RUS1'0M CAVASJEE COOPER

UNION OF INDIA

February 10, 1970

(J. C. SHAH,

S. M. SIKRI,

J. M. SHELAT, B

V, BHARGAVA,

G. K. MITTER, C. A. VAIDIALINGAM,

K. S. HEGDE, A. N. GROVER, P. JAGANMOHAN REDDY,

I. D. DUA AND A. N. RAY, JJ.)

Banking Compam'es (Acquisition and Transfer of Undertakings) Act 22 of 1969---Sections 4, 5, 6, 15(2) and Schedule II-Fundamental rights, infringement of-Legislative co111petence--Constitution of India. Arts. 14, c 19 and 31 (2), Entries 43, 44, 45 List/, Eutry 42 List/// Seventh Schedule.

Constitution of India, 1950, Art. 14-Equality-Banking Companies (Acquisition and Trmisfer of UndertakinRS) Act 1969, s. 15(2)---Statute pernJitting Banks to do businesS other thc.n Banking but practically preventing them fro1n doing non-banking business-I/ discrlniinatory.

Constitution of India, 1950, Art. 19(1)(/) cl. (6) (ii) and 19(1)(g)- Ba11king Companies (Acquisition and Tran•fer of Undertakings) Act, D 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 JiOn-banking business--lf unreasonable.

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

Constitution of India, 1950, Art. 31(2)-Compensation-Meaning of co1npenmtion-U11dertaking-Acquisition ns a unit-Principles of valuation-Justiciability of can1pensation.

Constitution of India, 1950, Art. 123--0rdinance-Promulgation of- Nature of power conferred by Article.

Constitution of India, 1950, Art. 32-Banking Conipanies (Acquisition and Transfer of Undertakings) Act, 1969-When share-holder can mol'c petition for i11/ringe1nenf of the rights of the Conipany.

Legislative co111pe/euce-Entry 45 List I, Entry 42, List III Seventh Schedule-"Bauking"', n1ea11ing of-:'Property" 1neaning of-Banking Co111panies (Acquisition and Transfe.r of Undertakings) Act, 1969-

Section 4-"Unclertaking'', 11Jea11i11g of-l'alidity of law acquiring urtdtr l<.k; ng.

On July 19. 1969. 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 vesting the undertaking of 14 named Com mercial Banks, which held deposits of not less than rupees fifly crores, in the corresponding new Banks set up under the Ordinance.

Petitions challenging the constitutionality of the Ordinance were lodged in this C.ourt, 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 TJndertakings of certain banking companies in order to serve better the needs df development of the economy in conformity with the national iJOlicy and objectives and for matters connected there\\•ith or incidental

R. C. COOPER I'. UNION 5 31

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 vest•d 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 II provided for and prescribd the method of determining con1pensation for acquisition of the under~ taking.

Compensation to be detern1ined 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 II of the Act,. the amount of compensation was to be deemed to be a single compensation.

Under Schedule II the compensation payable was to be the sum total oE the value of the ,, ssets under the heads (a) to (h), calculated in accordance with the provisions of Part I less the sum total di the liabilities and obligations calculated in accordance with the provisions of Part II. The corresponding nev.· 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 II 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. (!) ·ascertained value,, in respect of buildings wholly occupied on the date of the commencement of the Act \Vas to be twelve times the amount o'f annual tent 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 \Yith reference to the price at which sale or purchase of comparable lands were made during the period Of three years immediately preceding the commenccmerit of the Act. The .compensation was to be determined, in the absence. of agreement, by a lribunal 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 3 2 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 123 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 the State Legislature and (b) the power to legislate for acquisition of properly in entry 42 List IJI did . not include the power to legislate for acquisition of an undertaking;

(iii) Article; 19(1)({) 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 business. impaired the freedoms guaranteed by Articles 19(l)(f) A

(iv)

and (g);

the provisions of the Act which prohibited the named Banks from c:arrying on banking business and prac!tically prohibited them from carrying on non-banking business violated the. guarantee of equal protection and were, therefore, disctimi- . natory;

( v) the Act violated the guarantee of compensation under Article 31(2);

(vi) the Aci: 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 C 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 o'f India a preliminary objection was raised that the petitions "'ere 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, She/at, Blu1rgava, Mitter, Vuidiali11ga111.

He'.!.de, Grover, Reddy and Dua, JJ.)

1. The petitions v.'ere maintainable.

A company registered under the Indian Companies Act is a legal person, separate and distinct fron1 its 'individual members. Hence a shateholder, 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 right~ 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 Corpol'ption of India Ltd. Ors. v. The Conunercial Tax Officer, Visak/wpafnam & Or.I'., [1964] 4 S.C.R. 99 and Tata Engineering and Loco111otil'e Co. Lttl. v. St(lfC of Bi/Jar a11d Ors., [1964] 6 S.C.R.

885. held inapplicabk~~.

vwarkadas Shrlnivas v. The Sholapur Spinning & W(aving Co. Ltd. c.nd Ors;, [1954] S.C.R. 674 and Chiranjit Lal C/10wdurr ll. The Unio11

of India, [1950] S.C.R. 869, referred to.

~- (i) Exercise of the power to promulgate an -Ordinance under Article. 123 is strictly conditioned.

The ctat.Jse relating to the satisfaction is CompOsite; the satis'faction relates to the existence of circumstances, as well as tO the neces~; ity to take in1n1ediate action on account of those circumstarices.

Deterinination by the -President of the existence of

cirumstances and the necessity to take immediate action on \\•hich the .atisfactii>n depends. is not declared final.

