# Dhane81twar Na rain Saxen• v. The Delhi ~4dminiatratio11

- **Citation:** [1962] 3 S.C.R. 269
- **Court:** Supreme Court of India
- **Decided:** 1960-10-31
- **Bench:** B. P. Sinha, s. K. DAS, A. K. Sarkar, N. Rajagopala Ayyangar, J. R. MunHOLKAR
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/dhane81twar-na-rain-saxen-v-the-delhi-4dminiatratio11-2446
- **Pages:** 36

## Headnote

Fundamental Right-Right to form association or unionScope of-Stature protecting Banks from disclosure of information
regarding
secret
reserves
etc.-Oonstitutionality of-Bankinll
Companies Act, 1949 (X of 1949), s. 34-A-Oonstitution of
India, Arts. 14, 19(1)(c).
Section 34-A of the Banking Companies Act, I 949, introduced in 1960, provides that no banking company shall be
compelled to produce or give inspection of its books of account
or other document or furnish or disclose any statement or information which the company claims to be of a confidential
4
nature and the production etc., of which would involve di•-
closure of information relating to any reserves not sho\crn as
suc_h in its published balance sheet or any particulars not shown
therein in respect of provisions made for bad and doubtful
debts and other usual or necessary provisions. Sub-section (2) of
'· 34-A provides that any authority, before whom the question
as to whether any amount out of such reserves or provisions
should be taken into account, may refer the question to the
Reserve Bank and the Reserve Bank shall furni•h to the authority a certificate stating that the authority shall or shall not take
-~ •-into account the amount specified therein. Sub-section (3)
makes s. 34-A applicable to only such banking companies whose
operations extend beyond one State. The Appellant contended
1961
Dhane81twar
Na rain Saxen•
v.
The Delhi
~4dminiatratio11
Sinha C. J.
1961
•
l:!bJ
All India Bank
Employets'
AsDociation
v ••
Naiional Industrial
~ V'ibunal
•
270
~UP~~ COPRJ REPOR~S
'
[1962J
that s. 34-A c.;mtravened the fundamental tight guaranteed to
trade unions.by Art. 19( l')(c)' of the Constitution as it prevented
them .from effectively lxefcising the concomitent fight of
collective bargaining in
respect
of
\vages, bonus
etc.
befOre Industria,l Trjbunals by shutting out important a11d
re~
levant evidence and that thC Section violated
Art. 14 of the
Constitution as it' was n6t mad.er applicable to all the banking·
co~panies.
r·
Held, thats. 34-A of the Banking Companies Act, 1949,
was constitutionally valid and did not'offend eitl)tr Art. 19( 1)( c)
or Art. 14 of the Constitution.
The right guarant~ed by Art. !9(l)(c) of the Constitution
does not carry \Vith· it a concomitant right that unions fC?rmed
for protecting the interests of labour shall achieve their object
such that any interference to such achievement by any law
wotild ,])e.uncl\rlstitution'af i.11\less' it could k>e 'justified ,under
Art. 1\1(4) as being in the interests of Public order or morality.
'.The right under Art, 19(l)(cJ extends only to the. formation of
an a's~9~i.afipn Of \lnion ap~ i~Ef:Jf¥ ,as ,the f\Ctixities 0( the jlS~O
ciation or union a.re con,csrl).i;d or ,as regards ~qe steps which
the union might take to acl{i.eve its otiject, they are subjec~ to
such laws as may be ffamed !and: suCh .la\\'S cannot be: tested
under Art. ll)(+) ..
i;;e~pon 31-A was i;nacted to effect a reconciliation bet,veen lhf. confli~~n~ interest .of labour to obtain
p1opcr relief in. !nc!usir1a1 arLiLi'ation, a'Ila the beed to prc~ervc
and maintain the delicate fabrit of the credit structure of the
country by strengthening the t1eal as well as the appatent credit
w,orthiness of banks 'op'erating in •the country.· It preserved
industiial adjudication in' respect 'cf'disputes between the banks
and their employees by entrusting the duty of determining the
surplus res,rve :-rhich, <:ould be tal\~\1 iP~.o l''<;ount as a part of
the asse~s for determining t!'i~ir cap~city to pay to t4e l\.cservc
Bank,
·
Rome•h-fI'hdpparN.>State of .Madras (1950) S.C.R". 594
Ezpreas Newspapers (P.) Ltd: v. Unio1'oj lndid, ( 1959JS.C.R. 12,
Re. The f(erala Education Bill, ·(·1959) S.C.R. 995, National
A'8ociationjor the advan,,.ment of colcuredpeople v. Alabama, 2
Law. Ed. Second 1488; BatM·v. Little Rdck, 4 Law Ed. Seconsl
480, h'ational Labour Relation• Board ,v. Jones &> Lauqhlin
Steel Oorpofation, 81. Law: Ed. 893· and AmalgamalP.d Utilit

## Text

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3 S.C.R.
SUPREME COURT REPOR'.l'S
269
should do something in the discharge of his own
duty and thereby obtain a valuable thing or pecuniary advantage.
These observations dispose of the present
appeal and it must be held that there is no merit
in the contentions raised in support of the appeal.
As the only point raised in support of the appeal
fails, it is accordingly dismissed.
Appeal dismissed.
