act 44 of 1955;

Lachhman Dass and Others v. Municipal Committee, Jalala-

bad(2) under s. 20B of the Displaced Persons (Compensation

and Rehabilitation) Act, 1954, as amended by Act 2 of 1960.

In Ranojirao Shinde's case(1) 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 Art. 31

(2) is a just equivalent of the value of the property taken.

But this Court in State of Gujarat v. Shantilal Mangaldas

and Others(1) 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. capitalization

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

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not capable of precise determination by the application of

recognized rules, by qualifying the expression

"compensation" by the adjective "just", the determination

was made more controversial. It was 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 Constitute 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

somewhat indefinite -plea that it is not a just or fair

equi-

(1) [1967] 1 S.C.R. 255.

(2) A.I.R. [1969] S.C. 1126.

(3) [1968] 3 S.C.R. 489.

(4) [1969] 3 S.C.R. 341.

596

valent. 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 Court held in Mrs. Bela Banerjee's case(1) that by the

guarantee of the right to compensation for compulsory

acquisition under Art. 31(2), before it was amended by the

Constitution (Fourth Amendment) Act, the owner was entitled

to receive a "just equivalent" or "full indemnification".

In P. Vajravelu Mudaliar's case(2) this Court held that

notwthstanding the amendment of Art. 31(2) by the

Constitution (Fourth Amendment) Act, and even after the

addition of the words "and no such law shall be called in

question in any Court on the ground that the compensation

provided by that law is not adequate", the expression

"compensation" occuring in Art. 31 (2) after the Consti-

tution (Fourth Amendment) Act continued to have the same

meaning as it had in S. 299(2) of the Government of India

Act, 1935, and Art. 31(2) before it was amended, viz. "just

equivalent" or "full indemnifications.

There was apparently no dispute that Art. 31(2) before and

after it was amended guaranteed a right to compensation for

compulsory acquisition of property and that by giving to the

owner, for compulsory acquisition of his property,

compensation which was illusory, or determined by the

application of principles which were irrelevant, the

constitutional guarantee of compensation was not complied

with. There was difference of opinion on one matter between

the decisions in P. Vajravelu Mudaliar's case(1) and

Shantilal Mangaldas's case(2). In the former case it was

observed that the constitutional guarantee was satisfied

only if a just equivalent of the property was given to the

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owner : in the latter case it was held that "compensation"

being itself incapable of any precise determination, no

definite connotation could be attached thereto by calling it

"just equivalent" or "full indemnification", and under Acts

enacted after the amendment of Art. 31 (2) it is not open to

the Court to call in question the law providing for

compensation on the ground that it is inadequate, whether

the amount of compensation is fixed by the law or is to be

determined according to principles specified therein. It

was observed in the judgment in Shantilal Mangaldas's

case(3):

(1) [1954] S.C.R. 558. (2) [1965] 1 S.C.R. 614.

(3) [1969] 3 S.C.R. 341. at p. 368.

597

.lm15

"Whatever may have been the meaning of the expression

"compensation" under the unamended Article 31(2), when the

Parliament has expressly enacted under the amended clause

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", it was intended clearly to exclude from the

jurisdiction of the court an enquiry that what is fixed or

determined by the application of the principles specified as

compensation does not award to the owner a just equivalent

of what he is deprived."

In P. Vajravelu Mudaliar's case(1) again the Court in

dealing with the effect of the amendment observed (at p.

627)

"Therefore, a more reasonable interpretation is that neither

the principles prescribing the "just equivalent" nor the

"just equivalent" can be questioned by the court on the

ground of the inadequacy of the compensation fixed or

arrived at by the working of the principles. To illustrate

: a law is made to acquire a house; its value at the time of

acquisition has to be fixed; there are many modes of

valuation, namely, estimate by an engineer, value reflected

by comparable sales, capitalisation of rent and similar

others. The application of different principles may lead to

different results. The adoption of one principle may give a

higher value and the adoption of another principle may give

a lesser value. But nonetheless they are principles on

which and the manner in which compensation is determined.

The Court cannot obviously say that the law should have

adopted one principle and not the other, for it relates only

to the question of adequacy. On the other hand, if a law

lays down principles which are not relevant to the property

acquired( or to the value of the property at or about the

time it is acquired, it may be said that they are not

principles contemplated by Art. 31 (2) of the Constitution."

The Court then applied that principle to the facts of the

case and held that the Land Acquisition (Madras Amendment)

Act, 1961, which provided that-(i) the owner of land

acquired for housing shall get only the value of the land at

the date of the notification under s. 4(1) of the Land

Acquisition Act, 1894, or an amount equivalent to the

average market value of the land during the last five years

immediately preceding such date, whichever was less; (ii)

the owner shall get a solatium of only 5% and not 15% and

(iii) in valuing the land acquired any increase in its

suitabili-

1. [1965] 1 S.C.R. 614.

598

ty or adaptability for any use other than the use to which

the land was put at the date of the notification under s.

4(1) of the Land Acquisition Act, 1894, shall not be taken

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into consideration, did not impair the right to receive

compensation. The Court observed at p. 631 :

"In awarding compensation if the potential value of the land

is excluded, it cannot be said that the compensation awarded

is the just equivalent of what the owner has been deprived

of. But such an exclusion only pertains to the method of

ascertaining the compensation. One of the elements that

should properly be taken into account in fixing the

compensation is omitted : it results in the adequacy of the

compensation, . . . ... We, therefore, hold that the

Amending Act does not offend Art. 31 (2) of the

Constitution."

The compensation provided by the Madras Act, according to

the principles specified, was not the full market value at

the date of acquisition. It did not amount to "full

indemnification" of the owner : the Court still held that

the law did not offend the guarantee under Art. 31(2) as

amended, because the objection was only as to the adequacy

of compensation. In Shantilal Mangaldas's case(1), the

Court held that the Constitution (Fourth Amendment) Act,

Art. 31(2) guarantees a right to receive compensation for

loss of property compulsorily acquired, but compensation

does not mean a just equivalent of the property. If

compensation is provided by law to be paid and the

compensation is not illusory or is not determinable by the

application of irrelevant principles, the law is not open to

challenge on the ground that compensation fixed or

determined to be paid is inadequate.

Both the lines of thought which converge in the ultimate re-

sult, 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 recognized 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. Vajravelu

Mudaliar's case(1) or in Shantilal Mangal's 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 compensa-

(1) [1959] 3 S.C.R. 341.

(2) [1965] 1 S.C.R. 614.

599

tion 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 Sch. 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 recognizes 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

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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.

We are unable to hold that a principle specified by the Par-

liament for determining compensation of the property to be

acquired is conclusive. If that view be accepted, the

Parliament will be invested with a charter of arbitrariness

and by abuse of legislative process, the constitutional

guarantee of the right to compensation may be severely

impaired. The principle specified must be appropriate to

the determination of compensation for the particular class

of property sought to be acquired. If several principles

are appropriate and one is selected for determination of the

value of the property to be acquired, selection of that

principle to the exclusion of other principles is not open

to challenge, for the selection must be left to the wisdom

of the Parliament.

The broad object underlying the principle of valuation is to

award to the owner, the equivalent of his property with its

existing advantages and its potentialities. Where there is

an established market for the property acquired, the problem

of valuation presents little difficulty. Where there is no

established market for the property, the object of the

principle of valuation must be to pay to the owner for what

he has lost, including the benefit of advantages present as

well as future, without taking into account the urgency of

acquisition, the disinclination of the owner to part with

'the property, and the benefit which the acquirer is likely

to obtain by the acquisition. Under the Land Acquisition

Acts compensation paid is the value to the owner together

with all

600

its potentialities and its special adaptability if the land

is peculiarly suitable for a particular use, if it gives an

enhanced value at the date of acquisition.

The important methods of determination of compensation are

-(i) market value determined from sales of comparable

properties, proximate in time to the date of acquisition,

similarly situate, and possessing the same or similar

advantages and subject to the same or similar disadvantages.

Market value is the price the property may fetch in the open

market if sold by a willing seller unaffected by the special

needs of a particular purchase; (ii) capitalization of the,

net annual profit out of the property at a rate equal in

normal cases to the return from gilt-edged securities.

Ordinarily value of the property may be determined by

capitalizing the net annual value obtainable in the market

at the date of the notice of acquisition; (iii) where the

property is a house, expenditure likely to be incurred for

constructing a similar house, and reduced by the

depreciation for the number of years since it was

constructed; (iv) principle of reinstatement, where it is

satisfactorily established that reinstatement in some other

place is bona fide intended, there being no general market

for the property for the purpose for which it is devoted

(the purpose being a public purpose) and would have

continued to be devoted, but for compulsory acquisition.

Here compensation will be assessed on the basis of

reasonable cost of reinstatement; (v) when the property has

outgrown its utility and it is reasonably incapable of

economic use, it may be valued as land plus the break-up

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value of the structure. But the fact that the acquirer does

not intend to use the property for which it is used at the

time of acquisition and desires to demolish it or use it for

other purpose is irrelevant; and (vi) the property to be

acquired has ordinarily to be valued as a unit. Normally an

aggregate of the value of different components will not be

the value of the unit.

These are, however, not the only methods. The method of

determining the value of property by the application of an

appropriate multiplier to the net annual income or profit is

a satisfactory method of valuation of lands with buildings,'

only if the land is fully developed, i.e., it has been put

to full use legally permissible and economically

justifiable, and the income out of the property is the

normal commercial and not a controlled return, or a return

depreciated on account of special circumstances. It the

property is not fully developed, or the return is not

commercial the- method may yield a misleading result.

The expression "property" in Art. 31(2) as in Entry 42 of

List II is wide enough to include an undertaking, and an

undertaking subject to obligations may be compulsorily

acquired under

601

a law made in exercise of power under Entry 42 List III.

The language of the amended clause (2) of Art. 31 compared

with the language of the clause before it was amended by the

Constitution (Fourth Amendment) Act leaves no room for

doubt. Before it was amended, the guarantee covered the

acquisition of "property movable or immovable including, any

interest in, or in any company owning any commercial or

industrial undertaking". In the amended clause only the

word "property" is used, deleting the expressions which did

not add to its connotation. But when an undertaking is

acquired as a unit the principles for determination of

compensation must be relevant and also appropriate to the

acquisition of the entire undertaking. In determining the

appropriate rate of the net profits the return from gilt-

edged securities may, unless it is otherwise found

unsuitable, be adopted.

Compensation to be determined under the Act is for

acquisition of the undertaking, but the Act instead of

providing forvaluing 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 organized 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 under-taking.

Schedule 11 by cl. (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

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the commencement of this Act, calculated in

accordance with the provisions of Part 1, less

the sum-total of the liabilities computed and

obligations of the existing bank calculated in

accordance with the provisions of Part IT."

For the purpose of Part 1 "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 commence-

602

ment 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.

The undertaking of a banking company taken over as a

going concern would ordinarily include the goodwill and the

value of the unexpired period of long-term leases in the

prevailing conditions in urban areas. But goodwill of the

banks is not one of the items in the assets in the Schedule,

and in cl. (f) though provision is made for including a part

of the premium paid in respect of leasehold properties

proportionate to the unexpired period, no value of the

leasehold interest for the unexpired period is given.

Goodwill of a business is an intangible asset : it is

the whole advantage of the reputation and connections formed

with the customers together with the circumstances making

the connection durable. It is that component of the total

value of the undertaking which is attributable to the

ability of the concern lo earn profits over a course of

years or in excess of normal amounts because of its

reputation, location and other features : Trego v. Hunt(').

Goodwill of an undertaking therefore is the value of the

attraction to customers arising from the name, and

reputation for skill, integrity, efficient business

management, or efficient service.

Business of banking thrives on its reputation for

probity of its ,dealings, efficiency of the service it

provides, courtesy and promptness of the staff, and above-

all the confidence it inspires among the customers for the)

safety of the funds entrusted. The Reserve Bank, it is

true, exercises stringent control over the transactions

which banks carry on in India. Existence of these powers

and exercise thereof may and do ensure to a certain extent

the safety of the funds entrusted to the Banks. But the

business which a bank attracts still depends upon the

confidence which the depositor reposes in the management. A

bank is not like a grocer's shop : a customer does not

extend his patronage to a

(1) L.R. [1896] A.C. 7.

603

bank merely because it has a branch easily accessible to

him. Outside the public sector, there are 50 Indian

-scheduled banks, 13 foreign banks, beside 16 non-scheduled

banks. The deposits in the banks not taken over under the

Act range between Rs. 400 crores and a few lakhs of rupees.

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Deposits attracted by the major private commercial banks are

attributable largely to the personal goodwill of the

management. The regulatory provisions of the Banking

Companies Act and the control which the Reserve Bank

exercises over the banks may to a certain extent reduce the

chance of the resources of the banks being misused, but a

banking company for its business still largely depends upon

the reputation of its management. We are unable to agree

with the contention raised in the Union's affidavit that a

banking establishment has no goodwill, not are we able to

accept the plea raised by the Attorney-General that the

value of the goodwill of a bank is insignificant and it may

be ignored in valuing the undertaking as a going concern.

Under cl. (f) of Sch. II provision is made for valuing a

proportionate part of the premium paid in respect of all

leasehold properties to the unexpired duration of the

leases, but there is no provision made for payment of

compensation for the unexpired period of the leases. Having

regard to the present-day conditions it is clear that with

rent control on leases operating in various States the

unexpired period of lease has also a substantial value.

The value determined by excluding important components

of the undertaking, such as the goodwill and value of the

unexpired period of leases, will not, in our judgment, be

compensation for the undertaking.

The other defects in the method of valuation, it was

claimed by Mr. Palkhivala, are the inclusion of certain

assets such as cash, choses in action and similar assets,

which under the law are not regarded as capable of being

acquired as property. This inclusion, it is contended,

vitiates the scheme of acquisition. Under cl. (a) of Part

1-Assets-the amount of cash in hand and with the Reserve

Bank and the State Bank of India (including foreign currency

notes which shall be converted at the market rate of

exchange) are liable to be included. Cash in hand is not an

item which is capable of being compulsorily acquired, not

because it is not property, but because taking over the cash

and providing for acquisition thereof, compensation payable

at some future date amounts to levying a "forced loan" in

the guise of acquisition. This Court in State of Bihar v.

Maharajadhiraja Sir Kameshwar Singh of Darbhanga and Ors.(1)

held that cash and choses in action are not capable of

compulsory acquisition. That

(1) [1952] S.C.R. 889.

604

view was repeated by this Court in Bombay Dyeing & Manufac-

turing Cc,. Ltd. v. State of Bombay(') and Ranojirao

Shinde's case(') We do not propose to express our opinion on

the question whether in adopting the method of determination

of compensation, by aggregating the value of assets which

constitute the undertaking, the rule that cash and choses in

action are incapable of compulsory acquisition may be

applied.

Under item (e) the value of any land or buildings is one

of the assets. The first Explanation provides that for the

purpose of this clause (cl. (e) ) "value" shall be deemed to

be the market value of the land or buildings, but where such

market value exceeds the "ascertained value" determined in

the manner specified in Explanation 2, the value shall be

deemed to mean such " ascertained value". The value of the

land and buildings is therefore the market value or the

"ascertained value" whichever is less. Under Explanation 2,

cl. (1) "ascertained value" in respect of buildings which

are wholly occupied on the date of the commencement of the

Act is twelve times the amount of the annual rent or the

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rent for which the building may reasonably be expected to be

let from year to year reduced by certain specific items.

This provision, in our judgment, does not Jay down a

relevant principle of value of buildings. In the first

place, making a provision for payment of capitalised annual

rental at.......... twelve times the amount of rent cannot

reasonably be regarded as payment of compensation having

regard to the conditions prevailing in the money market.

Capitalization of annual rent which is generally based on

controlled rent under some State Acts at rates pegged down

to the rates prevailing in 1940 and on the footing that

investment in buildings yields 8-1/3% return furnishes a

wholly misleading result which cannot be called

compensation. Value of immovable property has spiralled

during the last few years and the rental which is mostly

controlled does not bear any reasonable relation to the

economic return from property. If the building is partly

occupied by the Bank itself and partly by a tenant, the

ascertained value will be twelve times the annual rental

received, and the rent for which the remaining part occupied

by the Bank may reasonably be expected to be let out. By

the Act the corresponding new banks take over vacant

possession of the lands and buildings belonging to the named

banks. There is in the present conditions considerable

value attached to vacant business premises in urban areas.

True compensation for vacant premises can be ascertained by

finding out the market value of comparable premises at or

about the time of the vesting of the undertaking and not by

capitalising the rental-actual or estimated. Vacant

premises, have a considerably larger value than

(1) [1958] S.C.R. 1122.

(2) [1968] 3 S.C.R. 489.

605

business premises which are occupied by tenants. The Act

instead' of taking into account the value of the premises as

vacant premises adopted a method which cannot be regarded is

relevant. Prima facie, this would not give any reliable

basis for determining the compensation for the land and

buildings..

Again in determining the compensation under cl. (e), the

annual rent is reduced by several outgoings and the balance

is capitalized. The first item of deduction is one-sixth of

the amount thereof on account of maintenance and repairs.