R. C. COOPER \". UNION 533

A [Since the Act was declan~<l invalid no opinion \Vas expressed on the extent of the jurisdiction of the court to. examine \\.'hether the condition relating to satisfaction of the President wos fulfilled.] [559 H-560 B; 56 l GJ

I ii) Act 22 o'f 1969 was within the legislative competence of Parliament.

The competence of Parliament is not covered in its entirety by entries 43 "nd 44 of List I of the Seventh Schedule.

A law regulating the busiess of a .corporation is not a law \\ith respect to regulation of a corp('fallOn. [563 BJ

Parliament has exclusive power to legislate with respect to "Banking" in entry 54 List I. A legislative entry must receive a meaning conduche to the \\ridest amplitude subject to limitations inherent in the federal scheme which distributes legislative power between the union and the constituent units.

But, the field of "hanking" cannot be extended to include trading activities which, not hcing incidental to banking, encroach upon the substance of the entry "trade and commerce" in entr}' 26 List 11.

It cannot be said that all forn1s o'f business desctibed in s. 6( 1) of the Banking Regulation Act, 1949. els. (a) to (n) are, if carried on in addition to bMking as defined in s. 51 h) of the Act, banking, and that

Parliament is competent to legislate in respect that business under entry

~~L~~5~~ .

The contention that Parliamenl \\as incompetent to legislate for acquisition of the named Banks in o far as it related to assets of the

nonbanking business ha<l to fail for t\\'O reasons : (a) there was no evidence that the nan1ed Banks hel<l 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. [568 E]

PoY.'cr to legislate for acquisition of HProperty" in entry 42 List III inclu<les the power to legislate fOr acquisition of an undertaking.

The expression 'property" in entry 42, List 111, has a wide connotation and it includes not only assets, but the organisation, liabilities and obligations of a going concern as a unit. The exprcssion "undertaking~' .in section 4 of the Act clearly means a going concern with all its rights, liabilities ; ind assets as distinct from the various rights and assets which compose it. lhe obligation5 an<l liabilities or 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 enactu for compulsory acquisition of an undertaking as defined in s. 5_of the Act. !568 B-D]

There was no satisfactory proof in support o"f the plea that the Act was not enacted in the larger interest of nation but to serve political end:.;.

Whether by the exercise of the pO\\'er 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,

584H! . ·

Cu111111onwealth of Australia v. Bank of New South Wales,

L.R.

I I 950] A.C. 235 and Raiahmundry Electric Supply Corporation Ltd. v.

The Slllte of Andhra, [1954] S.C.R. 779, referred to.

liii)(a) Articles 19(l)(f) and 31(2) arc not mutually exclusive.

Under the Constitution the extent of protection against impairment of a fundamental right is dete'rmined not by the obje<:, t of the legislature nor by the form of the action, but by it'j direct operation upon the individual's rights. [576 CJ In this Court, there is, however. a body Oi authodty that the natur~ and extent of the protection of the fundamental rights is measured not by tho 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 allot~ ted 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 decision in A. K. Gopalw1 v. The State of Madras, [1950] S.C.R. 88, given early in the history o'[ the Court, has formed the nucleus of this theory.

The principle underlyin1g 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( l)(f) and 31(2) were mutually exclusive in their

Operation and that the substantive provisions of a la\\· 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 Karalappara Koc/11u1i v. State of Kera/a, [1960] ~~ S.C.R. 887, there arose t\\'o divergent lines of authority: (i) "authority of law" in Art. 31 (I) is liable , to be tested on the ground that it violates other fundamental rights and freedoms including the right to hold pro porty guaranteed by Art. 19(1)(f); and (ii) "authority of a law" within the meaning of Art. 31(2) is not liabk to be tested on the ground that it impairs the guarantee of Art: 19(J)(f), in so far as it imposed substantive restrictions through it may be tested on the ground of impairment Of other guarantees.

The expres.sion "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 lhc aggrieved party may claim is not consistent with the constitutional schentc.

Clause (5) of Art. 19 and els. (l) & (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 . .11 (I) & ( 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 o'f the limitations under the two. provisions is not different.

Clause (5) of Art. 19 and els. (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 els. (1) & (2) of Art. 31 dealing with the limitations which may be placed by l::t.v• subject to \Vhich the rightc;. nta\· be exercised.

Limitations prescribed for ensuring due exercise of th~

authoity of the State to deprive a person df his property and of the po\ver to compulsority <i.cquire his property are, therefore, specific classes of limitations on the right to property falling within Art. 19(1)(f). In the Constitution the ent1nciation of rights either expressly or by implication docs not fol_lO\\' a uniform pattern.

But one thread runs through them; they seek to protect the rights of the individual or groups o'f individuals against infringc1nent of those rights within spccitie<l limits. [576 E-

577 G] -

Forn1al con1plianc~ \\ith the co11llitiL1ns under Article 31 (2) is 11\.H sufficient to negative the protection of the guarantee of the right to p1\'-

R. C. COOPER v. UNION 53 5

prty. The validity o( "law" which authorises deprivation of property and a ''lav."' \Vhich auihOTiseS compulsory acquisition of property for a public purpose must be adjudged by the applic., tion rlf the same tests . . -\cquisition must -be under the authority of a law and the expression .. Ja, v" means a law \\.rhich is within l; he competence of the legislature and docs not in1pair the gtiarahtee of the rights in Part III.