ALL INDIA BANK EMPLOYEES' ASSOCIATION
NATIONAL INDUSTRIAL TRIBUNAL & OTHERS
(And Connected Petitions)
(B. P. SINHA, c. J., s. K. DAS, A. K. SARKAR,
N. RAJAGOPALA AYYANGAR and
J. R. MunHOLKAR, JJ.)
Fundamental Right-Right to form association or unionScope of-Stature protecting Banks from disclosure of information
regarding
secret
reserves
etc.-Oonstitutionality of-Bankinll
Companies Act, 1949 (X of 1949), s. 34-A-Oonstitution of
India, Arts. 14, 19(1)(c).
Section 34-A of the Banking Companies Act, I 949, introduced in 1960, provides that no banking company shall be
compelled to produce or give inspection of its books of account
or other document or furnish or disclose any statement or information which the company claims to be of a confidential
4
nature and the production etc., of which would involve di•-
closure of information relating to any reserves not sho\crn as
suc_h in its published balance sheet or any particulars not shown
therein in respect of provisions made for bad and doubtful
debts and other usual or necessary provisions. Sub-section (2) of
'· 34-A provides that any authority, before whom the question
as to whether any amount out of such reserves or provisions
should be taken into account, may refer the question to the
Reserve Bank and the Reserve Bank shall furni•h to the authority a certificate stating that the authority shall or shall not take
-~ •-into account the amount specified therein. Sub-section (3)
makes s. 34-A applicable to only such banking companies whose
operations extend beyond one State. The Appellant contended
1961
Dhane81twar
Na rain Saxen•
v.
The Delhi
~4dminiatratio11
Sinha C. J.
1961
•
l:!bJ
All India Bank
Employets'
AsDociation
v ••
Naiional Industrial
~ V'ibunal
•
270
~UP~~ COPRJ REPOR~S
'
[1962J
that s. 34-A c.;mtravened the fundamental tight guaranteed to
trade unions.by Art. 19( l')(c)' of the Constitution as it prevented
them .from effectively lxefcising the concomitent fight of
collective bargaining in
respect
of
\vages, bonus
etc.
befOre Industria,l Trjbunals by shutting out important a11d
re~
levant evidence and that thC Section violated
Art. 14 of the
Constitution as it' was n6t mad.er applicable to all the banking·
co~panies.
r·
Held, thats. 34-A of the Banking Companies Act, 1949,
was constitutionally valid and did not'offend eitl)tr Art. 19( 1)( c)
or Art. 14 of the Constitution.
The right guarant~ed by Art. !9(l)(c) of the Constitution
does not carry \Vith· it a concomitant right that unions fC?rmed
for protecting the interests of labour shall achieve their object
such that any interference to such achievement by any law
wotild ,])e.uncl\rlstitution'af i.11\less' it could k>e 'justified ,under
Art. 1\1(4) as being in the interests of Public order or morality.
'.The right under Art, 19(l)(cJ extends only to the. formation of
an a's~9~i.afipn Of \lnion ap~ i~Ef:Jf¥ ,as ,the f\Ctixities 0( the jlS~O
ciation or union a.re con,csrl).i;d or ,as regards ~qe steps which
the union might take to acl{i.eve its otiject, they are subjec~ to
such laws as may be ffamed !and: suCh .la\\'S cannot be: tested
under Art. ll)(+) ..
i;;e~pon 31-A was i;nacted to effect a reconciliation bet,veen lhf. confli~~n~ interest .of labour to obtain
p1opcr relief in. !nc!usir1a1 arLiLi'ation, a'Ila the beed to prc~ervc
and maintain the delicate fabrit of the credit structure of the
country by strengthening the t1eal as well as the appatent credit
w,orthiness of banks 'op'erating in •the country.· It preserved
industiial adjudication in' respect 'cf'disputes between the banks
and their employees by entrusting the duty of determining the
surplus res,rve :-rhich, <:ould be tal\~\1 iP~.o l''<;ount as a part of
the asse~s for determining t!'i~ir cap~city to pay to t4e l\.cservc
Bank,
·
Rome•h-fI'hdpparN.>State of .Madras (1950) S.C.R". 594
Ezpreas Newspapers (P.) Ltd: v. Unio1'oj lndid, ( 1959JS.C.R. 12,
Re. The f(erala Education Bill, ·(·1959) S.C.R. 995, National
A'8ociationjor the advan,,.ment of colcuredpeople v. Alabama, 2
Law. Ed. Second 1488; BatM·v. Little Rdck, 4 Law Ed. Seconsl
480, h'ational Labour Relation• Board ,v. Jones &> Lauqhlin
Steel Oorpofation, 81. Law: Ed. 893· and AmalgamalP.d Utility
WorHra v. Oonsolidatea.·1 Edi§cm
Oo,,.pany of ·'New York,
84 Law. Ed. 738, referred io.
' •
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0
If
).;
1
.,
TP,ougjt t}iere wi;re ccriail}, Ip,anks whic~ were not entitled
to~he pro(\'.9~~on.of s. 34.,.,. ~hat,'\'~·no ground for holding that
the. se9tii;m offenped. Ar,t. \ t· Tre co"1p,1,aint was not.made by
the b'!11ks w\J.o Vfere,no! g1ven,~he p~oteptmn. A'.lmi)t;:!)ly, 95,%.
of¢he .. b,anking };>}ljif\es~. in t!/e; .cgμntry; v.:as· iJ:t t\ie ·h#,?-,s pf
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3 S.C.R.