Whether the building is old or new, whether it requires or

does not require maintenance or repairs 16-2/3% of the total

amount of rent is liable to be deducted towards maintenance

and repairs. The vice of items (v) & (vi) of cl. (1) of

Explanation 2 is that they provide for deduction, of a

capital charge out of the annual rental which according to

no rational system of valuing property by capitalization of

the rental method is admissible. Under item (v) where the

building is subject to a mortgage or other capital charge,

the amount of interest on such mortgage or charge, and under

item (vi) where the building has been acquired, constructed,

repaired, renewed or re-constructed with borrowed capital,

the amount of any interest payable on such capital, are

liable to be deducted from the annual rental for determining

the ascertained value. These encumbrances are also liable

to be deducted under the head "liabilities". A simple

illustration may suffice to pinpoint the inequity of the

method. In respect of a building owned by a bank of the

value of Rs. 10 lakhs and mortgaged for say Rs. 7,50,000

interest at the rate of 8% (which may be regarded as the

current commercial rate) would amount to Rs. 60,000. The

estimated annual rental which would ordinarily not exceed

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Rs. 60,000 has under cl. (e) to be reduced in the first

instance by other outgoing. The assets would show a minus

figure as value of the building, and on the liabilities side

the entire amount of mortgage liability would be debited.

The method provided by the Act permits the annual interest

on the amount of the encumbrance to be deducted before

capitalization, and the capitalized value is again reduced

by the amount of the encumbrance. In effect, a single debt

is, in determining the compensation debited twice, first, in

computing the value of assets, and again, in computing the

liabilities.

We are unable to accept the argument raised by the

AttorneyGeneral that under the head "liabilities" in Part II

only those mortgages or capital charges in respect of which

the amount has fallen due are liable to be included on the

liabilities side. Under the head "liabilities" the total

amount of all outside liabilities existing at the

commencement of the Act, and all contingent liabilities

which the corresponding new bank may reasonably be expected

606

to be required to meet out of its own resources on or after

the date of commencement of the Act will have to be

included. When even contingent liabilities are included in

the total amount of all outside liabilities, a mortgage debt

or capital charge must be taken into account in determining

the liabilities by which the aggregate of the value of

assets is to be reduced, even if the period of the mortgage

or capital charge has not expired. The liability under a

mortgage or capital charge exists whether the period

stipulated under the deed creating the encumbrance has

expired or not.

Under cl. (2) of Explanation 2, it. is provided that

buildings which are partly occupied, the valuation shall be

made on the basis of the "plinth area" occupied and

multiplying it by the proportion which that area bears to

the total plinth area of the buildings. The use of the

expression "plinth area" appears to be unfortunate. What

was intended is "floor area". If the expression "plinth

area" is understood to mean "floor area", no fault may be

found with the principle underlying cl. (2) of Explanation

2.

Under cl. (3) of Explanation 2, where there is open

land which has no building erected thereon, or which is not

appurtenant to any building, the value is to be determined

"with reference to the prices at which sales or purchases of

similar or comparable lands have been made during the period

of three years immediately preceding the date of the

commencement of" the Act. Whereas the value of the open

land is to be the market value, the value of the land with

buildings to be taken into account is the value determined

by the method of capitalization of annual rent or market

value whichever is less. The Explanation does not take into

account whether the construction on the land fully develops

the land, and the rental is economic.

We are, therefore, unable to hold that item (e)

specifies a relevant principle for determination of

compensation for lands and buildings. It is not disputed

that the major Banks occupy their own buildings in important

towns, and investments in buildings constitute a part of the

assets of the Bank which cannot be treated as negligible.

By providing a method of valuation of buildings which is not

relevant the amount determined cannot be regarded as

compensation.

We have already referred to item (f) under which a propor-

tionate part of the premium paid is liable to be included in

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the assets but not the value for the unexpired period of the

leases. Item (h) provides for the inclusion of the market

or realizable value, as may be appropriate, of other assets

appearing on

607

the books of the bank, no value being allowed for

capitalized expenses, such as share-selling commission,

organizational expenses and brokerage, losses incurred and

similar other items.

Mr. Palkhivala urged that certain assets which do not

appear in the books of account still have substantial value,

and they are omitted from consideration in computing the

aggregate of the value of assets. Counsel said that every

bank is permitted to have secret reserve and those secret

reserves may not appear in the books of account of the

banks. We are unable to accept that contention. A banking

company is entitled to withhold from the balance-sheet its

secret reserve, but there must be some account in respect of

those secret reserves. The expression "books of the Bank"

may not be equated with the balancesheets or the books of

account only.

The expression "liabilities" existing at the

commencement of the Act includes "all debts due or to become

due." Under the head "liabilities" contingent liabilities

which the corresponding new bank may reasonably be expected

to be required to meet out of its own resources on or after

the date of commencement of the Act are to be debited. The

clause is badly drafted. The present value of the

contingent liabilities at the date of the acquisition and

not the total contingent liabilities may on any rational

system of accounting be debited against the aggregate value

of the assets. For instance, if a banking company is liable

to pay to its emlpoyees gratuity, the present value of the

liability to pay gratuity at the date of the acquisition

made on acturial calculation may alone be debited, and not

the total face-value of the liability.

The Attorney-General contended that even if the

goodwill of a banking company is of substantial value, and

inclusion of the goodwill is not provided for, or the value

of buildings and lands is not the market value, or that

there is a departure from recognized principles for

determination of compensation, the deficiencies in the Act

result merely in inadequate compensation within the meaning

of Art. 31(2) of the Constitution and the Act cannot on,

that account be challenged as invalid. We are unable to

agree with that contention. The Constitution guarantees a

right to compensation-an equivalent in money of the property

compulsorily acquired. That is the basic guarantee. The

law must therefore provide compensation, and for determining

compensation relevant principles must be specified : if the

principles are not relevant the ultimate value determined is

not compensation.

The Attorney-General also contended 'that if in

consequence of the adoption of the method of valuation, an

amount determined

608

as compensation is not illusory, the Courts have no

jurisdiction to question the validity of the law, unless the

law is expropriatory, for, in the ultimate analysis the

grievance relates to the adequacy of compensation. He

contended that the exclusion of one of the elements in

fixing the compensation, or application of a principle which

is not a recognized principle, results in inadequate price,

and is not open to challenge, and relied in support upon the

observations made in P. Vajravelu Mudaliar's case('), (at p.

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631), which we have already quoted in another context in

relation to the challenge to the validity of the Land

Acquisition (Madras Amendment) Act, 1961, which excluded in

determining compensation, the potential value of the land.

The Court held that exclusion of potential value amounted to

giving inadequate compensation and was not a fraud on power.

The principle of that case has no application when valuation

of a undertaking is sought, to be made by breaking it up

into several heads of assets, and important -heads are

excluded and others valued by the application of irrelevant

principles, or principles of which the only claim for

acceptance is their novelty. The Constitution guarantees

that the expropriated owner must be given the value of his

property, i.e., what may be regarded reasonably as

compensation for loss of the property and that such

compensation should not be illusory and not reached by the

application of irrelevant principles. In our view,

determination of compensation to be paid fox the acquisition

of an undertaking as a unit after awarding compensation for

some items which go to make up the undertaking and omitting

important items amounts to adopting an irrelevant principle

in the determination of the value of the undertaking, and

does not furnish compensation to the expropriated owner.

The Attorney-General contended that the total value of

the undertaking of the named banks even calculated according

to the method provided in Sch. II exceeded the total market

value of the shares, and on that account there is no ground

for holding that the law providing for compensation denies

to the shareholders the guarantee of the right to

compensation under Art. 31(2). But there is no evidence on

this part of the case.

Compensation may be provided under a statute, otherwise

than in the form of money : it may be given as equivalent of

money, i.e. a bond. But in judging whether the law provides

for compensation, the money value at the date of

expropriation of what is given as compensation, must be

considered. If the rate of interest compared with the

ruling commercial rate is low, it will reduce the present

value of the bond. The Constitution guarantees a right to

compensation-an equivalent of the property

(1) [1965] 1 S.C.R 614.

609

expropriated and the right to compensation cannot be

converted into a loan on terms which do not fairly compare

with the prevailing commercial terms. If the statute in

providing for compensation devises a scheme for payment of

compensation by giving it in the form of bonds, and the

present value of what is determined to be given is thereby

substantially reduced, the statute impairs the guarantee of

compensation.

A scheme for payment of compensation may take many forms.

If the present value of what is given reasonably

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 Sch. 11 of the Act suffers from the vice that it

does not award compensation according to any recognized

principles, we need not dilate upon this matter further. We

need only observe that by giving to the expropriated owner

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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 Art. 31(2) is impaired.

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 Sch. 11 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 Art. 301--

in the view we have taken the provisions relating to

determination and payment of compensation for compulsory

acquisition of the undertaking of the named banks impair the

guarantee under Art. 31(2) of the Constitution, we do not

deem it necessary to decide whether Act 22 of 1969 violates

the guarantee of freedom of trade, commerce and intercourse

in respect of the (1) agency business; (2) business of

guarantee and indemnity carried on by the- named banks.

L 8 SupCI/70

610

V. Validity of the retrospective operation given to Act 22

of 1969 by s. 1(2) and S. 27-

The argument raised by Mr. Palkhivala that, even if the

Act is within the competence of the Parliament and does

not impair the fundamental rights under Arts. 14, 19(1)(f) &

(g), and 31(2) in their prospective operation, S. 1(2) and

S. 27(2), (3) & (4) which give, retrospective operation as

from July 19, 1969, are invalid, need not also be

considered.

Nor does the argument about the validity of sub-ss. (1) &

(2) of S. II and S. 26 of the Act survive for consideration.

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 s. 5(b) of the Banking

Regulation Act, 1949; and

(d) that the Act violates the guarantee of

compensation under Art. 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 can-

not be regarded as compensation.

Section 4 of the Act is a kingpin in the mechanism of

the Act. Section 4, 5 and 6 read with Sch. II provide for

the statutory transfer and vesting of the undertaking of the

named banks in the corresponding new banks and prescribe the

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method of determining compensation for expropriation of the

undertaking. Those provisions are, in our judgment, void as

they impair the fundamental guarantee under Art. 31(2).

Sections 4, 5 & 6 and Sch. II are not severable from -the

rest of the Act. The Act must, in its entirety, be declared

void.

Petitions Nos. 300 and 298 of 1969 are therefore

allowed, and it is declared that the Banking Companies

(Acquisition and Transfer of Undertakings) Act 22 of 1969 is

invalid and the action

611

taken or deemed to be taken in exercise of the powers under

the Act is declared unauthorised. Petition No. 222 of 1969

is dismissed. There will be no order as to costs in these

three petitions.

Ray, J.There are 89 commercial banks operating in India.

Of these 89 banks 73 are Scheduled and 16 are non-Scheduled

banks. The 73 Scheduled banks comprise State Banks with 7

subsidiaries aggregating 8, 15 foreign banks, 14 banks which

-are the subject matter of the Banking Companies

(Acquisition and Transfer of Undertakings) Ordinance No. 8

of 1969 (hereinafter referred to for the sake of brevity as

the 1969 Ordinance) and the Banking Companies (Acquisition

and Transfer of Undertakings) Act No. 22 of 1969

(hereinafter referred to for the sake of brevity as the 1969

Act) and 36 banks which are outside the scope of the 1969

Act. The State Banks have 27 per cent of the aggregate

deposit of all commercial banks and 32 per cent of the

credit of all commercial banks. The State Bank and its 7

subsidiaries have Rs. 1239 crores including current account

in the total deposit and the total credit of the State Bank

and its subsidiaries is Rs. 1186 crores. The 14 Scheduled

Banks each of which has over Rs. 500 crores of deposit which

are the subject matter of the 1969 Ordinance and the 1969

Act (hereinafter referred to for the, sake of brevity as the

14 banks) and have Rs. 2632 crores of deposit and the credit

amounts to Rs. 1829 crores. In other words, these 14 banks

have 56 per cent of the total deposit and little over 50 per

cent of the total credit of the commercial banks. The36

scheduled banks which are 'outside the 1969 Ordinance and

the 1969 Act have Rs. 296 crores of deposit, viz., 6.3 per

centof the aggregate deposit and the credit is Rs. 197

crores, or in other words, 4.5 per cent of the total credit

of the commercial banks. The 15 foreign banks have 10 per

cent of the credit and 10 per cent of the deposit. These

foreign banks have Rs. 478 crores of deposit and the credit

is Rs. 385 crores. The 16 nonscheduled banks have Rs. 28

crores of deposit and the credit is about Rs. 16 crores.

The non-scheduled banks have less than 1 per cent of the

total credit and of the deposit. The aggregate deposits of

the State Bank of India and its 7 subsidiaries and of the 14

banks is 82.8 per cent (26.5 % + 56.3 % ) of the total

deposits of 89 commercial banks and the aggregate credit of

the said banks is 83.4 per cent (32.8% + 50.6% ) of the

total credit of the 89 commercial banks.

Of the 89 commercial banks the State Banks have 2454

branches, namely, 30 per cent of the branch offices. The 15

foreign banks have 138 branch offices including branches.

The 36 scheduled banks which are outside the 1969 Ordinance

and the 1969 Act have 1324 offices. The 16 non-scheduled

banks have 216

612

offices. The 14 banks have 4130 offices which represent

about little over 50 per cent of the offices. The aggregate

of the number of offices of the State Bank and its 7

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subsidiaries and the 14 banks is 6584 being 79.8 per cent of

the total number of branch offices of the 89 commercial

banks.

On 19 July, 1969 Ordinance No. 8 of 1969 called the

Banking Companies (Acquisition and Transfer of Undertakings)

Ordinance. 1969 was promulgated by the Vice-President acting

as President. It was an Ordinance to provide for the

acquisition and transfer of the undertakings of certain

banking companies in order to serve better the needs of

development of the economy in conformity with national

policy and objectives and for matters connected therewith or

incidental thereto. The Ordinance came into force on 19

July, 1969. The Ordinance was repealed on 9 August, 1969 by

the Banking Companies (Acquisition and Transfer of

Undertakings) Act, 1969 which came into force on 9 August,

1969. The object of the Act was similar to that of the

Ordinance. There are some differences between the Ordinance

and the Act but it is not necessary for the purpose of the

present matter to refer to the same.

Broadly stated, as a result of the 1969 Act the

undertaking of every existing bank was transferred to and

vested in the corresponding new batik on the commencement of

the Act. The existing banks mean the 14 banks. The

corresponding new banks mean the banks mentioned in the

First Schedule to the 1969 Act in which is vested the

undertakings of the existing banks. Section 5 of the 1969

Act deals with the effect of vesting. First, the

undertaking shall be deemed to include all assets, rights,

powers, authorities and privileges and all property, movable

or immovable, cash balances, reserve funds, investments and

all other rights and interests arising out of such property

as were immediately before the commencement of the Act in

the; ownership, possession, power or control of the existing

banks in relation to the under'taking, whether within or

without India, and all books of accounts, registers, records

and all other documents of whatever nature relating thereto.

Secondly, the undertaking shall also be deemed to include

all borrowings, liabilities (including contingent

liabilities) and obligations of whatever kind then

subsisting of the existing bank in relation to the

undertaking. Thirdly, if according to the laws of any

country outside India, the provisions of the 1969 Act by

themselves are not effective to transfer or vest any asset

or liability situated in that country which forms part of

the undertaking of an existing bank to, or in, the

corresponding new bank, the affairs of the existing bank in

relation to such asset or liability shall, on and from the

commencement of this Act, stand entrusted to the chief

executive officer for the time

613

being of the corresponding new bank who will take all steps

as required by the laws of the foreign country for the

purpose of affecting such transfer or vesting. Fourthly,

all contracts, deeds, bonds, agreements, powers of attorney,

grants of legal representation and other instruments of

whatever nature, subsisting or having effect immediately

before the commencement of the 1969 Act and to which the

existing bank is a party -and which are in favour of the

existing bank shall be of as full force and effect against

or in favour of the corresponding new bank and may be

enforced or acted upon as fully and effectually as if in the

place ,of the existing bank the corresponding new bank had

been a party thereto or as if they had been issued in favour

of the corresponding new bank. Fifthly, there are

provisions that suits, appeals, or other proceedings pending

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by or against the existing bank be continued, prosecuted and

enforced by or against the corresponding new bank.

Section 6 of the 1969 Act provides for payment of

compensation and the second Schedule to the Act sets out the

principles of determination of compensation by excluding

liabilities from assets. Section 11 of the Act enacts that

the corresponding new bank shall be guided by such

directions in regard to matters of policy involving public

interest as the Central Government may, after consultation

with the Governor of the Reserve Bank, give, and if any

question arises whether a direction relates to a matter of

policy involving public interest, it shall be referred to

the Central Government and the decision of the Central

Government thereon shall be final. Section 12 provides for

appointment of an Advisory Board to advise the custodian of

the corresponding new bank. The custodian is the chief

executive officer of the corresponding new bank. The

Chairman of the existing bank holding office before the

commencement of the-Act becomes a custodian of the

corresponding new bank. The custodian is to hold office

during the pleasure of the Central Government. Section 13

of the Act provides power of the Central Government to make

scheme. Section 15 is an important provision in the Act.

Under that section a Chairman, managing or whole-time

director of an existing bank shall, on the commencement of

the Act, be deemed to have vacated office and every other

director of Such bank shall, until directors are duly

elected by such existing bank, be deemed to continue to hold

such office. 'The said Board may transact all or any of the

various kinds of business mentioned in section 15. The

other provision in section 15 is that the existing bank may

carry on any business other than banking.