If property is. .:ompulsorily acquired for a publjc purpose and the law satisfies the re- 4uirements 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 in1posed in the interest of Mle general public. this is so, not

hcause the cl.aim to plead infringement o'f the fundamental right under .-\rt 19(1) (f) does not avail the owner; it is because the acquisiµon.imposes permissible restriction on the right of the owner of the property o<>mpulsorily acquii:ed. [577 H-578 DJ

The a<sumption in A. K. Gopalan v. The State, of Madras, [1950) ';.C.R. 88, held incorrect. [578 El


(b) The law which prohibited, after July 19, 1969, the named Banks i rom carrying on banking business. being a necessary incident of the right assumed by the Union, could not be challenged because of Art. 1916)(ii) in so far as it affected the right to carry on business. [583 CJ

Clause (6) o'f Art. 19 consists of two parts: (i) the right declared hy sub-cl. ( g) is not protected against the operation of any law imposing, in the interests of the general public, reasonable restrictions on the 1.'.xercise of the right confe(red by that sub-clause; and (ii) in particular . .:; uh-cl. (g) docs not affect the 'operation of any law relating inter alia, to carrying on by the State O'f by a Corporation owned or controlled by the State. of any trade, business, industry or service whether or not such

la\\' provides for the exclusion, complete or partial, of citizens. It cannot be held that the expression "in particular" used in cl. (6) is intended either to particularise or to illustrate the general law set out in the :first

rimb of the clause and. therefore, is subject to the enquiry whether it imposes reasonable restrictions on the exercise of the right in the interest

(1f the general public. The rule enunciated by this Court in Akadasi P<1dhan v. State of Orissa, (1963] Supp. 2 S.C.R. 691, applies to all la\Vl< relating to the carrying on by the State of any traOe, business, industry or service. The basic and essential provisions of law which are "integrally and essentially connected" with the carrying of trade by the State wiU not be exposed to the challenge that they impair guarantee under Art.

I~( I) (g), 'whether the citizens are excluded completely or partially from carrying on that trade, or the trade is competitive. !mposition of restrictions which are iTI.cidental or subsidiary to the carrying on df trade by the State \Vhether to the exclusion o.f the citizen or not must however, 'ntisfy the test of the main limb of the Article. [580 F, H; 581 HJ

Akada.ri Padhan v. State of Orissa, [1963] Supp. 2 S.C.R. 691. followed.


(c) The restrictions imposed upon the right of the named Banks to carry "nonbanking'' business . were plainly unreasonable.

By s. 15(2)(") of the Act the Banks were entitled to engage in business other th~1n banking.

But a business organisation deprived of its entire assets and undertaking, its managerial and other staff, its t*e mises and its name, even if it had a right to carry on non.banking busi ness 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 carry ing on Of a business are so stringent that the business cannot. in prac tice, be carried on, the Court will regard imposition of the restrictions as unreasonable. [579 F, 586 HJ

Mohanunad Yasin v. Town Area Conunittee, Jalalabad & Anr. [1952) S.C.R. 572 and Dwarkadas Slirinivas v. Sholapur Spinning & Weaving Co. Ltd. & Ors., [1954] S.C.R. 674, referred to.

(iv) When, after acquiring the assets, undertaking, organisation, good~ will and !be 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.

There is no explanation why the named Banks are specially selected for b.eing subjected to this disability. Section 15(2) of !be Act which by the clearest implication prohibited the named Banks from carrying on hanking business is, therefore, liable to he struck down.

The named Banks, though theoretically competent are, in substance. prohibited from carrying on nonbanking business.

For reasons set out for holding that the restriction is unreasonable, the guarantee of equality was impaired by prc".venting the named Banks from carrying on nonhanking business. [590 E-H]

fin the absence of any reliable data the Court did not cxprcS< any F opinion on the question whether selection of the undertaking of some out of _many banking institutions 1for compulsory acquisition is liahJc to be struck down as hostile discrimination.] 1589 Fl

Chiraitjit Lal Cl10wdl111ri v. The Union of India. [19501 S.C.R. X69.

S1aie of Bo111bay v. F. N. Ba/sara, rt9511 S.C.R. 682, State of Jl.,•st Ben~ gal v. 'A1fwar Ali Sarkar, [1952] S.C.R. 284, Budhan Choudhry anti Ors.


(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 df con1pensation of the undertaking of the named Banks and by the method prescribed .the amounts so declared could not be regarded as compensation. 1610 Fl H

In P. Vt1jrare/u M11dalkar v. Special Dl•p1ity Collector, Madrt1s~ ll9651 1 S.C.R. 614. and in the cases following it arising under statutes enacted

l ..

R. C. COOPER V. UNION 537

after the coming into force of the Constitution (Fqurth Amendmentj Act, 1955 this Court held that the expi'ession compensation in, Art. 31 (2) after the Constitution (Fourth Amendment) Act continued to have the same meaning it had in An. 31 (2) before it \Vas amended 1iz., "just equivalent" or ·full indemnification~·. But this Court in The State of Gujarat v. Shanti/al Mangaldas,

[1969J 3 S.C.R. 341, observed that compensation payable as compulsory, acquisition of property \Vas 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-...detcrmination of value of laOds, buildings, machinery -and other clas3es of~ property differed, and the application of several methods or principles lead lo 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 \Vas awardedas a resulf of the ; ipplication 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 \vould be in clear violation of the constitutional declaration that inadequacy of compensation provided is not justiciable.