SUPREME COURT HEPORTS
271
banks to whom s. 34-A applied and they employed 80,000 out
of the 90,000 bank employees. The injury to the credit structure will only be by the disclosure of the reserve etc. of the banks
of this class and there is sufficient rational connection and basis
for the classification to justify the differenciation. The exclusion
of the Reserve Bank from the operation of s. 34-A (2) also does
not amount to discrimination; in the very nature of things and
on the scherne of the provision the reserve Bank could not but
be excluded.
CIVIL APrELLAT~ JumsnrcTION: Civil Appeal
No. 154 of 1961.
Appeal by special leave from the judgment
and order dated October 31, 1960, of the National
Industrial Tribunal (Bank Disputes), Bombay, in
Reference No. 1 of 1960.
WITH
Petitions Nos. 70, 80 and 82 of 1961.
Petitions Under Article 32 of the Constitution
of India for enforcement of Fundamental Rights.
A. S R. Chari,
V. G.
Raw, D. P.
Singh,
Jr[. K. Ramamurthi. R. K. Gm·g and S. C. Agaru·al,
for the appellant and the petition (in Petn. No. 80
of 61).
JI[. C.
Setalvad, Attorney-General of India,
N. V. Phadke, K. H. Bhabha, J. B. Dadachanj-i,
* S. N. Andley, Rameshwar Nath and P. L. Vohra, for
respondents Nos. 2-17 and 19-34 (In appeal and
Petn. No. 80 of 61).
J. B. Dadachanji, S. N. Andley, R1imeshwarNath
and P. L. Vohra, for respondents Nos. 41-49 (In
appeal and Petn. 80 of 1961).
_.
Anand Prakash, for Respdts. Nos. 35-40 (In
' Petn. No. 80 of 61).
A. V.
Viswanatha
Sastri, D.
P.
Singh,
Jlf. I(. Ramamurthi, R. K. Garg and S. C. Agaru·al,
for Intervener No. 2.
D.S. Nargolkar and K. R. Choudhri, for Petitioners Nos. 70 and 82 of 61).
1rf. C.
Setalvad, Attorney-General of India,
__
C.K. Daphtary, Solicitor-General of India, H.N. San11ol,
"- Additional Solicitor-General of Indio, J.B. Dadachanji,
1961
All India Bank
Employees'
Association
v.
Natio11al Industrial
Tribunal
1961
All /nt.Jia 1Ja1~k
Employet~'
As"ociat,'011
v.
National in'ftu;trial
Triliunal
~yya11gar J.
•
272
SUPREME COVRT REPORTS
[HJ6;.; J
S. N. Andley, Rameshu:ar Sath and P. /,. Vohm,
for Rcspdt No. 2 (In Pctns. Xos. 70 and 82 of GI).
Naunit Lul, for intcn·pner 1\o. :l.
JI. C. Set<ilrnd, Attomey-Geneml of lndi<i awl
1'. JI. Sen, for Intervener Xo. I.
1961. August :!8. The Judgment of the Court
was delivered hy
AYYA::\GAH, J.-Civil ApJoeal No. l:;.1 of 1061
has been filed on special le•l\'c obtai11ed from
thi~
Court against an order of K. T. l>cs<Li, J., funetioning as the Xational lndustriJ.l Tribunal (Hanks
Disputes) Bombay dated October :11, IOtlO.
Tho
point arising for decision in the appeal i,; as reg11rds
the constitutional validity of s.34A of the B1inking
Companies Act, 194~) which was enacted un August
26, 1960 as an amendment to the 11<1.rcnt Act
(Aet X of 1949). The appellant before this Court is
the All India Bank Employees' Assot'iation whit'h is
;1 trade union urganization of Hank Employees of
several banks operating in India. The Punjab Xational
Bank Employees' Union, which is a trade union
with similar objecte has been permitted to intervene in this apveal in support of the appellant
union. _ The three other_ \Vrit Petitions are hy
other Bank Employees' Unions whose description
woul<l be apparent from the cause title and all
these cases have been heard together because in the
writ petitions also the point raised is identical,
r-iz., the validity of s.34A of the Banking Com.
panics Act, which will be referred to hereafter as
the impugned provision.
Section 34A whcse validity is tho matter in
dispute in these proceedings runs in tho following
terms:-
"34A. (1)
Kotwitl1stan<ling anything
containecl in section 11 of the lndustria l
Disputes Act, 1947, or any other law for tho
·•
time being in force, no hanking company
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3S.C.R.
SUPREllfE COURT REPORTS
27-3
shall, in any proceeding under the said Act
or in any appeal or other proceeding arising
thArefrom or connected therewith, be Com -
pelled by any authority before which such
proceeding is pending to producr, or give
inspection of, any of its books of account or
other document or furnish or disclose any
statement or information, when the banking
company claims ·that such document, statement
or information is of a confidential
nature and that the production or inspection
of such document or the furnishing or disclousure of such statement or information
would involve disclosure of information relating to:
(a) any reserves not shown as such in
its published balance sheet ; or
(bl any particulars not shown therein in
respect of provisions
made for bad and
doubtful debts and other usual or necessary
provisions.
(2) If, in any such proceeding in relation
to any banking company other than the
Reserve Bank of India, any question arises
as to whether any amount out of the reserves
or provisions referred to in sub-section (1)
should be taken into account by the authority
before which such
proceeding is pending,
the authority may, if it so thinks fit, refer
the question to the Reserve Bank and the
Reserve Bank shall after taking into accont
principles of sound banking and all relevant
circumstances concerning the banking company, furnish to the authrity a
certificate
stating that the authority shall not take into
account any amount as such reserves and
provisions of the banking company or may
take them into account only to the extent
of the amonnt specified by it in the certificate,
and the certificate of the Reserve Bank on
1961
Alt India Bank.