The Act of 1969 by reason of section 1(2) thereof is

deemed to have come into force on 19 July, 1969. Section 27

of the Act contains four sub-sections providing for the

repeal of the

614

Ordinance and enacting first, that notwithstanding the

repeal of the Ordinance, anything done or any action taken

including any order made, notification issued or direction

given, under the said Ordinance shall be deemed to have been

done, taken, made, issued or given, as the case may be,

under the corresponding provisions of this Act; secondly,

that no action or thing done under the said Ordinance shall,

if it is inconsistent with the provisions of this Act, be of

any force or effect and thirdly notwithstanding anything

contained in the Ordinance no right, privilege, obligation

or liability shall be deemed to have been acquired, accrued

or incurred thereunder.

The petitioner Rustom Cavasjee Cooper is a share-holder

of the Central Bank of India Ltd. and of 3 other existing

banks and has current and fixed deposit accounts with these

banks and is also a director of the Central Bank of India.

The petitioner has challenged the validity of the 1969

Ordinance and the 1969 Act and has contended that his

fundamental rights under Articles 14, 19 and 31 have been

infringed by these measures.

Mr. Palkhivala, counsel for the petitioner, contended

that the Act of 1969 was effective only from 9 August, 1.969

and could not have any effect on or from 19 July, 1969 until

9 August, 1969 because there could not be any retrospective

effect given to any piece of legislation which affected the

fundamental right to property. It was said that the

validation would be effective as from the date when the law

was actually passed and any retrospective effect would

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offend Article 31(2) of the Constitution. It was said that

acquisition under Article 31(2) could only be by authority

of law and authority of law could only mean a law in force

at the date of the taking. It was emphasised that the law

must be in existence at the material time and there was no

difference between a law under Article 20(1) and law in

relation to Article 31(1) or Article 31(2) of the

Constitution.

The Attorney General on the other hand contended that

the validity of any law either prospective or retrospective

affecting all or any of the fundamental rights under Article

19 has to be judged by the requirement laid down in Article

19 and the validity of a law either prospective or

retrospective acquiring property has to be judged by the

requirements laid down in Article 31(2).

This Court dealt with retrospective legislations in the

cases of M/s. West Ramnad Electric Distribution Company

Ltd. v. State of Madras(1) and State of Mysore v. Achiah

Chetty (2). In the case of M/s. West Ramnad Electric

Distribution Company Ltd.(') this Court held that there was

difference between the provisions

(1) [1963] 2 S.C.R. 747.

(2) A.1.R. [1969] S.C. 477.

615

contained in Article 20(1) and Article 31(2) of the

Constitution. Article 20(1) refers to law in force at the

time of the commission of the act- charged as an offence

whereas Article 31(2) does not contain any such word of

limitation as to law being in force at the time but speaks

only of authority of a law. This vital distinction between

Article 20(1) and Article 31(2) is to be kept in the

forefront in appreciating the soundness of the proposition

that retrospective legislation as to acquisition of property

does not violate Article 31(2).

In the case of M/s. West Ramnad Electric Distribution

Company(1) the 1954 Madras Act incorporated the main

provisions of the earlier Madras Act of 1949 in validating

actions taken under the earlier 1949 Act. The 1949 Act had

been challenged in earlier proceedings when this Court held

the 1949 Act to be ultra vires. Section 24 of the 1954

Madras Act was intended to validate a notification of

acquisition of undertaking issued on 21 September, 1951

under the, 1949 Act by providing that orders made, decisions

or directions given, notifications, issued, if they would

have been validly made under the 1949 Act were declared to

have been validly made except the extent to which the order

was repugnant to the provisions of the later 1954 Act. In

the Madras case it was contended that the notification under

the 1949 Act in the year 1951 was not supported by any

authority or any pre-existing law because there was no valid

law. That contention was repelled by Gajendragadkar, J. who

spoke for the Court, "If the Act is retrospective in

operation and section 24 has been enacted for the purpose of

retrospectively validating actions taken under the

provisions of the earlier Act, it must follow by the very

retrospective operation of the relevant provisions that at

the time when the impugned notification was issued, these

provisions were in existence. That is the plain and obvious

effect of the retrospective operation of the statute.

Therefore in considering whether Article 31(1) has been

complied with or not, we must assume that before the

notification was issued, the relevant provisions of the Act

were in existence and so, Article 3 1 (1) must be held to

have been complied with in that sense".

Article 20(1) cannot by its own terms have any

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retrospective operation whereas Article 31(2) can and that

is a vital distinction between the two Articles. That is

why there cannot be a retrospective legislation with regard

to creation of an offence. If people at the time of the

commission of an act did not know that it was an' offence

retrospective creation of a new offence in regard to such an

act would put people to new peril which was not in existence

at the time of the commission of the act. Counsel for the

petitioner contended that retrospective validation of

acquisition fell within the mischief of the decision of

Punjab Province v. Dau-

(1) [1963] 2 S.C.R. 747.

616

lat Singh & Others(') where the Judicial Committee dealing

with section 5 of the Punjab Alienation Act which provided

for the avoidance of benami transactions as therein

specified which were entered into either before or after the

commencement of the Act of 1938 held that the same was ultra

vires the Provincial Legislature because it would operate as

a prohibition to affect the past transactions. The

retrospective element however was severed in that case by

the deletion of the words "either before or" in the section

and the rest of the provisions were left to operate

prospectively and validly. The ratio of the decision is

that past transactions which had been closed and title which

had been acquired were sought to be reopened or set aside

and the same could not be within the legislative competence

of section 298 of the Government of India Act, 1935 which

conferred power to prohibit the sale or mortgage of

transactions. The words 'prohibit sale or mortgage' in

section 298 of the Government of India Act, 1935 were

construed to mean prospective or future prohibition as the

words used plainly refer to things or transactions in

future.

The decisions of this Court in M/s. West Ramnad

Electric Distribution Company (2) and State of Mysore v.

Achiah Chetty(3) are ample authorities for the proposition

that there can be retrospective legislation affecting

acquisition of property and such retrospective operation and

validation of actions with regard to acquisition does not

offend Article 31 (2) of the Constitution. In State of

Mysore and Anr. v. D. Achiah Chetty etc.(') Hidayatullah,

C.J. considered the Bangalore Acquisition of Lands Act, 1962

which consisted of two sections whereof the second was in

relation to validation of certain acquisition of lands and

orders connected therewith. In short that section provided

that all acquisition, proceedings, notifications or orders

were validly made, held or issued with the result that the

Act validated all past actions notwithstanding any breach of

City of Bangalore Improvement Act, 1945. Hidayatullah, C.J.

said "What the legislation has done, is to make

retrospectively a single law for the acquisition of these

properties. The legislature could always have repealed

retrospectively the Improvement Act rendering all

acquisitions to be -governed by the Mysore Land Acquisition

Act alone. This power of the legislature is not denied.

The resulting position after the Validating Act is not

different. By the non-obstante clause the Improvement Act

is put out of the way and by the operative part the

proceedings for acquisition are wholly brought under the

Mysore Land Acquisition Act to be continued only under that

Act. The

(1) 73 1. A. 59.

(3) [1969] 3 S.C.R. 55

(2) [1963] 2 S.C.R. 747.

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617

Validating Act removes altogether from consideration any

implication arising from Chapter III or section 52 of the

Improvement Act in much the same way as if that Act had been

passed". The correct legal position on the authority of

these decisions of this Court is that a legislation which

has retrospective effect affecting acquisition or

requisition of property is not unconstitutional and is

valid. The Act of 1969 which is retrospective in operation

does not violate Article 31(2) because it speaks of

authority of a law without any words of limitation or

restriction as to law being in force at the time.

Counsel for the petitioner next contended that the

expression "authority of a law" in Article 31(2) would have

the same meaning as the expression "authority of law" in

Article 31(1) and therefore a law acquiring property would

have to satisfy the tests required in Article 19(1)(f) of

the Constitution. Both Article 31(2) and 19(1)(f) relate to

property. Both appear in Part III of the Constitution under

fundamental rights. The Attorney General contended that

Article 31(2) and 31(2A) constituted a self contained code

relating to acquisition and requisition of property, and

once a property had been acquired by a law in compliance

with the requirements of Article 31(2) there would not be

any right left under Article 19(1)(f) and the validity of

such a law of acquisition of property for public purpose

could not be examined again by the requirements of Article

19(5) which is a relaxation of Article 19(1)(f).

The two requirements of a law relating to acquisition or

requisition of property under Article 31(2) are : first,

that the acquisition or requisition of property can' be made

only for a public purpose, and secondly, it can only be by

authority of a law which provides for compensation. Article

31(2A) further enacts that where a law does not provide for

the transfer of the ownership or right to possession of any

property to the State or to a corporation owned or

controlled by the State, it shall not be deemed to provide

for the compulsory acquisition or requisitioning of

property.

The question for interpretation of Article 22 of the

Constitution in the light of Article 19 came up for

consideration in the case of A. K. Gopalan v. State of

Madras('), Kania, C.J., Patanjali Sastri, Mahajan, Mukherjea

and Das, JJ. expressed the opinion that Article 19 of the

Constitution had no application to a law which related

directly to preventive detention even though as a result of

an order of detention, the rights referred to in sub-

,clauses (a) to (e) and (g) in general and sub-clause (d) in

particular, of clause (1) of Article 19 might be restricted

or abridged.

(1) [1950] S.C.R. 88.

618

Fazl Ali, J. however expressed a contrary opinion. The

consensus of opinion in Gopalan's case(') was that so far as

substantive law was concerned, Article 22 of the

Constitution gave a clear authority to the legislature to

take away fundamental rights relating to arrest and

detention which were secured by the first two clauses of

that Article. Mukherjea, J. said about preventive detention

in relation to right of freedom under Article 19. ','Any

legislation on the subject would only have to conform to the

requirements of clauses (4) to (7) and provided that is

done, there is nothing in the language employed nor in the

context in which it appears which affords any ground for

suggestion that such law must be reasonable in its character

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and that it would be reviewable by the Court on that ground.

Both Articles 19 and 22 occur in the same Part of the

Constitution and both of them support to lay down the

fundamental rights which the Constitution guarantees. It is

well settled that the Constitution must be interpreted in a

broad and liberal manner giving effect to all its parts and

the presumption would be that no conflict or repugnance was

intended by its framers".

I shall now deal with some decisions of this Court as to

whether a law acquiring property under Article 31(2) will

have to comply with Article 19 (1) (f ) or in other words

whether such law of acquisition of property for public

purpose must also according to Article 19(5) be a reasonable

restriction on the right to hold property in the interests

of the general public. There are decisions of this Court to

the effect that acquisition of property under Article 31(2)

as it stood prior to amendment in 1955 is an instance of

deprivation of property mentioned in Article 31(1) and the

two clauses of Article 31 are to be read together with the

result that Article 19(1)(f) has no application where a law

amounts to acquisition or requisition of property for a

public purpose under Article 31(2). When Article 31(2) was

amended by the Constitution Fourth Amendment Act, 1955, the

decisions of this Court on that Article held that Article

19(1)(f) applies only to a deprivation of property under

Article 31(1) but not to a law of acquisition of property

for public purpose under Article 31(2). I shall now refer

to these decisions.

In the case of State of West Bengal v. Subodh Gopal

Bose(') the majority view of this Court was that clauses (1)

and (2) of Article 31 as these stood before the Constitution

Fourth Amendment Act, 1955 are not mutually exclusive in

scope and content but are to be read together and understood

as dealing with the same subject, namely, the protection of

the right to property by means of limitations on the power

of the State and the deprivation contemplated in clause (1)

was held to be no other than the

(1) [1950] S C.R. 88.

(2) [1954] S.C.R. 587.

619

acquisition or taking possession of the property referred to

in clause (2).

The view in Gopalan's case(') was again applied by this

Court in State of Bombay v. Banji Munji and Anr. (2) also a

pre-Amendment case-where it was contended that Article 31(2)

did not exclude the operation of Article 19(1)(f) in

relation to Bombay Land Acquisition Act, 1940. In dealing

with the contention as to whether the Bombay Act was hit by

Article 19(1)(f) on the --round of unreasonable restriction

having been imposed on the right of the respondent to

acquire, hold and dispose of property Bose, J. said at page

780 of the Report "It is enough to say that Article 19(1)(f)

read with clause (5) postulates the existence of property

which can be enjoyed and over which rights can be exercised

because otherwise the reasonable restrictions contemplated

by clause (5) could not be brought into play. If there is

no property which can be acquired, held or disposed of, no

restriction can be placed on the exercise of the, right to

acquire, hold or dispose of it, and as clause (5)

contemplates the placing of reasonable restrictions on the

exercise of those rights it must follow that Article

postulates the existence of property over which these rights

can be exercised". Bose, J. thereafter said that when every

form of enjoyment of and interest in property is taken away

leaving the mere husk of title Article 19(1)(f) is not

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attracted.

The principle laid down in Bhanji Munji's case (2) was

considered in the case of Kavalappara Kottarathil Kochuni

and Ors. v. The State of Madras and Ors.(3). In that case a

question arose whether the Madras Marumakkathayam (Removal

of Doubts) Act, 1955 infringed the provisions of the

Constitution. The Act was passed after the Privy Council

had declared the properties in possession of the Sthanee to

be; Sthanam properties in which the members of the tarwad

had no interest. The Madras Act, 1955 declared that

"notwithstanding any decision of Court, any stanam under

certain conditions mentioned in the sections shall be deemed

to be and shall be deemed always to have been a

Marumakkathayam tarwad and the properties appertaining to

such a sthanam shall be deemed to be and shall be deemed

always to have been properties belonging to the tarwad".

Subba Rao, J. speaking for the majority view on the question

as to whether Article 3 1 (1) had to be read along with

Article 19(1)(f) said "that Legislation in a welfare State

could be achieved only within the framework of the

Constitution and that is why reasonable restrictions in the

interest of the general public on the fundamental rights

were recognised in Article 19". In that context this Court

(1) [1950] S.C.R. 88.

(3) [1960] 3 S.C.R. 887.

(2) [1955] 1 S.C.R. 777.

620

held that a law made depriving a citizen of his property

shall be void, unless the law so made complied with the

provisions of cl. (5) On Article 19 of the Constitution. At

page 916 of the Report Subba Rao, J. said that the

observations in Gopalan's case(') would have no bearing on

Article 31(1) of the Constitution after clause (2) of

Article 31 had been amended and clause (2A) had been

inserted in that Article by the Constitution Fourth

Amendment Act, 1955. Before the Constitution Fourth Amend-

ment Act this Court held that clauses (1) and (2) of Article

31 were not mutually exclusive- in scope and content but

were to be read together, namely, that the words "-

acquisition or taking possession" referred to in clause (2)

of Article 31 prior to the Amendment in 1955 were to be read

as an instance of deprivation of property within the meaning

of Article 31 (1) and therefore the same was not subject to

Article 19. This is how the decision in Bhanji Munji's

case(2) was explained by Subba Rao, J. in Kochuni's case(3)

with the observation that "the decision in Bhanji Munji's

case(') no longer holds the held after the Constitution

Fourth Amendment Act, 1955". It may be stated here that

Kochuni's case(') was decided after the amendment of Article

31 and that was emphasised by Subba Rao, J. to establish

that Article 3 1 ( 1 ) which dealt with deprivation of

property other than by way of acquisition by the State was

to be a valid law or in compliance with limitations imposed

in Article 19(1) (f) and (5).

The question whether Article 19(1) (f) is to be, read

alongwith Article 31 (1) again raised its head in the case

of Smt. Sitabati Devi' and Anr. v. State of West Bengal and

Anr.(4) Kochuni's case(')was decided on 4 May, 1960 and Smt.

Sitabati's case(') was decided on 1 December, 1961 though it

was reported much later in the Supreme Court Reports. In

Smt. Sitabati's case(') the question for consideration was

the validity of the West Bengal Land (Requisition and

Acquisition) Act, 1948. The Act provided for requisition

and also for acquisition of land by the State Government for

maintaining supplies and services essential to the life of

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the community and for other purposes mentioned therein. The

Act also provided for payment of compensation in respect of

requisition and acquisition. In Smt. Sitabati's case(\')

it was contended that the Act offended Article 19(1) (f ) of

the Constitution as it put unreasonable restrictions on the

right to hold property. The High Court held that the Act

providing for acquisition of property by the State could not

be attacked for the reason that it -offended Article 19(1)

(f) on the authority of the decision in Bhanji Munji v.

State of Bombay('). The High Court further held that the-

decision in Kochuni's case (3) did not hold that Article 31

(2)

(1) [1950] S.C.R. 88.

(3) [1960] 3 S.C.R. 887.

(2) [1955] 1 S. C.R. 777.

(4) [1967] 2 S.C.R. 949.