Notwithstanding the difference in Vajravelu and Sharytilal Mangaldar, both the lines of thought, which converge in the ultimate result,· support the view that the principle specified by the law for determinhtion, of compensation is beyond 1 the pale of challenge, if it is relevant to the detc:.; nnination of compensation and is a. recognised principle applicable in the determination df compensation for property compulsorily acqbired and the principle is appropriate in determining the value of 'th"e class of property sought to be acquired.

Qn the application of the .view _ expressed }n Vajravefu and Shanti/al Mangaldascases the Act had to be s"truck do\Vn as it failed to provide the exp:ropriated Banks Compensation determined according to relevant principles. [594 G. 595 C, 598 F-H] ·

P. Vajravelu Mudaliar v. Special D'cputy Col/ecror. Madras, [1965] I S.C.R. 614 and Stute of GujC1rat v. Mangalda.\· & Ors. tl969J 3 S.C' .. R. 341 applied.

Attorney-General V, De Keyser"s Royal Hotel, L.R. r I 92Q] A.C. 508.

Stale of West Be11J:af v. Mrs. Be/u Banerjee, [1954] S.C.R. 558. N. B. leejeebhoy v.

Assistant Collector, Thana Prc111t, [1965J l S.C.R. 636.

Union of /n(/iu v, Kn111alabai Harjiwandas Parek/1 & Ors..

Ll968l I S.C.R. 463. Unio11 of India v. Metal Corporation of Jndic1, [ 19671 1 S.C.R. 255, State vf Afe1dras v. D. Nanrasivaya Mtulaliar, f 19641 G S.C.R. 936, Lacl1111a11 Dass v. Municipal Co111111i1tee. l"l"lahod A.l.R. 1969 S.C. 1126, Tn'go v. lfuni. L.R.

Ll896] A.C. 7, Srate uf Ri!tar v.

Maharajudldraja Sir Ka111cshwar Singh of Darbhan1:a. [19521 S.C.R. 8S9 und 80111/ay Dyei11g & A4an11J{lcl11ri11g Co. Ltd. v. Stal<' of 80111bay. l 1958] S.C.R. 1122. referred to.

There arc different methods applicable to different cla.iscs of property and a n1cthod appropriate to the dctern1ination of value of one class of property may be \Vholly inapi:ropriate in determining the value o'f another class.

A principle specified by Parliament for determining compensation for the property to be acquired is not conclusive. But if sever<tl principles are appropriate and One iS selected for determination of the value of the property to .. b~ acquired, selection of that principle to lhc exclusion of other principles is not open t.o challenge. for, the selection must be left to the wisdom' of the Parliament. [599 C. Fl

The object underlying the principles of valuation is to award ihe owner the equivalent of his property with its existing advantages ant\ its

potentialities.

Where there is an established market for the property acquired the p'Coblem 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, inclui; ting the benefit of advantages present as well as 1future, 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 fpcie not a method relevant to the determination of compensation for acquisition of the undertaking, 'for, the aggregate value of the con1ponents 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 wa:; liable to be declared invalid for it impaired the constitutional guarantee 1for payment of compensation for acquisition of property by law. [601 DJ

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 ns a going concern, the principles specified did not give a true recompense to the bank for loss of the undertaking. In determining the compensation for the undertaking (i) certain important classes of assets were omitted 'irom the heads (a) to (h); (ii) the method specified for valuation of la'nds 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 \Vas 'also irrelevant. (602 B]

The undertaking of a Banking Company taken once as a going concern would ordinarily include the good-\Vill 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 impO'rtant components of the undertaking such as the good-will and the value of the unexpired period of leases would not be compensation for the undertaking.

The view of this Court in Vajravelu MudaUar that exclusion of potential value amounted to ving 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 BJ

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

Making a provision tfor 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 H market. Agaip, the annual rent was reduced by several outgoings and the balance was capitalised. The vice of items (v) & (vi) of cl. (!) of Explanation 2 was that the'Y providzd for deduction of a capital charge

R. C, COOPER V. UNION 539

out of the aanµal rental which according to no rational system of valuing. property by capitalisation ai the rental method was admissible.

The. method provided by the Act permitted the annual interest on the amollllt 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 comput-- ing 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 1•alue determined by the method of capitalisation of annual rent or market value whichever was less.

The Act, therefore, did not specify a relevantprinciple for determination of compensation for lands and buildings. (604 B-

605 B, 606 B-607 FJ

The deficiencies in the Act did not result merely in inadequate compensation within the meaning af 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 \'alue determined is not compensation.

Therefore, determination of com-· pensation to be paid for the acquisition of an undertaking as a unit after a\\tatding compensation for some items which go to make up the undertaking and omitting important items amounted to adopting an irrelevant' principle in the determination of the value of the undertaking and did not~ turnish compensation to the expropriated owner. [607 H, 608 BJ

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 df the bonds is not approxin1ately equal to the face value, the -expropriated owner may raise a griev-- ; ince that the guarantee under Art. 31(2) is impaired. [609 D-B]

[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 df 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 aggregatin!(

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 BJ

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 ..

.Fr the san1e reason -the ollrt did not conSider th-~ alidity of the retros- - A pective operation given to the Act by SS. 1(2) and 27.) [609 HJ . - . . . .· \ . ·.. .·. _ -Section 4 is the kingpin in the mechanism of the Act.~-. Sections 4, _5 .and 6 read with Sch. II provide for the statutory transfer and vesting o'i

.the undertaking of the named banks in the corresponding new banks and prescribe the methOd of determining of compensation for expropriation of

i:he undertaking. Those provisions are void as they impair the funda- mental guarantee under Art. 31(2). Sections 4, 5 and 6 and Sch. II are B rot 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 sin.ce the petitions were heard on merits.]