EmployeeH'
Associntion
v.
, · alinnal I ndustriat
Tribunal
Ay?}anqar J.
I·
214.
StJPRE:iIE COURT REPORTS
,.<-··-~· ..
(1962]
~
;. _,
19a1
. · '
. such question shall be final and shall not be
AU ltwia Bank
.'
i.' call!jd in question in any such proceeding.
· .f.:!c'.~r;:~
> .
·
': (3) For. the
·purpos~s .of this section,
NaJJ,nal"jnau.irial.: '";·''.?~liking 'co~1i1;any'; ·shall.have the meaning
Tribunal
assigned to 1t in the Industrial Disputes Act,
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A.yya11[J'lrJ •..
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··;Before commencing the examination of the 1ioints
in controversy and the grounds on which the legality
. 'oLthe: above provisio1Lis impugned .• It would be
i, 'helDful for a lietter. apvreciatioil of the: problem if
·'we set 'out, in very•biief· ciutlme,'the history of the
:steps which led to the enactment in dispute. .There
, ... was a Jong standing : practice. in England of· Banking
- · Companies, ·as distinguishcd~·from companies carry-
. ing ·on other commercial etc. activities/ not to
· disclose, . in their balance sheets and Profit & Loss
aiicouiits;· bad and doubtfol ;debts and the provision
. made therefore, · as w:ell as the secret reserves crcat-
' '.cd. and held midervariotis'items.,..:a practice which
'·received 'judicial"recognition·'by Buckley; L., J. in
'.'Newton v; Binrii1ig!ia'm Small AT1ns Co .. Ltd.' (1) This
practice was followed by, several banks in India and
,-. questions arose from:time to time as'to how far the
":'.practice was-consistent with the' statutory provisions
· ···as to disclosure contained in the several Companies·
' Acts. enacted from tiinc. to time.· ··,Ve shall, how-
.'· l ,ever,' add 'that the desirability and even the legality
-,.,··of this practice• has not• gone· without· challenge,
.. :;:though there has been a co'nsideralJle body of opinion
·;.,"which· has held: this' to .b_o salutary: and necessary
•1 i fcir the preservation _and pr.ogress· 'of a .credit institu;
tation like a bank. We are' not now concerned with the
· ndeairability or ethics 'ofnthe ·practice which is a
. ·r1 matter;:.for the.:consideration of the; legisfature but
r<! as·.to the steps'bywhich'accord was established bet-
""·Weeri the'practice and the lll.w: · , .·; • · .
_- · -
b·-"·
""'C?"' ,r . .,_~',.
.•"')f>-_•
•
'' ,,,..•,,
'i ;:;, ·; :pie. I~dfo.n,~,()ompa'uies Act' of: ISQ6-;drew no .
. '..distinction between, the contents. of.balance· sheets
";,· of·bariking-eompanies as distmguished from those of
-'""' . ,
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l!(I (l):·;(l906]2Ch.378 • ._,. "" •>; •. · :1: ... '::.'; I·;;.
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3 S.C.R.
SUPREJ\ffi COURT REPORTS.
275
other companies and both were required to disclose
a list of debts owing to the concern which were considered barl or doubtful. Provisions on the same
lines, ·i. e., without any distinction between Banking
and other companies, were copied and continued by
the Indian Companies Act of 1882. When, however, the Companies Act of 1913 was enacted,
Form •F' to the 3r<l.'lchedule to the Act contained
a note in respect of the sub-heading 'book debts'
under the head 'I'roperty & Assets' in the balance
sheet, readi .1g :
"distinguishing in the case of a bank bet- ·
ween those considered good and in respect
of which the bank is fully secured and those .
considered good for which the bank holds no
security other than the debtor's personal security; and distinguishing in all cases between
debts considered good and debts considered
doubtful or bad. Debts due by directors or
other officers of the company or any of them
either severally or jointly with any other persons to be separately stated in all cases."
It would be seen that by reason of this note the
obligations imposed upon banks as regards the classification of their assets and the information to be
disclosed became slightly more detailed than in the
case of other companies. The practice, however,
of bankers to which we adverted earlier not to dis·
close or not to disclose to the full extent, bad and ·
doubtful debts but to make provision for thetn by
setting aside under other heads, sufficient moneys
which would operate as secret reserves, so that the
credit of the institution would not be affected while
its financial stability would remain unimpaired, was
continued notwithstanding this change in the form.
The Central Bank of India Limited in its published
balance-sheets of the year 1925 adopted the above
practice which, however, was not obviously in strict
conformity with the requirements of Form 'F' to
the third schedule read with the note. The
1961 ll!!'i .
All lndia ]Jank
Emplo1Jee/$'
Association
v.
1Yatiorml lnduBtrial,
Tribunal
.·lyya11gar ,T.
1961
All J nrl ia 8111,k
J;mployr.ro'
Aasla~latio11
v •
• \"aiiuMI lndu.~iriul
Tribunal
Ayya11!}ar J.
SUPRE:\IE COURT REPORTS
[l 91l21
m:maging·clircetor of the bank was pnmecutcd bv
one Shamdasani wbo was a shareholuPr of tho ban·k
for "filing anu publishing Statements which ll'Crl' false
in material p1;rticulars"', an offence punishable under
8. 282 of the Indian Companies Act. The ~fa"istratc
acquitted the accused on the ground tlmt ti~· Lala.
ncc·shect "·as i11 accoruancc with tl11• u;ual practice
of bankPrS and that the resCr\"CS of tlW Cum pam·
which were shown UIJ(ler various head,; thou"h m;t
aR ;i specific provision fo1· bad and douLtful '\Iebts
l"OVered the possible luHses several times. An application for revision was filpcJ beforu the High Court
of Born hay and Fawcett, ,J. allowed it holding that.