621

of the Constitution did not exclude the applicability of

Article 19(1)(f). Sarkar, J. speaking for the Court said

that the High Court was right on both these points. Sarkar,

J. pointed out that Kochuni's case(') dealt with Article 31

(1) and it was not a case of acquisition or requisition of

property by the State but was concerned with the law by

which deprivation of property was brought about in other

ways and there Article 19 of the Constitution had to be

complied with. In Smt. Sitabati's case(') it was said that

the observation in Kochuni's case(') that Bhanji Munji's

case(') "no longer holds the field" was to be understood as

meaning that it no longer governed the case of deprivation

of property by means other than requisition and acquisition

by the State. To my mind it appears that the view of this

Court in Kochuni's case(') and Smt. Sitabati's case(') is

that Article 31(2) after the Constitution Fourth Amendment

Act. 1955 relates entirely to acquisition or requisition of

property by the State and is totally distinct from the scope

and content of Article 31(1) with the result that Article

19(1)(f) will not enter the arena of acquisition' or

requisition of property by the State.

This Court in the recent decision of State of Gujarat v.

Shantilal Mangaldas and others(3) again considered the

applicability of Article 19(1)(f) in relation to acquisition

or requisition of property under the authority of a law

mentioned in Article 31(2). The Bombay Town Planning Act of

1955 was challenged as unreasonable and a violation of

Article 19(1)(f) and (5). Shah, J. speaking for. the Court

considered Article 31(2) as it stood after the Constitution

Fourth Amendment Act, 1955 and said "clause (1) operates as

a protection against deprivation of property save by

authority of law which it is beyond question, must be a

valid law, i.e. it must be within the legislative competence

of the State legislature and must not infringe any other

fundamental right. Clause (2) Guarantees that property

shall not be acquired or requisitioned [except in cases

provided by clause (5)] save by authority of law providing

for compulsory acquisition or requisition and further

providing for compensation for the property so acquired or

requisitioned and either fixes the amount of compensation or

specifies the principles on which, and the manner in which

the compensation is to be determined or given". Thereafter

Shah, J. speaking for the Court said in repelling the

contention advanced that the impugned statute was

unreasonable. "This Court however held in Smt. Sitabati

Devi v. State of West Bengal (1) that a law made under

clause (2) of Article 31 is not liable to be challenged on

the ground that it imposes unreasonable restrictions upon

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the

(1) [1960] 3 S.C.R. 887.

(3) [1955] 1 S.C.R. 777.

(2) [1967] 2 S.C.R. 949.

(4) [1969] 3 S.C.R. 341.

622

right to hold or dispose of property within the meaning of

Article 19(1) (f) of the Constitution. In Smt. Sitabati

Devi's case(') an owner of land whose property was

requisitioned under the West Bengal Land (Requisition and

Acquisition) Act, 1948 questioned the validity of the Act by

a writ petition filed in the High Court of Calcutta on the

plea that it offended Article 19(1)(f) of the Constitution.

This Court unanimously held that the validity of the Act

relating to acquisition and requisition cannot be questioned

on the ground that it offended Article 19(1)(f) and cannot

be decided by the criterion under Article 19(5)".

In my opinion Article 19(1)(f) does not have any

application to acquisition or requisition of property for a

public purpose under authority of a law which provides for

compensation as mentioned in Article 31(2) for these

reasons. First, the provisions of the Constitution are to

be interpreted in a harmonious manner. No provision of the

Constitution is superfluous or redundant. (See

Gopalan'scase(2) at page 252 per Mukherjea,J.). It cannot be

suggested that acquisition of property for public purpose is

not of the same content as acquisition for public interest

or in the interest of the public. It will be pedantry to

say that acquisition for public purpose is not in the

interest of the public. Secondly, the contention on behalf

of the petitioner that Article.31(2) will have to be read

along with Article 19(1)(f) for the purpose of deciding the

piece of legislation on the anvil of reasonableness of

restrictions in the interest of the general public will mean

that acquisition or requisition for a public purpose under

Article 31 (2) is embraced within Article 19 (5). That

would be not only depriving the provisions of the

Constitution of harmony but also making Article 31(2) otiose

and a dead letter. By harmonising is meant that each

provision is rendered free to ,operate with full vigour in

its own legitimate field. If acquisition or requisition of

property for a public purpose has to satisfy again the test

of reasonable restriction in the interest of the general

public then harmony is repelled and Article 31(2) becomes a

mere repetition and meaningless. It could not be said that

when Article 31(2) was specifically enacted to deal with a

case of acquisition or requisition of property for a public

purpose the framers of the Constitution were not aware that

it was a form of public deprivation of property. That is

why it is important to notice the distinction between

deprivation of property under Article 3 1 (1) which will

relate to all kinds of deprivation of property other than

acquisition or requisition by the State and Article 31(2)

which deals only with such acquisition or requisition of

property. Thirdly, Article 31(2) and 31(2A) is a self

contained code because (a) it provides for acquisition or

requisition with authority

(1) [1967] 2 S.C.R. 949.

(2) [1950] S.C.R. 88.

623

of a law, (b) the acquisition or requisition is to be for a

public purpose, (c) the law should provide for compensation

by fixing the amount of compensation or specifying the

principles on which, and the manner in which, the

compensation is to be determined and given and (d) finally,

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it enacts that adequacy of compensation is not to be

questioned. In the case of acquisition or requisition of

property for public purpose with the authority of a law

providing for compensation there is nothing more to guide

and govern the law for acquisition or requisition than those

crucial words occurring in clause (2). Finally, the amend-

ment of Article 31 indicates in bold relief the separate and

distinctive field of law for acquisition and requisition by

the State of property for public purpose.

Mahajan, J. in the case of State of Bihar v. Maharaja

Darbhanga(1) spoke of public purpose in the background of

Article 39 which speaks of the Directive Principles.

Article 39 enacts that the State shall in particular direct

its policy towards securing that the ownership and control

of the material resources of the community are so

distributed as best to subserve common good and that the

operation of the economic system does not result in the

concentration of wealth and means of production to the com-

mon detriment. In the Darbhanga case(') land which was in

the hands of few individuals was to be made available to the

public. The purpose behind the Bihar Land Reform Act was to

bring general benefit to the community. Mahajan, J. said

that "legislature is the best judge of what is good for the

community, by whose suffrage it comes into existence and it

is not possible for this Court to say that there was no

purpose behind the acquisition contemplated by the impugned

statute. The purpose of the statute is in accordance with

the letter of the Constitution of India, It is fallacious to

contend that the object of the Act is to ruin 5 1/2 million

people in Bihar........ It is difficult to hold in the

present day conditions of the world that the measures

adopted for the welfare of the community and sought to be

achieved by process of legislation so far as to carry on the

policy of nationalization of land can fall on the ground of

public purpose. The phrase "public purpose" has to be

construed according to the spirit of the times in which

particular legislation is enacted and so constructed, the

acquisition of the estates has to be held to have been made

for public purpose". The meaning of the phrase 'public pur-

pose' is predominantly a purpose for the welfare of the

general public. These 14 banks are acquired for the purpose

of developing the national economy. It is intended to

confer benefit on weaker sections and sectors. It is not

that the legislation win have; the effect of denuding the

depositors in the 14 banks of their deposits. The

(1) [1952] S.C.R. 889.

624

deposits will all be there. The object of the Act according

to the legislation is to use the deposits in wider public

interest. What was true of public purpose when the

Constitution was ushered in the mid-century is a greater

truth after two decades. One cannot be guided either by

passion for property on the one hand or prejudice against

deprivation on the other. Public purpose steers clear of

both passion and prejudice.

In regard to property rights the State generally has

power to take away property and justify such deprivation on

the ground of reasonable restriction in the interest of the

general public, but in case of deprivation of property by

acquisition or requisition the Constitution has conferred

power when the law passed provides compensation for the

property acquired by the State. Therefore the acquisition

or requisition for public purpose is a restriction

recognised by the Constitution in regard to property rights.

In Kochuni's case(') this Court approved the observation of

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Harries, C.J. in the case of Iswari Prosad v. N. R.Sen (2)

that the phrase 'in the interest of the general public'

means nothing more than 'in the public interest'. A public

purpose is a purpose affecting the interest of the general

public and therefore the Welfare State is given of

guarantee, giving of indemnity and underwriting and (4)

busiprinciple as to what the legitimate business of a bank

is.

Counsel for the petitioner contended that the word

'banking' would have the same meaning as the definition of

'banking' occurring in section 5(b) of the Banking

Regulation Act of 1949 hereinafter referred to for the sake

of brevity as the 1949 Act. This contention was amplified

to exclude four types of business from the banking business

and therefore, the Act of 1969 was said to be not within the

legislative competence of banking under Entry 45 in List 1.

These four types of business are : (1) the receiving of

scrips or other valuables on deposit or for safe custody and

providing of safe deposit vaults, (2) agency business, (3)

business of. guarantee, giving of indemnity and underwriting

and (4) business of acting as executors and trustees.

'Banking' was defined for the first time in the 1949 Act as

meaning the acceptance for the purpose of lending or

investments of deposits of money from the public repayable

on demand or otherwise and withdrawable by cheque, draft or

otherwise. In England there is no statutory definition of

banking but the Courts have evolved a meaning and principle

as to what the legitimate business of a bank is.

In the case of Tennant, v. The Union Bank of Canada(')

question' arose as to whether warehouse receipts taken in

security

(1) [1960] 3 S.C.R. 887.

(3) [1894] A.C. 51.

(2) A.T.R 1952 Cal. 273.

625

by a bank in the course of business of banking, are matters

coming within the class of subjects described in section 91,

sub-section. 15 of the British North America Act, namely,

'banking, incorporation of Banks, and the issue of paper

money'. Lord Watson said that the word 'banking'

comprehends an expression which is, wide enough to embrace

every transaction coming within the legitimate business of a

banker. In Palmer's Company Precedents, 17th Ed. page 317

form No. 98 will be found the usual memorandum of object of

a bank. These objects comprise business of banking in all

branches including the receiving. of money and valuables on

deposit or for safe custody, or otherwise, the collecting

and transmitting money and securities and transacting all

kinds of agency business commonly transacted by bankers.

The other objects in the form are to undertake and execute

any trusts the undertaking whereof may seem desirable, and

also to undertake the office of executor, administrator,

receiver, treasurer, registrar or auditor. In Banbury v.

Bank of Montreal(') the House of Lords considered the

authority of the bank to give advice as to investments and

Lord Finday, L.C. said that "the limits of banker's business

cannot be laid down as a matter of law. The nature of

business is a question of fact, on which the jury are

entitled to have-regard to thier own knowledge of business

and it is in this context that the present case must be con-

sidered. It cannot be treated as if it was a matter of Pure

law".

In India, the Negotiable Instruments Act, 1881, Stamp

Act, 1889 and Bankers Book Evidence Act, 1891 refer to the

expression banking without a definition. In the Indian

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Companies Act. 1913 for the first time in 1936 provisions

were introduced to govern banking companies. Entry 38 in

List 1 of the Government of India Act, 1935 used the words

"banking that is to say the conduct of banking business of a

Corporation carried on only in that State". It must be

observed that Entry 45 in List 1 of the 7th Schedule to the

Constitution is only 'banking' and it does not contain any

qualifying words like the conduct of business occurring in

Entry 38 of the Government of India Act, 1935. The Indian

Companies Act, 1913 in section 277 however defined `banking

company' but not 'banking' by reference to the principal

business and other businesses usually undertaken by

reputable bankers. Section 277G of the Indian Companies Act

prescribes that the memorandum must be limited to the

activities mentioned in section 277F. Section 277M of the

Indian Companies Act, 1913 contained provisions similar to

section 19 of the Act of 1949, namely, that a banking

company could not form any subsidiary contained provisions

similar to section 19 of the Act of 1949, ,the following

purposes, namely, the undertaking and executing of

(1) [1918] A.C. 624.

3Sup Cl/70-10

626

trusts, the undertaking of the administration of estates as

executors, trustees or otherwise, the providing of safe

deposit vaults or, with the previous permission in writing

of the Reserve Bank carrying on such other purposes as are

incidental to the business of banking. It will appear from

the Select Committee Report which was prepared for the

introduction of the Indian Companies Amendment Act in 1936

that the list of business mentioned in section 277F which

included the principal business and other business

undertaken by reputable bankers was inserted to escape the

danger ,of hampering a company in the performance of any

form of business undertaken by reputable bankers.

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 encated 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, scripts 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

Goverment or local authority or any other person or persons;

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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

627

not to be within the businesses of a bank are recognised by

the statute as letigimate forms of business of a banking

company.

Keeping valuables for safe custody, the providing of

safe deposit vaults occur in clause (a) of section 6(1)

along with various types of business like borrowing, raising

or taking up of money, or lending or advancing of money. It

will appear from clause (n) of section 6(1) of the 1949 Act

that in addition to the forms of business mentioned in

clauses (a) to (in) a banking company may engage in "doing

all such other things as are incidental or conducive to the

promotion or advancement of the business of the company".

The words 'other things' appearing in clause (n) after

enumeration of the various types of business in clauses (a)

to (m) point to one inescapable conclusion that the

businesses mentioned in clauses (a) to (in) are all

incidental or conducive to the promotion or advancement of

the business of the company. Therefore these businesses are

not only legitimate businesses of the banks but these also

come within the normal business activities of commercial

banks of repute. Entry 45 in List 1 of the 7th Schedule of

the Constitution, namely, 'banking' will therefore have the

wide meaning to include all legitimate businesses of a

banking company referred to in section 5(b) as well as in

section 6(1) of the 1949 Act. The contention on behalf of

the petitioner that the four disputed businesses are not

banking businesses is not supportable either on logic or on

principle when businesses mentioned in the sub-clauses of

section 6(1) of the 1949 Act are recognised to be legitimate

business activities of a banking company by statute and

practice and usage fully supports that view.

Clause (o) of section 6 (1) of the 1949 Act contemplates

that .the Central Government might by notification specify

any other form of business and therefore the Government

could ask a banking company to engage' in a form of business

which is not a usual type of business done by a banking

company. In the first place, it would not be reasonable to

think that the Government would ask a bank to do business of

that type. Secondly, even if a bank were asked to do so

that would not. rob the other permissible and legitimate

forms of business mentioned in section 6(1) of the Act of

their true character. Section 6(2) of the 1949 Act provides

that no banking company shall engage in any form of business

other titan those referred to in sub-section (1). The

restriction contained in sub-section (2) establishes that

the various types of business mentioned in sub-section (1)

are normal recognised legitimate businesses and a banking

company is therefore not entitled to participate in any

other form of business.

628

In the case of Commonwealth of Australia and others v.

Bank of New South Wales and others('), the Judicial

Committee in hearing the appeal from the High Court of

Australia considered the meaning and content of banking.

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The question for consideration was the effect of the

Australian Banking Act, 1947 and section 46 thereof. At

page 303 of the Report the Judicial Committee said "the

business of banking, Consisting of the creation and transfer

of credit, the making of loans, the purchase and disposal of

investments and other kindred activities is a part of the

trade, commerce and intercourse of a modern society and. in

so far as it is carried on by means of inter-State

transactions, is within the ambit of section 92". The

business of a bank will therefore consist not only of the

hard core of banking business defined in the 1949 Act but

also of the diverse kinds of lawful business which have

grown to be inextricably bound up in the form of chain or

string transactions. The words 'banker' 'banking' have

different shades of meaning at different periods of history

and their meaning may not be uniform today in countries of

different habits of life and different degrees of

civilisation. See Bank of Chettinad v. T. C. of Colombo(2)

and United Dominions Trust Ltd. v. Kirkwood(3).

At this stage reference may be made to various statutes

starting from Act 6 of 1839 Bank of Bengal's Third Charter

and ending with the State Bank of India Act, 1955 to show

the meaning and content of the word 'banking'. The Bank of

Bengal's Third Charter of 1839 empowered the Bank of Bengal

in clauses 25 to 33 to do business as mentioned therein

which included receiving deposits of goods and safe keeping

of the same. Thereafter the Bank of Bengal Charter was

repealed by Act 4 of 1862 which by clause 27 empowered the

bank to transact pecuniary business of agency on commission.

The Presidency Banks Act, 1876 by section 36 thereof

empowered the Presidency Banks. inter alia, to do business

of receiving of deposits, agency business, acceptance of

valuables, jewels. Section 37 of the Act of 1876 forbade

the bank to do any business or loan or advance on mortgage

or in other manner upon the security of any immovable

property, or the documents of title relating thereto. The

Imperial Bank of India Act, 1920 in Schedule 1 as mentioned

in section 8 of the Act authorised the bank to carry on

several kinds of business including receiving of deposits,

keeping cash accounts, the acceptance of the charge and

management of plate, jewels, title deeds or other valuable

goods on terms, transacting Of pecuniary agency business on

commission and the entering into Of contracts of indemnity,

suretyship or guarantee with specific

(1) [1950] A.C. 235.

(2) [1948] A.C. 378 P.C.

(3) [1966] 1 Q. B. 783.

629

security or otherwise, the administration of estates for any

purpose whether as an executor, trustee or otherwise, and

the acting, as agent on commission in the transaction of

various kinds of business mentioned therein.