(i) The interpretation of ArtiCie 123 io; 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 inthe Presid\!nt who ~

:the executive head and the circumstances contemplated in the Article arc .a guide. to the President for exercise of such_ power. - Parliament_ is not In session. throughout the year and during the gaps bet\\oeen sessionsthe - , _legislative po'A-er of promulgating Ordinance is reposed in the President in cases of urgency and emergency.'--· The -President is tne Sole ju<lgc ' whether he will make the Ordinance. .The Prcsidnt. under Article 74(1 J

.of. the Constitution • .icts on the advice of l\finistcrs who are responsible to Parliamt:nt and under Article 74(2) such advice is not to 00 enquired into by any Court. The Ordinances promulgated ua<ler Article t .:3, are limited in life and the Ordinance must be laid hefore Parlia1ncnt and the life of the Ordinance may be further shortened. "fhe P1c.sident~ 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 if an objective test is applied the satisfactiOn of the President contemplateJ in the Article will be shorn of the power of the President himself and as the President \\''ill be acting on the advice of_ ~1inisters it may lead to dis~ closure of facts which under Article 75(4) are noLto be disclosed.

For

.the~;! reasons it had to be held that' the satisfaction of the President un.der Article 123 is subjective. [657 D-H]

The only 'vay in which the exercise of power by the President can be- -chalienged is by establishing bad 'faith or nwla fide or corrupt motive._ The fact that the Ordinance was passed shortly before the Parliament session began, did not show any nzala fide. Besides, the respondent was not called upon to meet any case of ma/a {ides. [659 GJ Bhagat Singh v. King E111peror, 58 I.A. 169, King E1nperor v. Sibnath Banerjee, 72 I.A. 241, Lakhi Narayan Dru v. Province of Bihar, [1949] S.C.R. 693, Liversidge v. Sir John Anderson, [1942) A.C. 206, Point of Ayr Collieries LtJ. v. Uoyd-George, [1943] 2 All E.R. 546 and Car/tor.a, Ltd.

V~ Commissioner.i;; of Works, [1943) 2 All E.R. 560, Hu1:li Electricity Co.,

ltd. v. Pro1.:ince of Bombay. 76 I.A. 57 and Padfield v. Afinister of Agricul- .ture, Fisheries tmd Food, [1968) I All E.R. 604, referred to. Barium Che1nicn/s Ltd. v. The Co1npany Law Board, [1966] Supp.


(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 H List 111 (Acquisition and requisitioning of property) and. entry 45 List I (Banking) and it did not trench upon entry 26 List 11, namely, trade and -<£ommercc y; ithin the State. [633 D-F]

...

R. C. COOPER V. UNION

SJ!

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 legitimah:

forms of busine&s of a banking company.

The provisions contained in s. 6( 1) are the statutory restatement of the gradual evo.lution, over a century, of the various kinds of business of banking companies.

cl. (n) of s. 6(1), in addition to the. forms of business mentioned in els. (a) to (m), a banking company may engage in ''doing all such other things as are incidental or conducive to the promotion or advancemen, of the business of the company". l"he words "other things" appearing ir.

cl. (n), after enumerating the various types of business in els. (a) to (m). point to the inescapable conclusion that the business mentioned in els.

(a) to (m) are an incidental or Conducive to the promotion or advancemeillt of the business or the. banking company.

Entry 45 in List I of Seventh Schedule is only "banking" and it does not contain any quulifying.

words like "the conduct of business" occurring in en.try 38 of the Govcrrunent of India Act, 1935. "Banking will therefore have the wide meaning to include all legitimate business of a bankin.g company referred to ins. 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. (I)

establishes that the various types of busitiess 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 Cllnada, [1894] A.C. 51, Banbury v.

Bank of Montreal, [1918] A.C. 624, Commonwealth of Australia and Others v. Bank of New South Wales und Others, [1950] A.C. 235. Bunk of Chettinad v. T.C. of Colombo, [1948] A.C. 378 P.C., United Dominions Trust Ltd. v. Kirkwood, [1966] 1 Q. B. 783. United Pro\•inces v.

Mst. Atiqa Begum cmd Others. [1940] F.C.R. llO and Uniu11 Colliery

Co'!'pany of British Cohunhia v. Bryden, [1899] A.C. 580, referred to.

The Undertaking of a banking company is property which can re 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 i~ not divisible into components or ingredients. [635 H, 636 DJ

Gardner v. London Chatham and Dover Railway Co .. [1867] Vol. 11 Chancery Appeals 201, Re : Panun1a, New Zealand (Ind Auslralian Royuf 'Maif 'Company, Re: Ports1nouth (Kingston Fralton and Southsea) Tramvway 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 Stc.te__for the Anny v. Datziel. 68 C.L.R. 261, Con1"1is-

.\ioner~ Hindu Religiols Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt. [1954]

S.C.R. 1005 and J. K.

Trnst.

Bombay v. The Conunissioner of Jncon1e-rax Excess Profits Tax, Bon1hc1Y. [1958] S.C.R. 65, referred to.


(iii) (a) Article 19(1) (f) and (g) do not at all enter the domair. of Art. 3H2l.

The view of this Court in Kavalappara Kochuni v .' Stute 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(l)(f) .did not enter the area of acquisition or requisition of property by the .State.