"a declared pro1·ision or the form cannot be allowed
to he whit.tlecl down by vencra.l c01rnidorntions as tu
the object of a b.'\hmcc-shcct."
This jud!,.'Il!ent was
rendered on February 28, 192i (vide Shamdc1srwi
v. Pocltkamc·dr1 (') and very soon thereafter tho
Government of fnnia intnvcned hr a notification
dated !llnrch :W, l!J27 under R. Iii! oi" the companies
Act HJI:I amending form 'F' and as amended bank:;
were excluded from the requirement of disclosing the reservo for had and doubtful debts under
the heading 'Capital and Liabilities' in the lefthand sido of the halance·sheet, and in the right-hand
column "hook debts which wcro hau and doubtful
for which prol'ision had been made to the satiHfac~
ti on of the auditors", were not required tu be shown
as part of the property and assets of n Ba11k.
The provisionR of the Companies Act of l!l 13
underwent numerous changes by the amending Act
of 1936 which included 1:nter alia one whcrPby tho
change effected by the Xotifica.tion, di~terl ~farch 2!J,
1927, in Form 'F' were omitted and Form 'F' was
ma.de to retain tho note which aecompanicd it under
the Act of 1913 without the exception in favour of
banks effedcd hy tho Notification. This was poi;sibly unintended, because on the day after the amcnuing Act came into operation, the Central Go1·crnme11t published a Notification on January Hi, 1937
\I) A.l.R. 1927 Bom. 414: 29 llom. LR. 722.
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SUPREME COURT REPORTS
2i7
again under s.151 of the Companies Act restoring
the alterations in the balancf'.sheet Form 'F' as hf~d
been effected by the prior Notification of March
1927.
The validity of this Notification w.as questioned as being beyond the powers of the Central
Government by Sha!lldasani who filed a complaint
against the Central Bank of India Limited and its
directors charging them with having issued a false
balance-sheet for the year ending December 31,1939,
a balance-sheet which was in conformity with the
form as modified by the Notification. The Magistrate
upheld the validity of the Notification and aquitted
the accused. Shamdasani preferred a revision to
the High Court and a full Bench of the Bombay
Hi!i:h Court held that the Notification was beyond
the powers of the Central Government, though the
order of acquittal was affirmed upholding the plea
of the accused that their act was bona fide in that they
believed the alteration in the form to be valid (Vide
Shamdasani v. The Central Bank of India Ltd.( 1)
Immediately after this judgment the Central legislature passed Act XXX of 1943 with retrospective
effect validating the Notification and amendinQ'. the
relevant sections of the Companies Act. (ss. 132,151,
Art. 107) so as to empqwer the Government to
effect changes in the form of the balance-sheet in
the manner in which they had done in January
1937.
The next event in order of date relevant to
to the present cotext is the report of the Company
Law Amendment Commitee of the United Kingdom
presided over by Mr. Justice Cohen where the entire
question of undisclosed reserves was fully discussed.
The pros and cons of the question were elaborately
considered by the Committee and it is sufficient to
refer in this connection to a short passage in the
report. In paragraph IOI the problem is thus set
out:
,.. -.._
"The chief matter which has aroused controversy is the question of undisclosed or, as
(i)l.L. R.1944Bom. 302.
1961
All Indi'.a Bank
Employees•
Association
v.
1'.tational Induatrial
1 ribunal
Ayyangar J.
,,
,·
.
\
\ .
' '·'
,
------
'
·,
27€( '.. .. SUPRE?rIE: COURT REPORTS'<
(1962]
1961 ''
1
;• 7)heyare frequently called,"secret orimierreser" .
All Iodia Ba,k
· :· 'ves .. · An u;idisclosed reserVe iS commonly crea- ·
!_':1::,;;:r:: ,:
' ,_ ted by using profits to write. aown more' than
v
'
. '
' • • ; is riecessarj such' assets as investments, freehold r
xai:on;,~fi::ff',ia1 ·-
i- .'iindle~sehold ·property for plant and ·machi- • ·
., ."-nery; by ~reiiting. excessiVe p:fovisfons for bad.··
Ayy•nlf;ii'J:
; . ~debts 'of"~th11!°: co.nt!~gencies by charging ca pi- .
. · tal ··expenditure: to -revenue; ·or by. under-'
; 1v;i)uing :stock'in .trade; .. ·NorinalTy the object
-~of.creating all undisclosed reserve is to enable ·
; ,, :i ci:rmpany to avoid: violent fluctuations in its •.
; ·-·'published profits ·or its dividends.'~ . :'
.· •. ·
'
,.-'. ',. _ ·•
i
1
,
-
';
'.,
•
__ r
, ••
,-,
!