The Indian Companies Act, 1913 did not define banking

company or banking business though various sections, namely,

4, 133, 136, 138 and 145 and Schedule Form G referred to

banking companies. The Indian Companies Amendment Act in

1936 for the first time defined a banking company in section

277F as a company which carried on the principal business of

accepting of deposits on current account or otherwise,

notwithstanding that it engaged in any one or more of the

businesses as mentioned in clauses (1) to (17) thereof. It

may be stated here that clauses (1) to (17) in section 277F

of the Indian Companies Act, 1913 are similar to the various

forms of business mentioned in section 6(1) of the 1949

Banking Regulation Act. In 1942, the Indian Companies Act,

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1913 was amended by Act 21 of 1942 and it will appear from

the statement of objects and reasons there that the

definition of banking companies in section 277F of the

Indian Companies Act created difficulties in deciding

whether a company was a banking company or not. The chief

difficulty arose out of the use of the term 'principal

business' in section 277F. With the object of removing

these difficulties a proposal was made that any company

which used as part of its name the word 'bank', 'banker' or

'banking' shall be deemed to be a banking company

irrespective of whether the business of accepting deposits

of money on current account or otherwise subject to

withdrawal by cheque, draft or order was its principal

business or not. In that context Ordinance No. 4 of 1946

was promulgated under section 72 of the Govt. of India Act,

1935 empowering the Reserve Bank to cause inspection of any

banking company and to do various other things by way of

prohibiting a banking company from receiving deposits.

Thereafter came the Banking Companies Restriction of

Branches Act, 1946. There a banking company was defined as

a banking company defined in section 277F of the Indian Com-

panies Act, 1913. There was restriction on opening and

removal of branches and the Reserve Bank was permitted to

cause inspection, of banks. It is in this context that

Ordinance No. 25 of 1948 was promulgated conferring power on

the Reserve Bank to control advances given by the banking

companies. In 1948 a confidential note on the banking

companies Bill was prepared. The necessity of legislation

was felt because there were insufficient paid up capital and

reserve and insufficient liquidity of funds, unrestricted

loans to directors. In that confidential note it was said

that it was difficult to evolve any satisfactory definition

of

630

banking and difficulties arose because of the incorporation

of the, words 'Principal business' in relation to banks in

section 277F of the Indian Companies Act, 1913.

In this background the Banking Regulation Act, 1949 was

enacted. I have already referred to the provisions of

sections 5 and 6 of the 1949 Act and the businesses

mentioned in section 6(1) and the definition of banking

business in section 5(b). A most noticeable feature with

regard to all these types of business of a banking company

is that- a banking company engages not only in the banking

business but other businesses mentioned in section 6 of the

1949 Act with depositors' money. The entire business is one

integrated whole. The provisions contained in section 6 (1)

of the 1949 Act are the statutory restatement of the gradual

evolution over a century of the various kinds of business of

banking companies which are similar to those to be found in

the State Bank of India Act, 1955 hereinafter called the

State Bank Act. The business with regard' to deposit of

valuables and safe deposit vaults is to be found in section

3(viii) of the State Bank Act, the agency business is

mentioned in section 33(xii) of the State Bank Act. The

business of guarantee, underwriting and indemnity is found

in section 33(xi)(xii)(a) of the State Bank Act and the

business of trusteeship and executorship is specifically

found in the Banking Regulation Act, 1949 and in the

previous Acts referred to hereinbefore.

It was suggested by counsel for the petitioner that by

banking business is meant only the hard core of banking as

defined in section 5(b) of the 1949 Act. It is unthinkable

that the business of banks is only confined to that aspect

and not to the various forms of business mentioned in

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section 6(1) of the 1949 Act. Receiving valuables on

deposit or for safe custody and providing for safe deposit

vaults which are contemplated in clause (a) of section 6(1)

of the 1949 Act cannot be dissociated from other forms of

unchallenged business of a bank mentioned in that clause

because any such severance would be illogical particularly

when deposit for safe custody and safe deposit vaults are

mentioned in the long catalogue of businesses in clause (a).

The agency business which is mentioned in clause (b) of

section 6(1) is one of the recognised forms of business of

commercial banks with regard to mercantile transactions and

payment or collection of price. Agency is after all a

comprehensive word to describe the relationship of

appointment of the bank as the constituent's representative.

The forms of agency transactions may be varied.- It may be

acting as collecting agent or disbursing agent or as

depository of parties. The categories of agency can be

multiplied in terms of transactions. That is why the

business of agency mentioned in clause (b) is first in the

general form of acting as an agent for

631

any Government or local authority, secondly carrying on of

agency business of any description including the clearing

and forwarding of goods and thirdly acting as attorney on

behalf of the customers. The business of guarantee is in

the modern commercial word practically indissolubly

connected with a bank and forms a part of the business of

the bank. It is almost commonplace for Courts to insist on

bank guarantee in regard to furnishing of security. There

may be so many instances of guarantee. As to the business

of trusteeship and executorship it may be said that this is

the wish of the settler who happens to be a constituent of

the bank appointing the bank as executor or trustee because

of the utmost faith and confidence that the constituent has

in the solvency and stability of the bank and also to

preserve the continuity of the trustee or the executor

irrespective of any change by reason of death or any other

incapacity. It is needless to state that these four

disputed forms of business all spring out of the relation

between the bank on the one hand and the customer on the

other and the bank earns commission on these transactions or

charges fees for the services rendered. Although trust

accounts may be kept in a separate account all moneys

arising out of the trust money go to the general pool of the

bank and the bank utilises the money and very often trust

moneys may be kept in fixed deposit with the trustee bank

and expenses on account of the trust are met out of the

general funds of the trustee bank. Payments to

beneficiaries are made by crediting the beneficiaries'

accounts in the trustee bank and if they are not

constituents other modes of payment through other banks are

adopted. The position of the banks as executor is similar

to that of a trustee. Whatever moneys the bank may spent

are recouped by the bank out of the accounts of the trust

estate.

After the definition of banking company had been

introduced for the first time in 1936 in the Indian

Companies Act, 1913 it appeared that the banks were not

being managed proprely and the definition of a banking

company gave rise to administrative difficulties in

determining whether a company was as banking company or not.

A number of banking and loan companies particularly in

Bengal claimed that they were not banking companies within

the scope of the definition given in section 277F of the

companies Act and in some cases their contention was upheld

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by the Court. The failure of the Travancore National &

Quilon Bank Ltd. in 1938 and the subsequent banking crisis

in South India posed a big question as to the desirability

of better legislation. An attempt was made to prescribe

certain minimum capital, the amount of capital depending

upon the area of them operation of the bank. The banks were

also asked to maintain a percentage of their assets in cash

or approved securities, Thereafter

632

the Indian Companies (Amendment) Act was passed in 1942 by

which a proviso I was added to section 277F. to the effect

that ;any ,company which used as part of its name the word

'bank', 'banker' or 'banking' shall be deemed to be a

banking company notwithstanding the fact that the acceptance

of deposits on current account subject to withdrawal by

cheque is not the principal business of the company. In the

mid-forties it became desirable that steps should be taken

to safeguard the banking structure against possible

repercussion in the post war period and it was considered

necessary that comprehensive banking legislation should be

introduced.

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 these 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 in section 35 of 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 of 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 sectiotn 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

633

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

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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.

The next question is the legislative competence in

regard to the Act of 1969. Counsol for the petitioner

contended that the Act was for nationalisation of banks and

there was no legislative entry regarding nationalisation and

therefore that was incompetent. There is no merit in that

contention. The Act is for acquisition of property; the

undertaking of a banking company is acquired. The

legislative competence is under Entry 42 in List III of the

7th Schedule and also under Entry 45 in List 1 of the 7th

Schedule. Entry 42 in List III is acquisition and

requisitioning of property. Entry 45 in List 1 is

'banking'. The Act of 1969 is valid under these entries. A

question arose whether the Act. of 1969 pertains to Entry 43

in List 1 which deals with incorporation, regulation and

winding up of trading corporations including banks. It is

not necessary to deal with that entry because of my

conclusion as to enrties No. 42 in List III and No. 45 in

List 1. Counsel for the petitioner contended that the Act of

1969 trenched upon Entry 26 in List 11, namely, trade and

commerce within the State. I am unable to accept that

contention for the obvious reason that the legislation is

for acquisition of undertakings of banking companies. The

pith and substance of the legislation is to be found out and

meaning is to be given to the entries 'banking' and

acquisition of property. In the case of United Provinces v.

Mst. Atiqa Begum and others(1) Gwyer, C.J. said that it

would be practically impossible to define each item in the

provincial legislation as to make it exclusive of every

other item in that list and Parliament seems to have been

content to take a number of comprehensive categories and to

describe each of them by a word of broad and general import.

The doctrine of pith and substance used in Union Colliery

Company of British Columbia when the legislation is

referable to one or more entries the Courts try to find out

what the pith and substance of the legislation is. In the

present case the Act is beyond any doubt one for acquisition

of property and is also in relation to banking. The

legislation

(1) [1940] F.C.R. 110.

(2) [1899] A. C. 580.

634

is valid with reference to the entries, namely, Entry 42

(Requisition) in List 111, Entry 45 (Banking) in List 1.

Counsel for the petitioner contended that undertaking of

banking companies could not be the subject matter of

acquisition and acquisition of all properties in the

undertaking must satisfy public purpose as contemplated in

Article 31(2). This contention was amplified to mean that

undertaking was not property capable of being acquired and

some assets like cash money could not be the subject matter

of acquisition. The Attorney General on the other hand

contended first that undertaking is property within the

meaning of Article 31(2), secondly, undertaking in its

normal meaning refers to a going concern and thirdly it is a

complete unit as distinct from the ingredients composing it

and therefore it could not be said that acquisition of the

undertaking was an infraction of any constitutional

provision. The term ,undertaking' is explained in

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Halsbury's Laws of England, 3rd Ed. Vol. 6 paragraph 75 at

page 43 to mean not the various ingredients which go to make

up an undertaking but the completed work from which the

earnings arise. As an illustration reference is made to

mortgage of the undertaking of a company.

In Gardner v. London Chatham and Dover Railway Co.(')

the undertaking of a railway company which was pledged was

held to be a railway which was to be made and maintained, by

which tolls and profits were to be earned, which was to be

worked and managed by a company, according to certain rules

of management, and under a certain responsibility. In an

undertaking there will be money for the working of the

undertaking and money will be earned thereby. Again in Re:

Panama, New Zealand and Australian Royal Mail Company the

undertaking of a steamship company was explained to have

reference not only to all the property of the company which

existed at the date of the debenture but which might become

the, property of the company and further that the word

'undertaking' referred to the application of funds which

came into the hands of the company in the usual course of

business. Undertaking will therefore relate to the entire

business although there may be separate ingredients or items

of work or assets in the undertaking. The undertaking is a

going concern and it cannot be broken up into pieces to

create a security over the undertaking. (See Re : Portsmouth

(Kingston, Fratton and Southsea) Tramway Co.(') and H. H.

Vivian and Company Ltd. (3).

(1) (1867-8) Vol.II, Chancery Appeals 201.

(2) (1892) 2 Ch. 362.

(3) [1900] 2 Ch. 654.

635

The word 'undertaking' is used in various statutes of

ourcountry, viz ; the Indian Electricity Act, 1910,

(sections 6, 7, 7A), Indian Companies Act (Sections

125(4)(f), 293 and 394), Banking Regulation Act, 1949

(section 14A), Cotton Textiles Companies (Management. of

Undertaking, Liquidation and Reconstruction) Act, 1967

(sections 4 (1), 5 (1) (2). By the word 'undertaking is

meant the entire Organisation. These provisions, indicate

that the company whether it has a plant or whether it has an

Organisation is considered as one whole unit and the entire

business of the going concern is embraced within the word

'undertaking'. In the case of sale of an undertaking as

happened in Doughty v. Lomagunda Reefs, Ltd.(') the

purchaser was required to pay all debts due by and to

perform outstanding contracts comprised in the entire

undertaking. The word 'undertaking' is used in the Indian

Electricity Act, the Air Corporation Act, 1953, the Imperial

Bank of India Act, 1920 (sections 3, 4, 6 and 7), the State

Bank of India Act, 1955 [Section 6(1)(g)], the State Bank

Subsidiaries Banks Act, 1959 [Section 10(1)], the Banking

Regulation Act, 1949 [section 36AE(1)] and there have been

legislative provisions for acquisition of some of these

undertakings.

Under section 5 of the Act of 1969 the undertaking of

each existing bank shall be deemed to include all assets,

rights, powers, authorities and privileges and all property,

movable and immovable, cash balances, reserve funds,

investments and all other rights and interests arising out

of such property as were immediately before the commencement

of this Act in the ownership, possession, power or control

of the existing bank in relation to the undertaking. This

Court accepted the meaning of property given by Rich, J. in

the Minister for State for the Army v. Dalziel(2) to be a

bundle of rights which the owner has over or in respect of a

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thing, tangible or intangible, or the word 'property' may

mean the thing itself over or in respect of which the owner

may exercise those rights. In the case of Commissioner,,

Hindu Religious Endowments, Madras v. Sri Lakshmindra

Thirtha Swamiar of Sri Shirur Mutt("), this Court again gave

wide meaning to the word 'property' and Mukherjea, J. said

that there is no reason why the word 'property' as used in

Article 19(1)(f) of the Constitution should not be given a

liberal and wide connotation and would not be extended to

those well recognised types of interest which have the

insignia or characteristics of proprietary Tight. In the

case of J. K. Trust, Bombay M. The Commissioner of Income

Tax Excess Profits Tax, Bombay (4 ) this Court held the

managing agency business to be a property. The undertaking

of a bank will therefore be the entire integrated

Organisation consisting of all property, movable or

immovable

(1) (1902) 2Ch.d.837. (2) 68 C.L.R. 261.

(3) [1954] S.C.R. 1005. (4) [1958] S.C.R. 65.

636

and the totality of undertaking is one concept which is not

divisible into components or ingredients. That is why in

relation to a company the word 'undertaking' is used in

various statutes in order to reach every corner of property,

right, title and interest therein. The decision in State of

Madhya Pradesh v. Ranojirao Shinde & Anr.(1) is an authority

for the proposition that money cannot be acquired under

Article 31(2). The impugned Act in Ranojirao Shinde's

case(') abolished cash grants which the respondents were

entitled to receive from the Government of Madhya Pradesh,

but provided for the payment of certain compensation to the

grantees. Ranojirao Shinde's(1) case did not deal with the

case of an undertaking and has therefore no application to

the present case. The undertaking is an amalgam of all

ingredients of property and is not capable of being

dismembered. That would destroy the essence and innate

character of the undertaking. In reality the undertaking is

a complete and complex weft and the various types of

business and assets are threads which cannot be taken apart

from the weft. I am, therefore, of opinion that undertaking

of a banking corn any is property which can be ,validly

acquired under Article 31(2) of the Constitution.

The next question for consideration is whether Article

19(6) of the Constitution is attracted. Counsel for the

petitioner contended that as a result of the Constitution

First Amendment Act. 1951 Article 19(6) was clarified to the

effect that the word 'restrictions' would include

prohibition or exclusion which was dealt with the second

limb of Article 19(6). It may be stated here that prior to

the amendment of Article 19(6) the second limb spoke only of

law prescribing qualifications for practising any profession

or carrying on any occupation, trade or business. As a

result of the amendment of the second limb of Article 19(6)

consisted of two sub-articles the first sub-,article

relating to qualifications for practising profession or

carrying on any occupation, trade or business and the second

sub-article relating to carrying on by the State of trade,

business industry to the exclusion 'complete or partial of

citizens or otherwise. The second sub-article was really an

enlargement of clause (6) of Article 19 as a result of the

amendment. The main contention of counsel for -the

petitioner was that the second limb of Article 19(6) after

the expression 'in particular' must also satisfy the test of

reasonable restriction contained in the first limb of

Article 19(6) and emphasis was placed on the word 'in

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particular' to show that it -indicated that the second limb

was only an instance of the first limb of the Article. The

Constitution First Amendment Act -of 1951 was enacted really

to enable the State to carry on busi-

(1) [1968] 3 S.C.R. 489.

637

ness to the exclusion, complete or partial of citizens or

otherwise as will appear from the amendment of Article

19(6).

In the case of Akadasi Padhan v. State of Orissa(') this

Court considered the Orissa Kendu Leaves (Control of Trade)

Act, 1961 by which the State acquired monopoly in the trade

of Kendu leaves and put restrict-ions on the fundamental

rights of the petitioner. In that case, Gajendragadkar, J.

speaking for the Court referred to the decision of the

Allahabad High Court in Motilal v. Government of State of

Uttar pradesh (2) where a monopoly of transport sought to

be created by the U.P. Government in favour of the State

operated Bus Service known as the'Government Roadways' was

struck down as unconstitutional because such a monopoly

totally deprived the citizens of their rights and that is

why Article 19(6) came to be amended. The necessity of the

amendment of Article 19(6) was explained in the case of

Akadasi Padhan(1). The view expressed by this Court in,

that case is that the two sub-articles of the second limb

deal with two different forms of legislation. The first

sub-article deals with restrictions on the exercise of the

right to practise any profession or to carry on any trade,

occupation or business. The second sub-article deals with

carrying on by the State of any trade, business or industry

to the exclusion, complete or partial of citizens or

otherwise. The effect of the amendment was stated by Gajen-

dragadkar, J. to be that a State monopoly in respect of any

trade or business must be presumed to be reasonable and in

the interest of the general public so far Article 19(1`)(g)

is concerned'. The words 'in particular' in that case in

Article 19(6) were held to indicate that restrictions

imposed on the fundamental rights guaranteed by Art.

19(1)(g) which are reasonable and which are in the interest

of the general public are saved by Article 19(6) as it

originally stood and the validity of the. laws covered by

the amendment would no longer be left to be tried in courts.