Again, in Stare of Gujarat v. Shanti/al 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 that it offended Art, 19(l)(f) and cannot be decided by the criterion .under Article 19(5) ", [621 C. HJ

The provisions of the Constitution are to be interpreted in a harmoni- .ous 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 Teliet the separate and distinctive field of law .for acquisition and requisi- tion, by the State, of property for public purpose. [622 C-623 CJ

A public purpose is a purpose affecting the interest of the general public and, therefore, the welfare State is given powers of acquisition or requisition of property for public purpose. One cannot be guidea 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 elf 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 HJ

A, K. Gopa/an v. State of Madras, [1950] S.C.R, 8d, St.lie of West Bengal v. Subodh Gopal Bose, [1954] S.C.R. 587, State of Bombay v ..


Even on. t~7 assumptio.n. that Article 19(1 )(f) or (g) is attracted in case of acquts1t1on or requmtton of property dealt with by Article 31(2) the Act had to be upheld as a reasonable restriction in the interest of th~ general public. [654 HJ "H (bl ;\rticle 19(6) in the two limbs and in the two sub-articles of the second hmb deals with separate matters; and state monopoly in res, PCct of

R. C. COOPER V. UNION 543

A trade or business is not open to be reviewed in courts on the ground of reasonableness. [638 DJ

Akadasi Padhan v. State of Orissa, [1963] Supp. 2 S.C.R, 691, followed.

Motilal v. Government of the State of Uttar Prcdesh 1.L.R. [1951] 1 AU. 269 and Municipal Committee of Amritsar v. State of Punjab, Writ Petition No, 295 of 1965 decided on 30 January, 1969, referred to.

Earl Fitzwilliani'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 Bani.:. to carry on business other than banking. If the entire undertaking of a banking company was tal:.en by way of acquisition, the assets could not be separated to distinguish those belonging to the banking business from othexs belonging to nonbanking 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 , vhich 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 businesse:)

other than banking that the same would amount to a prohibition on th\: bani:. 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 petitioner's contention based on Art. 19(6) therefore had to fail. (639 B-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 carl;'y on banking business to nullify the very object of the Act. The fourteen banks were not in the same class as 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 Iargor 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 the~ fourteen banks were better suited than others and, .therefore, speed and efficiency which were necessary for impementing .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-HJ

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. Tlze Seate of Delhi, [1962] Supp. 1 S.C.R. 156, Mohd. Htmif Quareshi v.

State of Blhar, [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 1cleva11~ to the time of acquisition of property or' the amount fixed is not obviously and shockingly

illusory. there i!; no infraction of Art. 31(2) and the owner cannot impeach it on the ground of "just equivalent" of tho property acquired. The relevancy is to compensation and not to adequacy. It is unthinkable that Parliament. after the Constitution Founh 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 in.adequate and anything which is impeached a9 unjust or unfair is impinging on adequacy. (649 C-EJ


Under the .Act entire undertaking \\ .. as the subject matter of acquisition and compensation was to be paid for the undenaking and not for each of the assets of the un<J,, rtaking. There is no uniform establisheil princip1e for valuing an undertaking as a going concern but the usual principle is assets minus liabilities.

If it be suggested that no compensation \\as provided for any panicular asset that v..-oulJ oe ouestionng adequacy of compensat.ion. because, compensation was provided for the entire undertaking.

When the relevant principle set out \\as ascertained value it co)lld not be urged that market value should have been the principle. It would really be going into adequacy of compensation by preferring the merits 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 DJ .

The contention as to exclusion of gooJ-will amounted to questioning adequacy and \\Ould not vitiate the principle of valuation which had been laid down. Good-wilt can arise when the undenaking is sold as a going concern. The fourteen banks carried on business under licence by reaSOJi

of s. 22 of the Banking Regulation Act. and the concept of sale in such

a situation is unreal. In case of compulsory acquisition no goodwill passes to the acquiring authority.

Besides. no facts \\ere pleaded in the petition to , how what goodwill the banks had. [653 Fl

Jn the valu<11ion .of lands and buildings market value is not the. only principk. That is why the Constitution has left the layio..g down 9f the

principles to the legislature.

Ascertained value is a relevant and sound principle hascd on capitalisation method \\hich is accepted for valuation of land and properties. The contention that t"elve times the annual rent \\as not a relevant principle and was not an absolute rule and compe.n ..

ation might be illusory could not be_ accepted.

Capitalisation method is not available to h1nt.l because land is not generally let out.

Nor can it he s.aid that th~ principle is irrelevant \\'hen there are two plots side by side one \vith huildine :inJ Lhe other vacant bCcause standard rent neces

saril~· takes into accol1nt value of ); ind on which the buildinJt is situated.

If rental n1ctholl he applied to land the value may be little. but it is a principle rclcv;.un to determination of compensation.

Furthermore. there \\as no case in thepetition that there \\'as land 'Nith building side by side. \Vilh vacant lund. [651 F-H. 65:!. A-Cl

As to sccuriti\s. "'hares and debentures Explanation (iv) and (v) to Part I { c) \l; ould OC operative only \\hen n1arket value of shares and debentures \\as considered reasonable by reason of its having been affected by ahnorn1al factors or \\'hen mark.ct value of shares and dcnturcs \\'as not ascertainable.

In hoth cases principles \\ere laid do\\n. nan1cly. ho\\

valuation had to be made taking into account various factors and these principles were rli!levant to determination of compensation.

Deductions on account of maintenance and repairs is essential in the capitalization meiliod. Insuran.ce would also be an essential deduction in the capitalisation method and it could not be assumed that the Bank would insure for a value 11igher than what was necessary; also payment of tax or ground rent might be out of income b1,1t these had to be provided for in ascertaining value of the building under the capitalisation method.