_
·
The Committee made· number· of recommendations
severarcifwhich were:.adopted'jn the u, K. Compa•·'
nies·, Act of 1!148; _and· those relevant Jo the point ·
undet,"discussiori _served to.brin·g:· the 'law as .to the'
contents of ri. oalarice-sheet of'iL Banking Company .
intidine with tho practice of sou'~d and well managed,
banks., Tri.India; 'special legislation· in relation to ·
1
Bankini . Ocimp:mies .·embodying . several of these.,.
recominendatioris ·was .'enacted 'in the shape of the·
Bankin~·.companies~Act ,1949'JAct:Xfof 1949). Section
29 cif .the Act,'lri.id-.do\vn ''.tile. lmv in "reg3rd · to
requfrements' of the contents :of the balance-sheets.
of.: banks: · The balance-sheet,, arid Profit· & Loss
account w~re to' be in the'fcirtn set out in' the 3rd
schedule to that and sub-s: (3) of that section' exem ...
pted .. Banking Companies fro~ the requirements of '
conform fog_ to the forni of balance-sheet and Profit
& Loss · ·apcount 9f cq~panfos · 'registered · under the .
Irid\an Companies Act; and t!ie·Central G<ivernment. ·
were empowered by'sub'.s. (4) to-amend the form set .
out. in' the schedule by Notifications published in the .
offiCial '.Gazette: '"In Form 'A' which provided thee.·
morJel' of a balancii-sheet · ai:id Pr'ofit & Loss account .,
in tlie':c:\se .of banks_,' t~1~re·was: not much c~angll' ,s
compared to•the reCjmrements :·of tho prc:v10us law
except. that in tlif/ Pro~it & Loss account (Form :'B'
of the. tl\ird _schedulA) the prtl"7ision for bad and
rloubfful ·debts was permittild to:-be exchlded from the
..
••
f
3 S.C.R. SUPREME COURT REPORTS
279
income so that the am1unt of bad and doubtful
debts did not figure separately on the income side
of the profit & loss account. The income as required
to be shown was "income (!es" provision made
during the year for bad and doubtful debts)". This
last item was modified by a Notification issued under
the power conferred by s.29(4) of\he Act in December
1951,
so that after amendment the
heading
"Income" in the Profit & Loss Account ran: "Income
(less provision made during the year for bad and
doubtful debts and other usual and necessary provisions''). Thus so far as sh'lreholders of Banks and
the general public inclurling tho customers of the
bank were concerned, hanks were relie,-cd from the
obligation of disclosing the entirety of their reserves
as s•1ch and also of the extent of had or doubtful
debts and the provision made therefor.
Whil~ th~ law wns in thh stat" dkp11t0s aro~"'
between the employees of banks ali over India and
the respective banks with regarrl to wages, conditions of work etc. which were referred by the Central Government in June 1949 to an ad hoc Tribun'l.I with Shri K. C. Sen, a retired Judge of the
Bombay High Court as Chairmnn.
The Tribunal
passed an award but its validity was Huccessfully
challenged in this Court in April l!J51 on the ground
that all the members of the Tribunal who passed
th" award were not those who had all inquired into
the dispute.
Thereafter a
fresh
Tribunal was
appointed in January 1952 with Shri S. Panchapagesa Sastri, a retired ,Judge of the High Court
of Madras as Chairman. The award of this Tribunal
was published in April, Hlfi:i, but it is not necessary
to state its terms.
Appeals against the award were
preferr"cl to the Labour Appellate 'l'ribunal bQth
by th" banks as woll as hy worknwn
The Appellate Tribunal which heard the appeal consisted• of
three members with Shri J eejeehhoy as president.
The claim of the workers in the appeal bdore
the Appellate Tribunal in great part related to a
1;161
All India Bank
E 1nployee8'.
ARsociation
v.
.Yil.!ional JnduJ?frial
'1'1il.Ju11al
1961
All I11din /Jarik
J.:tnpfoyttG'
.1s~OC{Qliun
v.
1'.'ahorml lrululifri(Jl
Tribute al
280
SUPRE~IE COURT REPORTS
(1962]
dcmaml for increased wages and salaries and the
main clcff'nce of thn banks was that they had not
the capil.r:ity to pay anything he~·on<l what. the
Sastry 'l ribunal had granted. The Jcejecbhoy
Tribunal set out their difficulties in assessing tlic
pleri of incapncit.y raised by the banks in the co11text of the provisions of the Banking Companies
Act an<l the form of balance·shcet prescribed thereunder in the follo\l·ing terms :-
"At the verv outset there is an initial
difficulty in arrh;ing at a correct e~timate of
the financial position of banks. There are two
circ·umstanccs which militate against our securing a prop<'r insight into the finandal stato of
banks. ·w., rcfor in particular to (a} the
un<lisrloscd or HCC'l"et reserves and (b} to the
mamwr in which it is permissible in law for a
bankiiig •·ompany to exhibit its balance sheet.
It is not in dispute that hank do hM·c
undiFclosecl or sc·cret r<'sen·C's
which they
aequire i11 11 number t•f ways, and such umlisclosed rescrvC's can11ot be ascertained from the
balance sheet ............................... : ......... .
x
x
x
The other difficulty with which we are
confronted at the out~et is the manner in
which a bank is permitted to present its
profit &. loss account. On the income side ~he
form originally prescribed by the Rankmg
Companies Aet required the hanks to declnre
"Income Jpgs provision macle during thl· year
for bad an<! <loubtfnl
d~bt~)"" ; this has now
heen altered bv an aml·ndment made by the
Cl'n:ral Govcrnm~nt in <'Xercise of the powers
eonforred under suh-Rection 4 of section 29 of
the Banking Companies Act to read "Income
(less provigion made during the yt•ar fur bad
and doubtful debts and other usual or necessary provisions)". The effect of this altera·
tion is that the profits as shown for any
..