Counsel for the petitioner relied on the decision of the

House of Lords in the case of Earl Fitzwilliam's Wentworth

Estates Co.v.Minister of Housing and Local Government and

another(3) in support of the proposition that the words 'in

particular' in Article 19(6) were used to place the accent

on reasonable restrictions in that clause as the saving

feature of a law affecting Article 19(1)(g). Section 43(1)

of the Town and Country Planning Act, 1947 which was

considered was as follows :"

(1) The Central Land Board may,with the approval of the

Minister, by agreement acquire land for any

(1) [1963] Supp. 2 S.C.R. 691.

(3) (1952] A. C. 362.

(2) I.L.R. [1951] 1 All. 269.

638

purpose connected with the performance of

their functions under the following provisions

of this Act, and in particular may so acquire

any land for the purpose of disposing of it

for development for which permission has been

granted under Part III of this Act on terms

inclusive of any development charge payable

under those provisions in respect of that

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development".

It was held that the sub-section conferred a single

power on the Central Land Board and not two powers, viz.,

that the boards have. power to acquire land for the purpose

connected with the ,performance of their functions and the

words in the second limb ,of the section were no more than a

particular instance of that which the legislature regarded

as part of the Board's functions. The purpose referred to

in the second part of the sub-section there introduced by

the words 'in particular' was held to be a purpose connected

with the performance of the function within the meaning of

the first part of the sub-section. The language of the sub-

section in the case before the House of Lords is entirely

different from the language in Article 19(6). Article 19(6)

in the two limbs and in the two sub-articles of the second

limb deals with separate matters and in any event State

monopoly in respect of -trade or business is not open to be

reviewed in Courts on the ,-round of reasonableness. This

Court in the case of Municipal Committee of Amritsar v.

State of Punjab(') held that so far as monopoly business by

the State was concerned under Article 19(6) it was not open

to challenge.

The four businesses which were disputed by counsel for

the petitioner to be within the business of banking were

contended to be not only acquisition of property in

violation of Article 19 (1) (f) but also not to be

reasonable restriction in the interest of the general public

under Article 19(5) or under Article 19(6). Emphasis was

placed on section 15(2) of the Act of 1969 to contend ,that

after the acquisition of the undertaking of the bank the,

pro.Vision permitting the banks to carry on business other

than banking would be empty and really amount to prohibition

of carrying ,on of the business because the assets

pertaining to the four disputed businesses with which the

business could be carried on had been taken away. I have

already expressed my opinion that the four disputed

businesses are the legitimate businesses of a banking

company as mentioned in section 6(1) of the 1949 Act and are

,comprised in the undertaking of the banking and Article

10(1) (f) not attracted in case of acquisition or

requisition of property dealt 'With by Article 31(2). 1 have

also held that Article 19(6) confers

(1) [1969] 3 S.C.R. 447

639

power on the State to have a valid monopoly business.

Section 15(2) of the 1969 Act allows the existing banks to

carry on business other than banking. If as a result of

acquisition, the bank will complain of lack of immediate

resources to carry on these businesses the Act provides

compensation and the existing bank will devise ways and

means for carrying on the businesses. Constitutionality of

the Act cannot be impeached on the ground of lack of

immediate resources to carry on business. In the present

case, the acquisition is not unconstitutional and the bank

is free to carry on all businesses other than banking. It

cannot be suggested that. after compensation has been

provided for the State will have to provide moneys to enable

the existing bank to carry on these businesses. That would

be asking for something beyond the limits of the

Constitution. If the entire undertaking of a banking

company is taken by way of acquisition the assets cannot be

separated to distinguish those belonging to banking business

from others belonging to "non-banking business" because

assets are not in fact divided on any such basis.

Furthermore that would be striking at the root of

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acquisition of the entire undertaking. It would be strange

to hold in the teeth of express provisions in the Act of

1969 permitting the banks to carry on business other than

banking that the same will amount to a prohibition on the

bank to carry on those businesses. I find it difficult to

comprehend the contention of the petitioner that a permis-

sive provision allowing the banks to carry on these

businesses other than banking becomes unreasonable. If that

provision was not-there the businesses could be carried on

and the argument would not be available at all. The express

making of the provision obviously for greater safety cannot

change the position. The petitioner's contention on Article

19(6) therefore fails.

Counsel for the petitioner contended that section 11 of

the 1969 Act suffered from the vice of excessive delegation

and there were no guidelines for reaching the objectives set

out in the Preamble of the Act and the decision of

Government regarding policy involving public interest was

made final and therefore it was unconstitutional. Sect-ion

11 of the Act of 1969 is in two subsections. The first sub-

section enacts that corresponding new bank shall, in the

discharge of its functions, be guided by such directions in

regard to matters of policy involving public interest as the

Central Government may, after consultation with the Governor

of the Reserve Bank, give. The second sub-section enacts

that if any question arises whether a direction relates to a

matter of policy involving public interest, it shall be

referred to the Central Government and the decision of the

Central Government thereon shall be final. Section 25(1)(c)

of the Act of 1969 provides that the words 'corresponding

new bank constituted under

640

section 3 of the 1969 Act "or any other banking institution

notified by the Central Government" shall be substituted for

the words " or any other banking institution notified by the

Central Government in this behalf", in section 51 of the

1949 Act. Sections 7, 17(15A) of the Reserve( Bank Act of

1934 contain similar powers on the part of the Central

Government to give directions to the Reserve Bank in regard

to management and exercise of powers and functions in

performance of duties entrusted to the bank under the

Reserve Bank Act. A statute of this nature whereby the

controlling interest of the business of banks is acquired

renders it not only necessary but also desirable that policy

involving -public interest should be left to the Government.

The Act of 1969 contains enough guidance. First, the

Government may give directions only in regard to policy

involving public interest; secondly, directions can only be

given by the Central Government and no one else; thirdly,

these directions can only be given by the Central Government

after consultation with the Governor of the Reserve Bank;

fourthly, directions given by the Government are in regard

to matters involving public interest which means that this

is objective and subject to judicial scrutiny and both the

Central Government and the Governor of Reserve Bank are high

authorities.

As a result of section 25(1) (c) of the Act of 1969, 14

banks will be subject to the provisions of the 1949 Act

enumerated in sections 15, 17, 19, 20, 21, 23, 24, 25, 26,

27, 28, 29, 31, 34, 35, 35A, 36 and 48. These sections

principally deal with restrictions as to payment of

dividend, prohibition of floating charge on assets, creation

of reserve fund, restrictions on subsidiary company,

restrictions on loans and advances, power of the Reserve

Bank to control -advances by banking companies, restrictions

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on the opening of new places of business, maintenance of

percentage of assets, return of unclaimed deposits,

furnishing of returns to the Reserve Bank, publication of

information by the Reserve Bank, submission of accounts and

balance sheet to the Reserve Bank, inspection by the Reserve

Bank, power of the Reserve Bank to give directions with

regard to management, and imposition of penalties for

contravention of the provisions of the Act.

There are other statutes which provide powers of the

Central Government to give directions. I have already

referred to the Reserve Bank of India Act, 1934. There are

similar statutes conferring, powers on the Government to

give directions, namely, State Bank of India Act, 1955,

State Financial Corporation Act, 1951, University Grants

Commission Act, 1956 Life Insurance Act, 1956, Deposit

Insurance Act, 1961, National Cooperative Development

Corporation Act, .1962, Agricultural Refinance

641

Corporation Act, 1963 and State Agricultural Credit

Corporations Act, 1968. There are English statutes which

contain similar provisions of exercise of power or

directions by the Government in regard to the affairs of the

undertakings covered by the statutes.' These are the Bank of

England Act, 1946, Cotton (Centralised Buying) Act, 1947,

Coal Industry Nationalisation Act, 1946, Civil Aviation Act,

1946, Electricity Act, 1947, Gas Act, 1948, Iron and Steel

Act, 1949 and Air Corporations Act, 1949. It is explicable

that where the Government acquires undertakings of indus-

tries, the matters of policy involving public interest or

national interest should be left to be decided by the

Government. There is nothing unconstitutional in such

provisions.

The Preamble to the Act of 1969 states that the object

of the Act is "to serve better the needs of the development

of the economy in conformity with national policy and

objectives." National policy and objectives are in

accordance with the Directive Principles in Part IV of the

Constitution. It is stated by the respondents in their

affidavits that there are needs of the development of the

economy in conformity with the Directive Principles and

these are to be achieved by a mobilisation of the savings of

the community and employing the large resources of the 14

banks to develop national economy in several spheres of

activity by a more equitable distribution of economic

resources, particularly, where there are large credit gaps.

In the case of Harishankar Bagla and Anr. v. The State of

Madhya Pradesh('), Mahajan, C.J. at pages 388-89 of the

report said "The Preamble and the body, of the sections

sufficiently formulate the legislative policy and the ambit

and character of the Act is such that the details of that

policy can only be worked out by delegating them to a

subordinate authority within the framework of that policy".

It is manifest that in working the Act of 1969 directions

from the Central Government are necessary to deal with

policy and other matters to serve the needs of national

economy.

Counsel on behalf of the petitioner next contended

that acquisition of the 14 banks and the prohibition of

banking business by the existing banks violated Article 301

and was not saved by Article 302 because it is not required

in the public interest, As to the four disputed businesses

which the existing banks can under the Act carry on, it was

said that the same was an infraction of Article 301.

Article 305 to my mind directly applies to a law relating to

bank and all businesses necessarily incidental to it carried

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on by the State to the complete or partial exclusion of 14

banks. Article 302 can have no application in such a case.

An individual cannot complain of violation of Article 301.

(1) [1955] 1 S.C.R. 380.

L8 Sup. CI(NP)/70-11

642

Article 305 applied in the present case and therefore

neither Article 301 nor Article 302 will apply. Article 302

is an enabling provision and it has to be read in relation

to Article 301. Acquisition of property by itself cannot

viol-ate Article 301 which relates to free trade, commerce

throughout India. The object of acquisition is that the

State shall carry on business to the exclusion, complete or

partial, of the 14 banks.

Counsel for the-petitioner contended that the 1969 Act

violated the provisions of Article 14 on these grounds :

First, the Act discriminated against 14 banks as against

other Indian scheduled banks, secondly, the selection of 14

banks has no reasonable connection to the objects of the

Act; thirdly, banks which may be described to be inefficient

and which are liable to, be acquired under section 36AE of

the 1949 Act are not acquired whereas 14 banks who have

carried on their affairs with efficiency are acquired;

fourthly under section 15 (2) (d) (e) of the 1969 Act the 14

banks cannot do any banking business whereas other Indian

scheduled banks or any other new banking company can do

banking business.

In other to appreciate these contentions it is necessary

to remember the background of growth of Indian banks. At

the beginning I referred to the position that State Bank of

India and its several subsidiaries and the 14 banks occupy

today in contrast with foreign banks and other scheduled or

non-scheduled Indian banks. These 14 banks are not in the

same class as other scheduled banks. The classification is

on the basis of the 14 banks having deposit of Rs. 50 crores

and over. The object of the Act is to control the deposit

resources for developing national economy and as such the

selection of 14 banks having regard to their larger

resources, their greater coverage, their managerial -and

personnel resources and the administrative and

organisational factors involved in expansion is both

intelligible and related to the object of the Act. There is

no evidence to show that the 14 banks are more efficient

than the others as counsel for the petitioner contended.

Section 15 (2) (d) (e) of the 1969 Act states that these 14

banks after acquisition are not to carry on any banking

business for the obvious reason that these 14 banks are not

in the same class as the other Indian banks. Besides, it is

also reasonable that the 14 banks should not be permitted to

carry on banking business as the corresponding new banks.

Therefore the classification of -the' 14 banks is also a

rational and intelligible classification for the purposes of

the Act. The object of the 1969 Act was to meet credit gaps

and to have a wider distribution of economic resources among

the weaker sections of the economy, namely, agriculture,

small scale industry and retail trade.

643

The Act of 1969 is for development of national economy

with the aid of banks. There are needs of various sectors.

The legislature is the best judge of what should subserve

public interest. The relative need is a matter of

legislative judgment. The legislature found 14 banks to

have special features, namely, large resources and credit

structure and good administration. The categorisation of

Rs. 50 crores and over vis-a-vis other banks with less than

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Rs. 50 crores is not only intelligible but is also a sound

classification. From the point of view of resources these

14 banks are better suited than others and therefore speed

and efficiency which are necessary for implementing the

objectives of the Act can be ensured by such classification.

In the case of Shri Ram Krishna Dalmia v. Shri Justice

S. R. Tendolkar & Others('), it was said that the Court

would take into consideration the history of the times and

could also assume the state of facts existing at the time of

legislation. A presumption also arises in regard to

constitutionality of -a piece of legislation. In the case

of P. V. Sivarajan v. The Union of India & Anr. (2) the Coir

Industry Act was considered in relation to registration of

dealers for export. The Act provided minimum quantity of

export preceding 12 months the commencement of the Act as

one of the qualifying terms for registration. This

quantitative test was held good. The legislative policy as

to the necessity is a matter of legislative judgment and the

Court will not examine the propriety of it. The legislation

need not be all embracing and it is for the legislature to

determine what categories will be embraced. In Dalmia's

case(') it was said that the two tests of classification

were first that there should be an intelligible differentia

which distinguished persons or things grouped from others

left out and secondly the differentia must have a rational

relation to the object sought to be achieved by the statute.

There has to. be a line of demarcation somewhere and it is

reasonable that these 14 banks which are in a class by

themselves because of their special features in regard to

deposit, credit, administration, Organisation should be

prohibited from carrying on banking business. These special

circumstances are the reasons for classification. This

distinction between the 14 banks and others reasonably

justified different treatment. An absolute symmetry or an

accurate classification is not possible to be achieved in

the task of acquisition of undertakings Of banking

companies. It cannot, therefore, be said that companies -

whose deposits were in the range of Rs. 45 to Rs. 50 crores

should have been taken.

In Kathi Raning Rawat v. State of Saurashtra(3) this

Court said that the necessity for judicial enquiries would

arise when there

(1) [1959] S.C.R. 279.

(3) [1952] S.C.R 435.

(2) [1959] 1 Supp. S.C.R. 779.

644

was an abuse of power and the differences would have no

relation to the object. In the case of The Board of

Trustees Ayurvedic and Unani Tibia College, Delhi v. The

State of Delhi and Anr. (1) the Court supported legislation

on a reasonable ground that the case of Tibia College(') had

exceptional features which were not found in others. In

Dalmia's case(.') the legislature was said to be free to

recognise the degrees of harm -and to confine its restric-

tion to those cases where the need was deemed to be the

greatest. It is in this sense that usefulness to society

was found to form a basis of classification in the case of

Mohd. Hanif Quareshi v. State of Bihar('). In the case of

Harnam Singh and Ors. v. Regional Transport Authority,

Calcutta and Ors.(4) Mahajan, J. said that in considering

Article 14 the Court should not adopt an attitude which

might well choke all beneficial legislation and legislation

which was based on a rational classification was

permissible. It will not be sound to suggest that there are

other banks which can be acquired and these 14 banks should

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be spared. There is always possibility of discerning some

kind of inequality and therefore grouping has to be made.

where the legislature finds that public need is great and

these 14 banks will be able to supply that need for the

development of national economy classification is reasonable

and not arbitrary and is based on practical grounds and

consideration supported by the large resources of over Rs.

50 crores of each of these 14 banks and their

-administration and management. I am, therefore, of opinion

that the acquisition of the undertakings does not offend

Article 14 because of intelligible differentia and their

rational relation to the object to be achieved by the Act of

1969 and it follows that these banks cannot therefore be

allowed to carry on banking business to nullify the very

object of the Act.

Counsel for the petitioner contended that the Act of

1.969 infringed Article 31(2) because there was no just

compensation. It was said that compensation in Article 31

(2) meant just compensation and it the 1969 Act did not -aim

at just compensation, it would be unconstitutional. It was

contended that cash could not be taken and further that the

four disputed businesses could not be acquired. I have

already expressed my view that the Act required the entire

undertaking of the banks, and, therefore, there is no

question of taking of cash. I have also expressed my view

that the four disputed businesses are all within the

business of bank, and, therefore, the Act is valid.

It was said by counsel for the petitioner that the word

compensation in Article 31(2) was given the meaning of just

equivalent in earlier decisions of this Court and since the

word

(1) [1962] Supp. 1 S.C.R. 156.

(3) [1959] S.C.R. 628.

(2) [1959] S.C.R. 279.

(4) [1954] S.C.R. 371.

645

compensation' was retained in Article 3 1 (2) after the

Constitution Fourth Amendment Act, 1955 there was no change

in the meaning of the expression 'compensation' and it would

have the same meaning of just equivalent. In view of the

fact that after the Constitution Fourth Amendment Act the

question of adequacy of compensation is not justiciable it

was said by counsel for the petitioner that the only

question for Courts is whether the law aimed at just equiva-

lent. Counsel for the petitioner relied on the decision of

this Court in Vajravelu Mudaliar v. Special Deputy

Collector, Madras& Anr. (1) and submitted that the decision

in Shantilal Mangaldas v. State of Gujarat (2 ) was a wrong

interpretation of Article 3 1 (2).