There wa~ no basis for the argument that Explanation 2(i) (vi) whicll 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 II 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 borrov"'d 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 GJ

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 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 DJ

The principles set out in the Act was rele:vant to the determination of compensation. It might be that adoption of one prin9iple conferr; ed lesser s.um of money than adoption of another; but that .would not be. a: ground for saying that the principle was not relevant. (654 GJ

(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 and, therefore neither Art. 301 nor Art. 302 was applicable. [641 HJ

(vii) A legislation which has retrospective effect affecting acquisition or requisition of property is not unconstitutional and is va1id.

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 ope.ration 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, 617BJ


A.LR. 1969 S.C. 477. followed.

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

LS Sup. Cl/10-5

(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 subct 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. [640 DJ


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. Pa/khivala, M. C. Chagla, A. I. Raja, N. N. Palkhiva/a, R. N. Bannerjee, S. Swarup, B. Datta, I. B. Dadachanji, O. C.

Mathur, and Ravinder Narain, for the petitiooer (in W.P. Nos. 222 and 300 of 1969).

R. V. S. Mani, for the petitioner (in W.P. No. 298 of 1969).

Niren De, Attorney-Gener(Jl, Jagadish Swarup, So/icitor- Genera/, M. C. Seta/vad, C. K. Daphtary, R. H. Dhebar, R. N.

S{lt:hthey and S. P. Nayar, for the respondent (in W.P. No. 222 of 1969).

Niren De, Attorney-General, lagadish Swarup, Solicitor- Generol, M. C. Seta/vad, 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, Altorney-General, Jagadish Swarup; Solicitor-General~ M. C. Seta/vad, C. K. Daphtar'y, 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. Moha11 Kumaramangalam, R. K. Garg, S. C. Agarn>al 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 a.nd D. P. Singh, for interevener No. 4.

H V. K. Krishna Menon, M. R. K. Pillai and D. P. Singh, for intervener No. S. · -

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

M. C. Chag/a, San, tosh Chatterjee and G. S. Chatterjee, for intervener No. 7.

The Judgment of J. c. SHAH, s. M. Snoo, J. M. SHELAT,

V. BHARGAVA, G. K. MITTER, C. A. VAIDIALINGAM, K. S. HEGDE, A. N. GROVER, P. JAGANMOHAN REDDY AND I. D. DuA, JJ. was delivered by SHAH, J. A. N. RAY, J. gave a dissenting Opinion.

Shah, J. Rustom Cavasjee Cooperhereinafter 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 Centq1l 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 Jaw 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 els. (a) to ( o) of sub-s. (1). By sul:>-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 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; H 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

to and for trial of proi; eedings against the Banks and for speedy disposal of winct¥ig , 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 Chainnan 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 - F matter copcerning 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 ban king 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

Central Government. The State Bank took over seven subsi diaries under authority conferred by Act 38 of 1959. There

wer~ in June .1969 14 commercial banks operating in India each havmg. deposits exceeding Rs. 50 crores.

The following is an analysis of the commercial banking structure in India in June 1969:

State Bank of India

Subsidiaries of State Bank

No.of Banks No. of Offices

1,566

Deposits Credit (in crores) (in crores)

948 967

C oflndia 7 888 291 219 Indian scheduled commerc1aI banks (each with deposit exceeding Rs. 50 cores)

Banks incorporated in

14 4,130 2,632 1,829

D foreign countries 15' 130 478 385

Other Indian Scheduled Banks

Non-scheduled commercial Banks

*Only 13 were operating.

1,324 296 197

216 28 16

Late in the afternoon of July 19, 1969 (which was a Saturday) 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 cQllJ1ected 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 Compames Act,

1956. An "existing bank" was defined bys. 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

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 Iadia 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 exist ing bank as meaning "the body corporate specified against such bank in column 2 of the First Schedule". Bys. 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 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 i11 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 paidup 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 Govern l ment. The corresponding new banks shall be authorised to G carry on and tranact 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 gene- H ral 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.

(2) The undertaking within or without fadia of ever; numd bank on the commencement of the Ordinance shall stand transferred to and vested in the corresponding new bank. The expression "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 reiation to the undertaking. If according to the Jaw 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 Jaw, 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 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 Director of a named bank, shall be deemed to have vacated office, and A 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 B 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 C 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 tak.n 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 oniy the right to rec:eive 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 administrative and other staff stood transferred to the corresponding new bank. The /llamed bank had thereafter no assets, no business, and no managerial, administrative or other staff, ii was incompetent (I) 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.

Petitions challenging the competence of the President to promulgate the Ordinance were lodged in this Court on July 21, 1969.

But fore 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 Parhament, and was enacted on August 9, 1969, as "The Banking Companies (Acquisition and Transfer of Undertakings) Act 22 of 1969". The Jong title of the Act was in terms identical with the long title, of the Ordinance. 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 juxtapositien 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. Bys. 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 h; tve been acquired, accrued or incurred under the Ordin.ance.

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 :

(I) 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 privi!eg.es 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 Gov-· ernment, is prohibited from carrying on the business of banking there; and 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 Jaw, or in any

contract or other instrument shall be construed as a reference to 4 the corresponding new bank in relation to it, but not in cases where the hamed bank may carry on any business and in relation to that business.