-·-·
*
•
\
3 S.C.R.
SUPREME COURT REPORTS
281
particular year are first shown not only of
bad and doubtful debts but also of 'other
usual or necessary provisions' before being
shown in the balance sheet ....................... .
It mav be that these 'other usual or necessary "provisions' have been passed by the
Board of Directors, and by the auditors of the
concern and may even have been scrutinized
by the Reserve
0Bank of India ; but it is our
duty and function to decide the question of
the capacity of a bank to pay, and in the
absence of important information of this
character our estimate of the capacity of &
concern to pay must necessarily be incomplete ........................ Banks feel that they
now have the form of the Banking Companies
Act to shield themselves against an enquiry on
the subject; but insofar as we are concerned
we consider these undisclosed reserves and
these appropriations relevant for the purposes
of our investigation and in their absence we
would have to decide as best as we could from
the other materials before us and draw such
inferences as justified."
It was the contention of the workmen that an
Industrial Tribunal had the right in law to compel
hanks to disclose their secret reserves as well as the
amount of "the bad and doubtful debts and other
necessary provisions" which had been excluded
under the h'ead "income" in tho Profit & Loss
Account of banks. This matter was agitated by them
before this Court in Stite Bank of India and others
v. Their Workmen (1) being an appeal against the
decision of the Labour Appellate Tribunal. In view,
however, of the conclusion reached by this Court on
other parts of the case it refrained from pronouncing upon the correctness or otherwise of this claim
by the workmen.
The diputes between the employees of banks
(I) (1959), 2 L.~L. J. 205.
1961
All India Ban'
Employeea•
Association
v.
Nation •l Indmtrial
Tribunal
Ayyangar J.
i!ICJ
All Indirs Bank
Employtt•'
.Auocialion
v .
• ./'lati-OMJ Inctustrial
1"ribunal
282
SUPREME COURT REPORTS
[1962] ...
11.nd the managements, however, continued with the
result thR,t on March 21, 1960 the Central Government in exorcise of the powors conferred on it by
sub-a. (I A) of s. I 0 of the Industrial Disputes Act
referred the dispute which related to several
matters to the NR,timml Tribunal constituted bv &
Xotification of Govrrnment or the snm" c1:1te,
K. T. Desai, J. was the Tribunid so nppointnd. :.'\Inst
of the rnnjor banks in tho country were nrnd" parties
to the reft>rence including tho Reserve Bank and
State Rank of Imlia.
A ft.er the Tribunal started
functioninir and after the parties formulated their
respeotivo contentions, applications were filed by
the Bank Employees Association on June 9, 1960,
for directing the respondent-banks to produoe
before the Tribunal for the purpoHcs of adjudication
several documents listc<l in the applications. Among
the items in reHpe<'t 0f which production was thus
sought were (I) st.atements ~howing "the
s1•cret
reserves in any fonn" of each bank from 19.'i~ right
upto December 31, 195!l ; and ( 2) statements showing the provision made "for bad and doubtful debts
and other usual and necessary provisions" during •
tho years 195c! to 195() and tho total amounts
outstanding in such items in each bank in tho said
years. The banks filed their reply on July Hi, l!l60.
The production of the. doeumonts and tho information called for on se\·era\ of the matt .. rs including
the above two was resisted hy the Indian BankR
Association {being an aHsoriation of employers) on
the ground that th{'Y were by Jaw exempted from
disclosure in th" interest. of the in<lnHtry aml the
public and claimed abHoluto privil<'ge from making
the disclosure.
It was at this stage that the impugned provision was enacted by Parliament as an aml'mlment
to tho Ranking Comvanics Act.
A~ several of the
•
banks relied upon th;i impugned provisions in.support..,..
of their plea that they could not he compelled to
disclose either the quantum of their secret reserves
or their naturo, or as regards the provision made in
...
~
3 S.C.R.
SUPREME COURT REPORTS
283
the several years for "bad and doubtful debts and
for other reasonable and necessary provision", the
bank employees association challenged the constitutional validity of s. 34A of the Banking Companies
Act, whieh, if' valid, could have afforded a 2ufficient
answer to the demand for production of the docu-
)- ments in relation to these matters. This objection
was argued before the National Tribunal which
upheld the validity of the section.
As we have
stated earlier, Civil Appeal No . .154 is directed
against and challenges the correctness of this decision. The Writ Petitions have been filed by Bank
Employees Associations which were not parties to
the application for production before the National
-> Tribunal and are intended to support the plea of the
appellant in Civil Appeal No. 154 of 1961.
The foregoing narrative would show that the
Banking Companies Act, as it stood before t,he
amendment now challenged, had brought the law as
to the disclosure of secret reserves and the provision for bad and doubtful debts etc. Into accord
• with the usual practice of Bankers, and harl protected these items from being compulsorily disclosed to
the shareholders of the respective companies and
to the general public. There had been a controversy
as to whether the workmen of these establishments
were or were not entitled to be placed on a different
position from the shareholders because of the bear-
.. ing of these undisclosed items on the determination
· ' of the quantum of their wage etc. and on their
conditions of
work having financial implications.
Parliament had, by the impugned legislation,
extended the protection from eornpulsory diRclosure
to the workmen as well, but with a safeguard in
their case that the Reserve Bank would cletermine
the amount of reserves etc. which cou Id be taken
,.
into account in the course of industrial adjudication.
""The question before us is, is this attempt iit some
approximation of the position of tbe workmen to
that of shareholders etc. unconstitutional ?
1961
All India Bank
Employees'
Association
v.
National Industrial
Tribunal
Ayyangar J.