The Attorney General on the other hand contended first

that after the Constitution Fourth Amendment Act Article 3 1

(2) enacted that no law shall be called in question on the

ground that the compensation provided by that law is not

adequate and therefore compensation in that Article could

not mean just equivalent. It was also said that Article

31(2) refers to a law which provides for compensation and

not to a law which aims at just equivalent. Secondly, it

was said that the whole, of Article 31(2) had to be read and

the meaning of the word 'compensation' in the first limb was

to be understood by reference to the second limb and if the

petitioner's arguments were accepted the Constitution would

read that unless law provided for a just equivalent it shall

be called in question. It was, therefore, said by the

Attorney-General that if just equivalent was to be aimed at

the second limb of Article 31(2), namely, that inadequacy

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would not be questioned would become redunant and

meaningless. If the law enjoined that there was to be

compensation and either principle for determination of

compensation or -amount of compensation was fixed the Court

could not go into the question of adequacy or reasonableness

of compensation and the Court could not also go into the

question of result of -application propriety of principle or

reasonableness of the compensation.

In Vajravelu Mudaliar's case(1) this Court referred to

the decision of Bela Banerjee's case(3) where it was held

that compensation in Article 31(2) meant just equivalent or

full indemnification. In Vajravelu Mudaliar's case(') it

was contended that the Land Acquisition Madras Amendment

Act, 1961 had provided for acquisition of land for housing

schemes and laid down principles for compensation different

from those prescribed in the Land Acquisition Act, 1894 and

thereby Article 31-(2) was infringed because the Act did not

provide for payment of compensation within the meaning of

Article 31 (2). Subba Rao, J. speaking for the Court said

that if the term 'compensation' had received judicial

(1) [1965] 1 S.C.R. 614.

(2) [1969] 3 S.C.R. 341.

(3) [1954] S.C.R. 558.

646

interpretation it must be assumed that the term was used in

the sense in which it had been judicially interpreted unless

a contrary intention appeared. That is how reference was

made to the decision of this Court in Bela Banerjee's

case(') to emphasise that a law for requisition or

acquisition should provide for a just equivalent of what the

owner has been deprived of. Subba Rao, J. then dealt with

the clause excluding the jurisdiction of the Court where the

word 'compensation' was used and said at page 627. of the

Report "The argument that the word "compensation" means

'just equivalent' for the property acquired, and, therefore,

the Court can ascertain whether it is just equivalent or not

makes the amendment of the Constitution nugatory. It will

be arguing in a circle. Therefore, a more reasonable

interpretation is that neither the principles prescribing

the "just equivalent" nor the "just equivalent" can be

questioned by the Court on the ground of inadequacy of

compensation fixed or arrived at by the working of the

principles".

This Court then said that when value of a house at the

time of acquisition had to be fixed there could be several

methods of valuation, namely, estimate by engineer or value

reflected by comparable sales or capitalisation of rent and

similar others with the result that the adoption of one

principle might give a higher value but they would

nevertheless be principles of the manner in which the

compensation has to be determined -and the Court could not

say that the Act should have adopted one principle and not

the other because it would relate to the question of

adequacy. In that case it was said that if a law lays down

principles for determining compensation which are not

relevant to the property acquired or to the value of the

property at or about the time it is acquired it might be

said that these are not principles contemplated by Article

31 (2). This was illustrated by saying that if a law says

that though a house is acquired it would be valued as an

agricultural land or though it is acquired in 1950 its value

in 1930 should be given and though 100 acres are acquired

only 50 acres will be paid for, these would not enter the

question or area of adequacy of compensation. Another rule

which was laid down in Vajravelu Mudaliar's case(') is that

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the law may prescribe compensation which is illusory. To

illustrate, a property worth a lakh of rupees might be paid

for at the sum of Rs. 100 and the question in that context

would not relate to the adequacy of compensation because

there was no compensation at all.

Two broad propositions which were laid down in Vajravelu

Mudaliar's case (2 ) are these. First, if principles are

not relevant to the property acquired or not relevant to the

value of the property at or about the time it is acquired,

these are not relevant principles.

(1) [1954] S.C.R. 558.

(2) [1965] 1 S.C.R. 614.

647

The second proposition is that if a law prescribes a

compensation which is illusory the Court could question it

on the ground that it is not compensation at all.

In the case of Shantilal Mangaldas(1) the Bombay Town

Planning Act of 1950 which was repealed by the Bombay Town

Planning Act of 1955 came up for consideration. There was a

challenge to the Bombay Act of 1955 on the ground of

infringement of Article 31(2) of the Constitution. Section

53 of the Bombay Act contemplated transfer of ownership by

law from private owners to the local authority. It was

-argued that under section 53 of the Bombay Act when a plot

was reconstituted and out of that plot a smaller area was

given to the owner and the remaining area was utilised for

public purpose the area so utilised vested in the local

authority for a public purpose, but the Act did not provide

for giving compensation which was a just equivalent of the

land expropriated at the date of extinction of interest and

therefore Article 31(2) was infringed. It was also -argued

that when the final scheme was framed in lieu of the

ownership of the original plot and compensation in money was

determined in respect of the land appropriated to public

purpose such a scheme for compensation violated Article

31(2) because compensation for the entire land was not

provided and secondly payment of compensation in money was

not provided in respect of the land appropriated to public

use.

Shah, J. speaking for the Court in the case of

Shantilal Mangaldas(1) said that the decision of this Court

in the cases of Bela Banerjee(2) and Subodh Gopal Bose(3)

"raised more problems than they solved", because the Court

did not indicate the meaning of just equivalent and "it was

easier to state what was not just equivalent than to define

what a just equivalent was". In this state of law Article

31 was amended by Constitution Fourth Amendment Act, 1955.

Shah, J. said first that adequacy of compensation fixed by

the legislature or awarded according to principles specified

by the legislature is not justiciable and secondly if 'I

'the amount of compensation is fixed it cannot be challenged

apart from a plea of abuse of legislative power because

otherwise it would be a challenge to the adequacy of

compensation. In Shantilal Mangaldas's case(') Shah, J.

also said that the compensation fixed or determined on

principles specified by the legislature cannot be challenged

on the indefinite plea that it is not a just or fair equiva-

lent. Shah, J. further said that principles of compensation

could not be challenged on the plea that what was awarded as

a result

(1) [1969] 3 S.C.R. 341.

(2) [1954] S.C.R. 558.

(3) [1954] S.C.R. 587.

648

of the application of those principles was not just or fair

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compensation.

If the quantum of compensation fixed by the legislature

is not liable to be challenged before the Court on- the

ground that it is not a just equivalent the principles

specified for determination of compensation will also not be

open to challenge on the plea that the compensation

determined by the application of these principles is not a

just equivalent. The right declared by the Constitution

guarantees compensation before a person is compulsorily

expropriated of the property for public purpose. Principles

may be challenged on the ground that they are not relevant

to the property acquired or the time of acquisition of the

property but not on the plea that the principles are not

relevant to the determination of a fair or just equivalent

of the property acquired. A challenge to the statute that a

principle specified by it does not provide or award a just

equivalent will be a clear violation of the constitutional

declaration that inadequacy of compensation provided for is

not justiciable.

Shah, J. referred to the decision of this Court in the

case of Union of India v. The Metal Corporation of India

Ltd. & Anr. (1) and expressed disagreement with the

following view "pressed in the Metal Corporation case(')

"the law to justify itself has to provide a payment of just

equivalent to the land acquired or lay down principles which

will lead to that result. If the principles laid down are

relevant to the-- fixation of compensation and are not

arbitrary the adequacy of the resultant product cannot be

questioned in the court of law. The validity of the

principles judged by the above tests falls within judicial

scrutiny and if they stand the test the adequacy of the

product falls outside justification". In Metal Corporation

case(') compensation was to be equated to the cost price in

the case of unused machinery in good condition and written

down value as understood in income-tax law was to be the

value of the used machinery and both were said to be

irrelevant to the fixation of the value of machinery as on

the date of acquisition. Shah, J. speaking for the Court

expressed inability to agree with the part of the judgment

and then said "the Parliament has specified the principles

for determining compensation of undertaking of the company.

The principles expressly related to the determination of

compensation payable in respect of unused machinery in good

condition and used machinery. The principles were not

irrelevant to the determination of compensation and the com-

pensation was not illusory". If what is specified is a

principle for determination of compensation the challenge to

that principle on the ground that a 'just equivalent is not

reached is barred by the plain words of Article 31(2) of the

Constitution.

(1) [1967] 1 S.C.R. 255.

649

These two decisions have one feature in common, namely,

that if compensation is illusory the Court will be able to

go into it. By the word 'illusory' is meant something which

is obvious, patent and shocking. If for a property worth

Rs. 1 lakh compensation is fixed at Rs. 100 that would be

illusory. One need not be astute to find out as to what

would be -at sight illusory. Furthermore, illusoriness must

be in respect of the whole property and there cannot be

illusoriness as to part in regard to the amount fixed or the

result of application of principles laid down.

When principles are laid down in a statute for

determination of compensation all that the Court will see is

whether those principles are relevant for determination of

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compensation. The relevancy is to compensation and not to

adequacy. I am unable to hold that when the relevant

principle set out is ascertained value the petitioner could

yet contend that market value should be the principle. It

would really be going into adequacy of compensation by

preferring the merits of the principle, to those of the

other for the oblique purpose of arriving at what is

suggested to be just equivalent. To my mind it is

unthinkable that the legislature after the Constitution

Fourth Amendment Act intended that the word 'compensation'

would mean just equivalent when the legislature put a bar on

challenge to the adequacy of compensation. Just

compensation cannot be inadequate and anything which is

impeached as unjust or unfair is impinging on adequacy.

Therefore. just equivalent cannot be the criterion in

finding out whether the principles are relevant to

compensation or whether compensation is illusory. In

Vajravelu Mudaliar's case(1) the Court noticed continuous

rise in land price but accepted an average price of 5 years

as a principle. An average price over 5 years in the teeth

of a continued rise in price would not aim at just

equivalent according to the petitioner's contention there.

Again potential value of land which was excluded in the Act

in Vajravelu Mudaliar's case(') was said there to pertain to

the method of ascertaining compensation and its exclusion

resulting in inadequacy of compensation. I am, therefore,

of opinion that if the amount fixed is not obviously -and

shockingly illusory or the principles are relevant to

determination of compensation, namely, they are principles

in relation to property acquired or are principles relevant

to the time of acquisition of property there is no

infraction of Article 31(2) and the owner cannot impeach it

on the ground of 'just equivalent' of the property

-acquired.

Counsel on behalf of the petitioner contended that

section 6 of the 1969 Act was an infraction of Article 31(2)

on these grounds. First, no time limit was mentioned with

regard to payment of compensation in section 6(1); secondly,

section 6(6) was

(1) [1965] 1 S.C.R. 614.

650

an unreasonable restriction; thirdly, the four disputed

businesses are not subject matter of acquisition for public

purpose; fourthly, debentures cannot be subject matter of

acquisition; fifthly, currency notes, cash, coins cannot be

subject matter of acquisition. It was said that securities

and cash which are maintained under section 42 of the

Reserve Bank Act, 1934 and section 24 of the 1949 Act can be

taken but reserves and investments and shareholders'

accumulated past profits cannot be subject matter of

acquisition and finally undertaking is not property and each

asset is to be paid for.

Section 6 (1) of the Act provides for payment of

compensation if it can be fixed by agreement and if

agreement cannot be reached there shall be reference to a

tribunal. There is no question of time within which

agreement is to be reached or determination is to be made by

a tribunal.

Section 6(6) relates to interim payment of "one half of

the amount of paid up share capital" and any existing bank

may apply to the Central Government for such payment before

the expiry of 3 months or within such further time not

exceeding 3 months as the Central Government may by

notification specify. If the bank will apply the Government

will pay the money only if the bank agrees to pay to

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shareholders. Section 6 (6) is a provision for the benefit

of the bank and the shareholders. There is no

unreasonableness in it.

I have already held that the four disputed businesses

come within the legitimate business of banks and therefore

they are valid subject matter of acquisition. No

acquisition or requisition of the undertaking of the banking

company is complete or comprehensive without all businesses

which are incidental -and conducive to the entire business

of the bank.

The entire undertaking is the subject matter of

acquisition and compensation is to be paid for the

undertaking and not for each of the 'assets of the

undertaking. There is no uniform established principle for

valuing an undertaking as a going concern but the usual

principle is assets minus liabilities. If it be suggested

that no compensation has 'been provided for any particular

asset that will be questioning adequacy of -compensation

because compensation has been provided for the entire

undertaking' The compensation provided for the undertaking

cannot be called illusory because in the present case

principles have been laid down. The Second Schedule of the

Act of 1969 deals with the principles of compensation for

the undertaking. The Second Schedule is in two parts. Part

1 relates to assets and Part 1 relates to liabilities. The

compensation to be paid shall be equal to the sum total of

the value of assets calculated in accordance with the

provisions of Part 1 less the sum total of liabilities

computed and obligations of existing

651

banks calculated in accordance with the provisions of Part

II. in Part 1 assets are enumerated.

Counsel for the petitioner contended that with regard to

assets either there was no principle or the principle was

irrelevant or the compensation was illusory or it was not

just equivalent. As to securities, shares, debentures Part

1 (c) explanation (iv) was criticised on the ground that

there was no principle because period was not fixed and was

left to be determined 'by some other authority.

Explanations (iv) and (v) to Part 1 (c) will be operative

only when market value of shares, debentures is not

considered reasonable by reason of its having been affected

by abnormal factors or when market value of shares

debentures is not ascertainable. In the -former case the

basis of average market value over any reasonable period and

in the latter case the dividend paid during 5 years and

other relevant factors will be considered. In both cases

principles have been laid down, namely, how valuation will

be made taking into account various factors and these

principles are relevant to determination of compensation for

the property.

Part 1(c) Explanation I was criticised by counsel for

the petitioner to be an instance of value being brought down

from 'just equivalent'. Part 1(c) Explanation I states that

value shall be deemed to be market value of land or

buildings, but where such market value exceeds the

ascertained values determined in the manner specified in

Explanation 2, it shall be deemed to mean such ascertained

value. This criticism suggests that compensation should be

just equivalent meaning thereby that what is given is not

just and, therefore, indirectly it is challenging the

adequacy. In Vajravelu Mudaliar's case(') there was a

provision for compensation on the basis of the market value

on the date of the notification or on the basis of average

market value during past 5 years ever ever was less. That

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principle was not held to bad.The owner of the property is

not entitled to just equivalent. Explanation I lays down

the principle. Market value is not the only principle.

That is why the Constitution has left the laying down of the

principles to the legislature. Ascertained value is a

relevant and sound principle based on capitalisation method

which is accepted for valuation of land and properties.

It was next said by counsel for the petitioner that

Explanation 2(1) in Part 1 was an irrelevant principle

because it was -a concept borrowed from Income Tax Act for

calculating income and not capital value. It was said that

12 times the annual rent was not a relevant principle and

was not an absolute rule and compensation might be illusory.

It was also said that Explanation 2(1) would be irrelevant

where 2 plots were side by side, one with building

(1) [1965] 1 S.C.R. 614.

652

and the other vacant land because the latter would get more

than the former and in the former standard rent was applied

and the value of land was ignored and therefore it was an

irrelevant principle. That will not be illusoriness.-

Standard rent necessarily takes into account value of land

on which the building is situated because no rent can be

thought of without a building situated on a plot of land.

Article 31(2) does not enjoin the payment of full or just

equivalent or the payment of market value of land and

buildings.- There should be a relevant principle for

determining compensation for the property acquired.

Capitalisation method is not available for land because land

is not generally let out. If rental method be applied to

land the value may be little. In any event, it is a

principle relevant to determination of compensation.

Furthermore, there was no case in the petition that there

was land with building side by side with vacant land.

Another criticism with regard to Explanation 2 (1) (i)

was that amount required for repairs which was to be

deducted in finding ,out ascertained value should not be

deducted against capital value. I am unable to accept the

contention because this deduction on account of maintenance

and repairs is essential in the capitalisation method. It

was next said by counsel for the petitioner that Explanation

2(1) (ii) which speaks of deduction of insurance premium

would reduce the value. Insurance would also be an essen-

tial deduction in the capitalisation method and it could not

be assumed that the bank would insure for a value higher

than what was necessary. Annual rent would also vary in

different buildings. Amounts mentioned in Explanations 2(1)

(iii) and (iv) were said on behalf of the petitioner not to

be deductible against capital value because annual charge or

ground rent would be paid from income. These relate to

Municipal tax and ground rent which are also taken into

consideration in capitalisation method. Payment of fax or

ground rent may be out of income but these have to be

provided for in ascertaining value of the building under the

capitalisation method.

Explanation 2(1) (vi) which speaks of deduction of

interest on borrowed capital with which any building was

constructed was said to be included twice, namely, under

Explanation 2 ( 1 ) (vi) and also under liabilities in Part

11. Explanation 2 in Part 1 which relates to finding out

ascertained value of building enacts that where building is

wholly occupied 12 times the annual rent or the rent at

which the building may be expected to let out less

deductions mentioned therein would be the ascertained value.

These deductions are made to arrive at the value of the

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building under the capitalisation method to find out how

much will be paid in the shape of interest on mortgage or

borrowed capital. Interest on mortgage or borrowed ,capital

will be one of the deductions in calculating outgoings under

653

capitalisation method. In Part 11, the liabilities are

those 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

on or after the commencement of the Act. Interest payable

on mortgage or borrowed capital at or after the commencement

of the Act will not be taken into account as outgoings

deducted under capitalisation method.

