RUSTOM CAVASJEE COOPER VS UNION OF INDIA: CASE SUMMARY
The Supreme Court in Rustom Cavasjee Cooper Vs Union of India (1970) SCR 3 530 rejected the view taken in A. K. Gopalan VS. State of Madras 1950 AIR 27 that certain articles of the Constitution exclusively deal with specific matters and effect of the laws on other Fundamental Rights of the individuals will be ignored.
FACTS OF THE CASE
The President promulgated Banking Companies (Acquisition and Transfer of Undertakings) Ordinance 8 of 1969 on July 19, 1969 under Article 123 of the Constitution providing for acquisition and transfer of undertaking of fourteen commercial banks in order to serve better the needs of development of the economy in conformity with national policy. Under the ordinance the entire undertaking of every named commercial bank was taken over by the corresponding new bank. Chairman and directors of Banks vacated office. The Banks were to receive only compensation as prescribed. Services of named banks were transferred to new banks. Ordinance was subsequently replaced with Act with some modifications.
Rustom Cavasjee Cooper was shareholder in Central Bank of India Ltd, Bank of Baroda Ltd., Union Bank of India Ltd. and Bank of India Ltd. He filed Writ Petition under Article 32 of the Constitution of India seeking declaration that ordinance and the subsequent act passed by Parliament with some modifications impair his rights guaranteed under Article 14, Article 19 and Article 31 of the Constitution and are invalid.
FINDINGS OF THE SUPREME COURT
Competency of Parliament
The Supreme Court observed that a legislative entry being expressed in a broad designation indicating the contour of plenary power must receive a meaning conducive to the widest amplitude. The Supreme Court rejected the contention that the Parliament was incompetent to legislate the act as in so far as it relates to assets of non-banking business on two grounds – firstly there was no evidence that the named banks held any assets for non-banking business and secondly acquisition is not shown to fall within an entry in List II of the Seventh Schedule.
Infringement of Fundamental Rights
It was contended by the State that Article 31 (2) and Article 19 (1) (f) , while operating on the same field of right to property, are mutually exclusive. A law directly providing for acquisition of property for a public purpose cannot be tested for its validity on the plea that it imposes limitations on the right to property which are not reasonable.
The Supreme Court rejected view taken in A K Gopalan that certain articles in the Constitution exclusively deal with specific matters and in determining whether there is infringement of the individual’s guaranteed rights, the object and the form of the State action alone need be considered, and effect of the laws on Fundamental Rights of the individuals will be ignored. The Supreme Court held that a citizen may claim in an appropriate case that the law authorizing compulsory acquisition of property imposes fetters upon his right to hold property which are not reasonable restrictions in the interests of general public.
The Supreme Court considered whether Section 4 & 5 of the Act impairs Fundamental Freedoms under Article 19 (1) (f) and (g). The Supreme Court noted that Section 4 vests entire undertaking of the named bank in Union of India and Bank is prohibited from engaging in Banking Business in India. Banks were entitled to engage in business other than banking. A business organization deprived of its entire assets and undertaking, its managerial and other staff, its premises, and its name, even if it has a theoretical right to carry on non-banking business, would not be able to do so, especially when even the fraction of the value of its undertaking made payable to it as compensation, is not made immediately payable to it. Where restrictions imposed upon the carrying on of a business are so stringent that the business cannot in practice be carried on, the Court will regard the imposition of the restrictions as unreasonable. If compensation paid is in form that it is not immediately available for restarting any business declaration of the right to carry on business other than banking becomes an empty formality, when the entire undertaking of the named banks is transferred to and vests in the new bank together with the premises and the names of the banks and the named banks are deprived of the services of tis administrative and other staff. The Supreme Court held that the restrictions imposed upon the right of the named banks to carry on “non-banking” business is plainly unreasonable.
Adequacy of Compensation
The Supreme Court observed that compensation has to be “just equivalent”. “Just equivalent” meant “full indemnification” and the expropriated owner was entitled to the market value of property on the date of deprivation of the property.
The Supreme Court held that method adopted for valuation of the undertaking, important items of assets have been excluded and principles some of which are irrelevant and some not recognized were adopted. What is determined by the adoption of the method does not award to the named banks compensation for loss of their undertaking. The ultimate result substantially impairs the guarantee of compensation and on that account the Act is liable to be struck down.
The Supreme Court declared Banking Companies (Acquisition and Transfer of Undertaking) Act, 1969 invalid.
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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.