Rustom Cavasjee Cooper Vs Union of India AIR 1970 SC 564
| Citation | AIR 1970 SC 564, 1970 SCR (3) 530 |
| Date of Judgement | 10/02/1970 |
| Court | Supreme Court |
| Petitioner | Rustom Cavasjee Cooper (R.C. Cooper) |
| Respondent | Union of India |
| Bench | Justice J.C. Shah , S.M. Sikri, J.M. Shelat, Vishishtha Bhargava , G.K. Mitter, C.A. Vaidyialingam, K.S. Hegde, A.N. Grover, A.N. Ray, P. Jaganmohan Reddy, I.D. Dua |
| Referred | Article 14, 19 and 31 of Indian Constitution |
Facts of Case
After the Independence of India, there were many sectors that were nationalized as they were the key sector in the development of the state. Reserve Bank of India, Air India, Insurance Companies, Coal Industry, Oil and Gas Industry were all Nationalized to develop the Nation and for the welfare of the society.
In this case, the petitioner R.C. Cooper was the director of the Central Bank of India and was holding the shares in the same bank. He also held the shares in Bank of Baroda, Bank of India and Union Bank of India.
On 19 July 1969, the acting President of India gave his consent to the ordinance which was prepared by the government of Indian National Congress (Prime Minister – Mrs. Indira Gandhi) to nationalize 14 banks in India. These banks were selected on grounds that the banks exceeding the deposit of over Rs. 50 Crore will be nationalized.
According to the Banking Companies (Acquisition and Transfer of Property) Ordinance of 1969:
14 banks were to be nationalized which were:
The Central Bank of India Ltd., The Bank of India Ltd., The Bank of Baroda Ltd., The Punjab National Bank Ltd., The United Commercial Bank Ltd., Canara Bank Ltd., Dena Bank Ltd., Syndicate Bank Ltd., United Bank of India Ltd., The Union Bank of India Ltd., Allahabad Bank Ltd., The Indian Bank Ltd., The Bank Of Maharashtra Ltd., The Indian Overseas Bank Ltd. .
The directors of all the banks have to leave their post from the banks but the employees of the bank can continue their job under the Government of India. The ordinance provides the compensation to the banks either by the amount fixed by the agreement or if there is no such agreement then the Tribunal will decide the amount of compensation within period of three months.
Afterwards, R.C. Cooper filed a writ petition in Supreme Court under Article 32 (Fundamental Right) of the Constitution. He challenged the ordinance and claim that his fundamental rights under Article 14, Article 19 and Article 21 has been violated. On 22 July 1969, the SC gave interim order of injunction to the government to not to remove the chairmen from all the banks.
Issues:
- Whether the provisions of the act prohibited the bank from carrying on the banking business or activities?
- Whether the parliament has the jurisdiction to make such act as a law?
- Whether the Act violates the Fundamental rights of the constitution, i.e., violates the Article 14, Article 19 and Article 31 or not?
- Whether the act violates the guarantee of compensation under Article 31(2)?
- Whether the act impaired Article 301 (freedom of trade, commerce and intercourse)?
Argument from Petitioner:
Petitioner side represented by lawyers Nanabhoy Palkhivala, M.C. Chagla, and J.B. Dadachanji.
- The petitioner first argument was that the petition is maintainable as the R.C. Cooper is claiming his rights as the citizen of India and in his individual capacity, since the company cannot claim the fundamental rights as is not the citizen as per Indian Citizenship Act, 1955 but Mr. Cooper is eligible to do so.
- According to Article 123, the President has power to pass any ordinance if there is necessity and also when both the houses of parliament are not active (session). The monsoon session of the parliament was starting after two days, so the President can wait for the promulgation of the ordinance.
- The act is violating Article 19 (1) (f) that is the fundamental right which states that every person has the Right to Acquire and hold the property. It also violates article 19(1) (g) which is Freedom of profession, occupation, trade or business.
- The act violates Article 31 (2) of the Indian Constitution which states that when the State acquires property, the State should pay just and fair compensation to the owner.
Arguments from Respondent:
Respondent side was represented by Attorney General Niren De, Solicitor General Jagdish Swarup, M.C. Setalved, and C.K. Daphtary.
- The first argument of the respondent was that the writ petition filed was not maintainable as the petitioner wants to claim Rights under the name of the company and the company does not come under the ambit of the definition of Citizen according to Indian Citizenship Act, 1955.
- The second argument was whether the President power to promulgate the ordinance is questionable or not. According to Article 74 (1) and (2), The President can act on advice of Ministers who are responsible for Parliament and such advice is not to be enquired into by any court.
- The other arguments were that as per Article 361 (1), The President is not answerable to any of the Court for his acts done while preforming his duties.
- Also Article 123 gives power to The President to take necessary and immediate action in emergency.
Judgement
In this case the landmark judgement by a majority of 10:1 where Justice A.N. Ray gave dissenting opinion. The judgement was that the shareholder was entitled to go to the Supreme Court for claiming the Fundamental Rights in the name of the company. The shareholder can do so when his right is violated by the action which was done by government in this case.
The Banking Companies (Acquisition and Transfer of Undertakings) Act was struck down by majority judgement. The court laid down the ‘Effect’ Test and struck down ‘Object’ Test where the court will look into the effect of any Legislative Act rather than looking towards the objective of the Act.
On the question that the promulgation of the ordinance was correct or not, the Court held that the Parliament has already passed the ordinance to become the Act, so the interference of Supreme Court is not right and necessary.
The Court declared that the Act violates Article 14 and Article 31 where Article 14 talks about Equality and in this case the government only restricts the 14 banks to do banking business and did not barred other banks and Article 31 talks about Compensation and in this case fair and just compensation was not going to be provided. So the Act was struck down.
On Article 19 (1) (f), the Court ruled that the Act does not violate the Article 19 (1) (f) as the State has power and right to carry absolute monopoly. [Akadasi Padhan Vs State of Orissa (1962)]
Justice A.N. Ray gave dissenting opinion where he held that the compensation fixed by the Legislature cannot be questioned in the Court. He also states that the ordinance can only be challenged when The President has malafide and deceitful intention. So he dismissed the Petitions.
References
https://www.indiacode.nic.in/repealed-act/repealed_act_documents/A1969-22.
This article is written by Akshat Sharma of Department of Law, Prestige Institute of Management and Research, Intern at Legal Vidhiya.
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