Explanation 2(2) was criticised by counsel for the

petitioner on the ground that plinth area related to the

floor area and if a floor was not occupied the plinth area

thereof was not taken into account. Explanation 2(1)

relates to determination of compensation by finding out

ascertained value in the case of building which is wholly

occupied. Explanation 2(2) relates to the case of a build-

ing which is partially occupied. Explanation 2(3) refers to

land on which no building is erected or which is not

appurtenant to any building. In the case of partial

occupation Explanation 2(2) sets out the principle of

compensation of partially occupied building. Again in

Explanation 2(3) the criticism on behalf Of the petitioner

that if there is a garage or one storeyed structure the

principle will not apply is explained on the ground that the

expression 'appurtenant' means land belonging to the

premises. If there is a small garage or a one storeyed

building the land will not be appurtenant to the garage or

building.

Counsel for the petitioner contended that Part 1(h)

which spoke of market or resaleable value of other assets

did not include goodwill, benefit of contract, agencies,

claims in litigation, and, therefore, there was no

compensation for these. Part 1 (h) is 'a residuary

provision, Whatever appears in books would be included.

Goodwill does not appear in the books. Goodwill may arise

when an undertaking is sold as a going concern. The conten-

tion as to exclusion of goodwill goes to the question of

adequacy and will not vitiate the principle of valuation

which has been -laid down. Reference may be made to

Schedule VI of the Companies Act which refers to goodwill

under Fixed Assets but the Banking Regulation Act, 1949 does

not contain goodwill under property and assets.

Goodwill in the words of Lord Elden in Cruttwell v.

-Lye(') means "the probability that tile old customers will

resort to the old place". The term 'goodwill' is generally

used to denote the benefit arising from connection and

reputation. Whether or not the, goodwill has a saleable

value the question of fact is to be determined in each case.

Upon sale of a business there may be restriction as to user

of the name of the business sold. That is another aspect

(1) 17 Ves. 335.

654

of sale of goodwill of a business. The 14 banks carried on

business under licence by reason of section 22 of the Act of

1949. The concept of sale in such a situation is unreal.

Furthermore, the possibility of nationalisation of

undertakings like banks cannot be ruled out. Possibility of

nationalisation will affect the value of ,goodwill. In the

case of compulsory acquisition it is of grave doubt whether

goodwill passes to the acquiring authority. No facts have

been pleaded in the petition to show as to what goodwill the

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bank has. Goodwill is not shown in assets. In the present

case the names of the 14 banks and the corresponding new

banks are not the same and it cannot therefore be said that

any goodwill has been transferred. The 14 banks will be

able to carry on business ,other than banking in their

names. Again under the Act compensation is being paid for

the assets and secret reserves which are provided for by

depreciating the value of assets will also be taken into

account. Any challenge as to compensation for goodwill

falls within the area of adequacy.

As to Part II of the Schedule counsel for the

petitioner said that liabilities not appearing in the books

would be deducted but in the case of assets only those

appearing in the books will be taken into account. Nothing

has 'been shown in the petition that there ,are assets apart

from those appearing in the books. It would not be

appropriate to speak of liabilities like current income tax

liability, gratuity, bonus claims as liabilities appearing

in the books.

It was said on behalf of the petitioner that interest

from the date of acquisition was not provided for. That

would again appertain to the adequacy of compensation.

Furthermore, interest has been provided for under section

6(3) (a) (b) of the 1969 Act. It was also said that if

there was a large scale sale of promissory notes or stock

certificates the value would depreciate. Possibility of

depreciation does not vitiate the principle or

constitutionality of a -measure.

The principles which have been set out in the 1969 Act

'are relevant to the determination of compensation. When it

is said that principles will have to be relevant to the

compensation, the relevancy will not be as to adequacy of

compensation but to the property acquired and the time of

acquisition. It may be that adoption of one principle may

confer lesser sum of money than another but that will not

be, a ground for saying that the principle is not relevant.

The criticism on behalf of the petitioner that compensation

was illusory is utterly unmeritorious.

The Attorney General contended that even if Article 1

9 (1) (f) -or 19(1) (g) applied the 1969 Act would be upheld

as a reasonable -restriction in the interest of the general

public. It is said that

655

social control scheme is a constitutional way of fulfilling

the Directive Principles of State Policy. The 14 banks paid

a total of 4.35 crores of rupees as dividend in 1968. This

amount is said in the affidavit of the respondent not to be

of great significance and that the bank should expand and

attract more deposits. The comparative position of India

along with other countries is focussed in the study group

Report referred to in the affidavit in opposition.

Commercial bank deposits and credit as proportion of

national income form hardly 14% and 10% respectively in

India as against 84% and 19% in Japan, 56% and 36% in

U.S.A., 49% and 29% in Canada whereas the average population

served in India by banks is as high as 73000 as against 4000

in U.S.A. and Canada and 15,000 in Japan. Then it is said

that more than 4/5th of the credit goes to industry and

commerce, retail has about 2% and agriculture less than 1%.

Small borrowers it is said have no facilities. It is said

that institutional credit is virtually non-existent in

relation to small borrowers. The suggestion is that there

is flow of resources from smaller to larger population and

from rural to urban centres. There are many places which

have no Banks. In different States there is uneven spread

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of banking offices. There is greater expansion in urban

banking. 5 major cities are said to have 46 per cent deposit

but 65 per cent credit. Banks are more developed in States

which are economically and socially 'advanced but even in

such developed States banks are sparsely located.

India is a predominantly agricultural country and one

half of national income, viz. 53.2% is from agriculture.

Out of 5,64,000 villages only 5000 are served by banks. Net

even 1 % have bank facilities. Credit requirements for

agriculture are of great importance. Agriculturists have 34

per cent credit from Co-operatives, 5 per cent from banks

and the rest from money lenders. The requirements are said

to be Rs. 2,000 crores for agriculturists. The small scale

industries are said to employ one third of the total

industrial population and 40% of the industrial workers are

in small scale industries. Banks will have to meet their

needs. Small artisans and retail trade have all need for

credit. It is said that barely 1.8% of the total bank

advances goes to small scale industries. It is said in the

affidavit that the policy of the Government is to take up

direct management of credit resources for massive expansion

of branches, vigorous principles for mobilisation of

deposits and wide range programme to fill the credit gaps of

agriculture, small scale industries, small artisans, retail

trade and consumer credit. This policy can be achieved only

by direct management by State and not merely by social

control. Almost all the banks are in favour of large scale

industry. This direct control and expansion of bank credit

is intended to make available deposit resources and expand

the same to serve the country in the light of Directive

Principles.

656

These are the various reasons which are rightly said by

the Attorney General to be reasonable restrictions in the

interest of the general public. I wish to make it clear

that in my opinion Articles 19 (1) (f ) and (g) do not at

all enter the domain of Article 3 1 (2) because a

legislation for acquisition and requisition of property for

public purpose is not required to be tested again on the

touchstone of reasonableness of restriction. Such

reasonable restriction is inherent and implicit in public

purpose. That is why purpose is dealt with separately in

Article 31(2).

The validity of the Ordinance of 1969 was challenged by

contending that the satisfaction of the President under

Article 123 was open to challenge in a court of law. It was

said that the satisfaction of the President was objective

and not subjective. The power of the President under

Article 123 of the Constitution to promulgate Ordinances is

when both the Houses of Parliament are not in session, ,and

this power is co-extensive with that of the legislature and

the President exercises this power when he is, satisfied

that circumstances exist which render it necessary for him

to take immediate action. The power of promulgating

Ordinance is of historical antiquity and it has undergone,

change from. time to 'time. In the East India Company Act,

1773 under section 36 the Governor General could promulgate

Ordinance. The Indian Councils Act, 1861 by section 23

thereof provided that the Governor General in case of

emergency may promulgate an Ordinance for the peace and good

Government of the territories. The Government of India Act,

1915 provided in section 72 that the Governor General could

promulgate Ordinances for the peace and good Government.

The Government of India Act, 1935 by sections 42, 43 -and 45

conferred power on the Governor General to promulgate

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Ordinances and sections 88 and 89 conferred a similar power

on the Governor. Article 123 of the Constitution, is really

based on section 42 of the Government of India Act, 1935 and

Article 213 which relates to the power of the Governor in

the States is based on section 88 of the Government of India

Act, 1935.

It has been held in several decisions like Bhagat

Singh's case(') and Sibnath Banerjee's case(') that the

Governor General is the sole judge as to whether an

emergency exists or not. The Federal Court in Lakhi Narain

Singh's case(3) took a similar view that the Governor

General was the sole judge of the state of emergency for

promulgating Ordinances.

The sole question is whether the power of the President

in Article 123 is open to judicial scrutiny. It was said by

counsel for the petitioner that the Court would go into the

question as to

(1) 58 1. A. 169.

(3) [1949] F. C.R. 693.

(2) 72 1. A. 57.

657

whether the President was satisfied that circumstances

existed which rendered it necessary for the President to

promulgate an Ordinance. Liversidge's case(1) was relied

upon by counsel for the petitioner. That case interpreted

the words "reasonable cause to believe". It is obvious that

when the words used are "reasonable cause to believe" it is

to be found out whether the cause itself has reason to

support it and the Court goes into the question of

ascertaining reasons. In Liversidge's case(') it was said

that the words "has reasons to believe" meant an objective

belief whereas the words "if it appears" or "if satisfied"

would be a subjective satisfaction.

The words 'if it appears' came up for consideration in

two English cases of Ayr Collieries(2) and the Carltona(3)

and the decision was that it was not within the province "of

the Court to enquire into the reasonableness of the policy.

The interpretation of Article 123 is to 'be made first

on the language of the Article and secondly the context in

which that power is reposed in the President. When power is

conferred on the President to promulgate Ordinances the

satisfaction of the President is subjective for these

reasons. The power in Article 123 is vested in the

President who is the executive head and the circumstances

contemplated in Article 123 are a guide to the President for

exercise of such power. Parliament is not in session

throughout the year and during the gaps between sessions the

legislative power of promulgating Ordinance is reposed in

the President in cases of urgency and emergency. The

President is the sole judge whether he will make the

Ordinance. The President under Article 74(1) of the

Constitution acts on the advice of Ministers. Under Article

74(2) the advice of the Ministers is not to be enquired into

by any Court. The Ministers under Article 75(3) are

responsible to Parliament. Under Article 123 the Ordinances

are limited in life and the Ordinance must be laid before

Parliament and the life of the Ordinance may be further

shortened. The President under Article 361 (1) is not

answerable to any Court for acts done in the performance of

his duties. The Ministers are under oath of secrecy under

Article 75(4). Under Article 75(3) the Ministers -are

collectively responsible to the House of the People. Under

Article 78 it shall be the duty of the Prime Minister to

furnish information to the President. The power under

Article 123 relates to policy and to an emergency when

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immediate action is considered necessary and if an objective

test is applied the satisfaction of the President

contemplated in Article 123 will be shorn of the power of

the President himself and as the President will be acting on

the advice of Ministers it may lead to disclosure of facts

which under

(1) [1942] A C.206.

(2) [1943] 2 All. E. R. 546.

(3) [1943] 2 All E. R. 560.

8SupCI/70-12

658

Article 75 (4) are not to be disclosed. For these reasons

it must be held that the satisfaction of the President is

subjective.

Counsel for the petitioner relied on the decisions of

this Court in the cases of Barium Chemicals(') and Rohtas

Industries(2). In both the cases the words used in the

Companies Act, 1956 section 23 7 (b) which came up for

consideration before this Court are to the effect that the,

Central Government may, if in the opinion of the Central

Government there are circumstances suggesting, that the

business of the company is not properly conducted, appoint

competent persons to investigate the affairs of the company.

The opinion which is to be formed by the Central Government

under the Companies Act in that section is in relation to

various facts and circumstances about the business of a

company and that is why this Court came to the conclusion

that the existence of circumstances but not the opinion was

open to judicial scrutiny. This was the view of this Court

in the cases of Barium Chemical's(1) and Rohtas

Industries(').

The decisions in Barium Chemicals(') and Rohtas

Industries Ltd.(') turned on the interpretation of section

237 of the Companies Act and executive acts thereunder. The

language used in that section is 'in the opinion of', The

Judicial Committee in the Hubli Electricity case(')

interpreted the words "the Provincial Government may, if in

its opinion the public interest so requires, revoke a

licence in any of the following cases" to mean that the

relevant matter was the opinion and not the ground on which

the opinion was based. This Court in the Barium Chemical's,

case(') however found that there were no materials upon

which the authority could form the requisite opinion. That,

is the ratio of the decision in Barium Chemicals case(-).

In order to entitle the Central Government to take

action under section 237 of the Companies Act, 1956 there is

to be the requisite opinion of the Central Government and

the circumstances should exist to suggest that the company's

business was being conducted as laid down in sub-clause (1)

or that the persons mentioned in sub-clause (2) were guilty

of fraud, misfeasance or misconduct. The opinion of the

Central Government was subjective but it was said that the

condition precedent to the formation of such opinion was

that there should be circumstances in existence and the

recitals of the existence of those circumstances did not

preclude the court from going behind those recitals and

determining whether in fact the circumstances existed and

whether the Central Government in making the order had taken

into consideration any extraneous consideration.

(1) [1966] Supp. S.C.R. 311.

(2) [1969] 2 S.C.R.

(3) 76 I.A. 57.

659

In the case of Rohtas Industries(') reference was made

to English, Canadian and New Zealand decisions. The

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Canadian decision related to power of the Liquor Commission

to cancel the liquor licence and it was held to be an

exercise of discretion. The New Zealand decision related to

the power of the Governor General under the Education Act to

make Regulation as "he thinks necessary to secure the due

administration". It was held that the opinion of the

Governor General as to the necessity for such regulation was

not reasonably tenable. These decisions do not deal with

questions as to whether the satisfaction is subjective or

objective. Of the two English decisions one related to the

power of the Commissioner to make regulations providing for

any matter for which provisions appear to them to be

necessary for the purpose of giving effect to the provisions

of the Act. The nature of legislation was taxation of

subjects. It was held that the authority was not the sole

judge of what its powers were, nor of the way in which that

power was exercised. The words "reasonable cause to

believe", ,'reasonable grounds to believe" occurring in the

-case of Liversidge(2) were relied on to illustrate the

power of the, Court to, find out as to whether the

regulation was intravires in the English case.

The decision of the House of Lords in Padfield v:

Minister of, Agriculture Fisheries and Food(') on which

counsel for the petitioner relied turned on interpretation

of section 19(3) of the Agricultural Marketing Act which

contemplated a committee of investigation, if the Minister

so directed, to consider and report to the Minister on any

report made by the consumer' committee and any complaint

made to the Minister as to the operation of any scheme which

in the opinion of the Minister could not be considered, by a

consumers' committee under one of the sub-sections in that.

section. The House of Lords held that the Minister had full

or unfettered discretion but he was bound to exercise it

lawfully that. is to say not to misdirect himself in law,

nor to take into account irrelevant matters-nor to omit

relevant matters from consideration That was an instance of

a writ of mandamus directing exercising of' discretion to

act on the ground that it was a power coupled with. duty.

The only way-in which the exercise of power by the

President can be challenged is by establishing bad faith or

mala fide and corrupt motive. Bad faith will destroy any

action. Such bad faith, will be a matter to be established

by a party propounding bad faith. He should affirm the

state of facts. He is not only to allege the same but also

to prove it. In the present case there is no allegation

of Mala fide.

(1) [1969] 3 S.C.R. 108.

(3) [1968] 1 All E.R. 604.

(2) [1942] A. C. 206.

660

It was said on behalf of the petitioner that the fact that

Parliament would be in session on 21 July, 1969 and that the

Ordinance was promulgated on Saturday, 19 July, 1969 was

indicative of the fact that the Ordinance was not

promulgated legitimately but in a hasty manner and the

President should have waited. If the President has power

when the House is not in session he can exercise that power

when he is satisfied that there is an emergency to take

immediate action. That emergency may take place even a

short time before Parliament goes into session. It will

depend upon the circumstances which were before the

President. The fact that the Ordinance was passed shortly

before the Parliament session began does not show any mala

fide. It was said that circumstances were not set out in

the affidavit and therefore the Court was deprived of

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examining the same. The Attorney General rightly contended

that it was not for the Union to furnish facts and

information which were before President because first such

information might be a State secret, secondly, it was for

the party who alleged non-existence of circumstances to

prove the same and thirdly the respondent was not called

upon to meet any case of mala fide.

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 Chemical's(1) 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.

The locus standi of the petitioners was challenged by the

Attorney General. The petitions were heard on merits. I

have -dealt with all the arguments advanced. It is,

therefore, not at all necessary to deal with this objection.

For the reasons mentioned above, the petitions fail 'and are

dismissed. There will be no order as to costs.

ORDER

In accordance with the opinion of the majority Petitions

Nos.

300 and 298 are allowed, and it is declared that the Banking

Companies (Acquisition and Transfer of Undertakings) Act 22

of

(1) [1966] Supp. S.C.R. 311.

661

1969 is invalid and the action taken or deemed to be, taken

in exercise of the powers under the Act is declared

unauthorised. Petition No. 222 is dismissed. There will be

no order as to costs. in these three petitions.

K.B.N.

662