( 2) Prip.ciples for determination of compensation and the manner of payment are modified. ll)terim 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. II. 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 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, reinewed or re-constructed with borrowed capital, and the sums paid on account of land revenue or E other taxes in respect of such building. ( 3) The Central Government may reconstitute any corresponding new bank into two or more corporations; amalgamate any corresponding new bank with another banking institution; transfer the whole or any pari 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 man- . ner 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 ail other matters for which provision is necessary under any law. th.~ corresponding new bank shall transfer the balance of profits to the Central Government.

( 5) Provision of law relating to winding up of corporations H do not apply to the corresponding new banks, and a correspondini: new bank may be ordered to be liquidated only by the order of the Central Government.

The petitioner challenges tb.e 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 1 Act, fundamentaY rights of the petitioner guaranteed by the Constitution under Arts. 14, 19(1)(f) & (g) and 31 (2) are impaired;

(iv)

(v)

That by the Act the guarantee of freedom of trade under Art. 301 is violated; and 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 citizem 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 i& 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 -0f tb.e 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.

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 uner its Articles of Association, measured by a sum of money for the H 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

SUPREME COUJ.T REPORTS

(1970) 3 S.C.ll.

:shareholder, a depositor or a director may not therefore be entitled A 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 notof others. The shareholder of a Company, it is rue, 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 sharebolder'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 9f 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 le)!islative competence

to enact the Act and the President had no power to promulgate F 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 thev 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 conseciuence 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 agencv 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.

(l) (1954] S. C. R. 674.

In Dwarkadas Shrlnivas v. The Sho/apur Spinning &: Weaving Co. Ltd, and Others(') this Court held that a p, refereince 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, . . . directly affects 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(') by Mukherjea, J., at p. 899, by Faz! 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, Visakhapatna111 & Ors. (2 ) has no bearing on this question. In that case in a petition under Art. 32 of the Constitution the State Trading H Corporation challenged the infringement of its right to hold property and to carry on business under Art. 19 (l)(f) & (g) of -

- -

(I) (19501 S. C. R. 869.

(2) (1964] 4 $.C.R. 99.

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 Loco motive Co. Ltd. v. State of Bihar and Ors.(') any bcaril)g on the question arisiag in these petitions. In a petition under Art. 32, of the Constitution filed by a Company challenging the levy of sales-tax by th.e State of Bihar, two shareholders were also im pleaded as petitioners. It was urged on behalf of the shareholders that in subsiance 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 in fringement of )1is 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 peti tioner is not 1111titled to mainrain a petition for breach of that guarantee in this Court. But the petitioner does not seek by these petitions to. enforce the guarantee of freedom of trade and commerce in Art 301: he claims that in enacti, ng 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. 31A (l)(d) of the Constitution bars thepetitioner'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 peti tioner as a director : it seeks to fake away expressly the right of the named Banks to carry on banking business, while reserving their right to c.arry 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 prelimi- nary 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 by1Art. 123 of the Constitution vested in t!Je President. Article 123 provides :

" ( 1) If at any tiine, except when bot!J Houses of Parliament are in session, the President is satisfied that OJ [1964J 6 s.c.a. ass.

circumstances exist which render it necessary for him to take immediate action, he may promulgate such Ordinance as the circumstances appear to him tci requite.

(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 resolutions; and

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

Exp/anation.-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 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 ll!ld 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 in tended to be made is within the competence of 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 he power is .strictly conditioned.

The clause relating to

560 SUPREME COUil T llBPOR TS [1970] 3 S.C.!l.

the satisfaction is composite: the satisfaction relates to tho exist A ence of circumstances, as well as to tho 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 satisfaction of the President in both the branches is purely subjective and the Union of India is under no obligation to disclose the exist ence 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('); King Emperor v. Benoari Lal Sarma('). and upon a &cision of the Federal Court in Lakhi Narayan Das v.

The Province of Bihar(8 ), which interpreted the analogous provisions of the Government of India Act, 1935, conferring upon the Governor.

General 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('). ·

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 ren&r 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 Ordi nance in els. ( 1 > & (2) of Art. 74; els. (3) & ( 4) of Art. 75 and Art. 361, and submitted that the rule applicable to the interpre tation of parliamentary statutes conferring authority un 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. 1

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 provi sion-express or necessarily implicit in the Constitution-to the contrary, is competent to determine whether the power was exer cised not for a collateral purpose, but on relevant circumstances

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

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

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

(4) L. R. 76 I. A. S7.

which, prima facie, establish the necessity to take immediate action. Counsel submitted that the rules applicable fo the inter pretation of statutes conferring power exercisable on satisfaction of the specified circumstances upon the President and upon ofli cers 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 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 n\ay 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('); and of the Judicial Committee in Dura, vappah v.

Fernando and Others('); Nakkuda Ali v. M. F. De S. Jayaratne('); Ross- Clunis v. Papadopoul/os('), and contended that the decisions of the Judicial Committee in Bhagat Singh's case(') and Benoari Lal Sarma' s case (') interpreted a provision which was in sub

stance different from the provision of Art. 123, that the decision in Lakhi Narayan Das's case(9 ) merely followed the two judg ments 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 Gov ernnv.mt 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 sig nificance 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 ; i"resident was fulfilled.

1. [1966] Supp. s.c.R. 311.

3. [1968J 1 All E. R. 694.

5. L.R. (1951] A.C. 66.

7. L.R. 58 I.A. t69.

9. (1949] F.C.R. 693,

2. (1969] 3 S.C.R. 108.

4. L.R. (1967] A.C. 337.

6. (1958] 2 All E.R. 23.

8, L.R. 72 I.A. 57.

L8SupCij70-6