1981
All India Bank
r;mployte•'
Aa8ocial j 011
v.
Nalior111l lndu.rlrial
·rrJJunril
Ayyungur J.
284
SUPREME COURT REPORTS
[1962)
.
. ~fr. Chari, foarnerl Counsel for the appellant,..
m Civil Appeal No. 154 arlclressed to us the main
arguments in the case and these were supplemented by learned Counsel appearing for the petitioners in the several writ petitions and also by
learned Counsel on behalf of the Tntervencrs both
in the appeal as well as in the potitiom. Though
tho arguments before us ranged O\•er a vPr>· wicle .;
fiel<l, the attack on the validitv of the )Pgislation
was rested on two main gro'iinds : (I) that th('
impugned legislation contravened the fun<lamcntal
right guarant.cc<I to "trade unions" h>• tl1C' proYision contained in sub-cl. (c) of cl. (I) of Art. HI; an<!
(2)"that it violated the freedom of rguality guaranteed by Art. 14 of the Constitution.
We shall consider these two points in that
order : First as to the impugned provision being
obnoxious~to, or in·~,·.ontravention of sub-cl.(c) of
cl. (!)'of Art.•19·of the~ Constitution. This Article
runs, to quote only t.ho relevant words :
"Article 19. (l) All citizens shall have thl'I
ri"bt:._
•
0
(a) ........................................... ..
(h) ............................................ .
(c) to form association:-; or 11nions.; "
The right is subject to tlw gualifiPation Pontaim·d in
cl.(4), reading:
..
"( 4 ). Nothing in sub-clause ( c) of th<;
said clause shall affect the operation of a.n.v
existing law insofar as it imposes, or prPvm1t.
the Stat~ from making any law imposinμ-, in
the interests of public order or morality,
reasonable restrictions on tho excrciRe of the
right conferred by the said sub-clauRP."'
It is not the contention of any of the learned Conljjo- •
sel that the right of workm(m to form 1mionB or
associations which is the right guaranteed· by
sub-cl. (c) of cl. (l) of Art. 19 on its literal reading has
3 s.c.R.
SUPREME COURT REPORTS
285
.peen denied by the impugned legislation.
The
argument, however, was that it would not be a proper construction of the content of this guaranteed
freedom to read the text literally but that the freedom should be so understood as to cover not merely
a right to form an union in the sense of getting
their union registered so as to function as an union,
i.e., of placing no impediments or restrictions on
>their formation which could not be justified as
dictated by pablic order or morality but that it
extended to confer upon unions so formed a right
to effectively function as an instrument for agitating and negotiating and by collective bargaining
secure, uphold or enforce the demands of workmen
in respect of their wages, prospects or conditions of
work. It was further submitted that unless the
-"' guaranteed right comprehended these, the right to
foim an union would be most illusory. To understand the implications of learned Counsel's submission in their proper perspective the several steps
in the reasoning might be set out as follows :
(l) 'fhe Constitution guarantees, by sub cl.(c)
•of cl. ( l) of Art. 19, to citizens in general and to
workers in particular the right to form unions. In
this context it was pointed out that the expression
'union' in addition to the word 'association' found
•
in the Article refers to associations formed by workmen for "trade union" purposes ; the word 'union'
being specially chosen to designate labour or Trade
"'unions .
•
(2) The right to "form an union" in the sense
of forming a body carries with it as a concomitant
right a guarantee that such unions shall achieve ·the
object for which they were formed. If this concomitant right were not conceded, the right guaranteed
to form an union would be an idle right, an empty
shadow lacking all substance.
rl
-
(3)
The object for which labour unions are
brought into being and exist is to ensure collective
JV61
All India Bank
Employees'
Association
v .
.National Industrial
Tribunal
Ayyangar J.
19Gl
All India Bank
F.mplo;JtC$'
A3aoC•at!·on
v.
Nativnal lndu1/rial
Tribunal
l(>yangar J.
286
SUPREME COURT f:.EPOHTS
(1062)
bargaining by labour with the employers.
The
necessity for this has arisen from an ineapaciti~
stemming from tho handicap of poverty and come:
qucnt lack of bargaining power in workmen
a.~
compared with employers which is the reason d'etre
for the existence of labour organizations. Collective
bargaining in order to bo effective must bo enforceable labour withdrawing its co-operation from the
omploycr am! there is consequently a fumlamcntal .;
right to strike a right which is thus a natural deduction from tho right to form unions guaranteed by
sub-cl. (o) of cl.( I) of Art. 19. As strikes, ho\1'c\·cr,
produce economic dislocation of varying intensity or
magnitude, a system has been devised by which
compulsory industrial adjudication is substituted for
the right to strike. This is the ratio underlying tho
provisions of tho Industrial Disputes Act l !J.1 i undor"-
which Governmont is empowered in tho event of an
industrial tlisputo which may ultimately lead to a
strike or lock-out or when such strikes or lock-outs
occur, to refer the dispute to an imparti;\I 'l'riuuiw.l
for adjudication with a provision banning arnl nm.king illegal strikes or lock-outs during the pcndcucy
of the adjudication proceedings. The pro\·ision o'9
a.n alternative to a strike in the shape uf industrial
adjudication is a restriction on the fundamental
right to strike and it would be ron~onable and
vs.lid only if it were an effective Bubstitute.
(4) For an adjudication to snti8fy the tests of
rea.sona.blenoss and effectiveness two conditions arc
necessary : (a) that the ndjudicator should u:
enabled to have before hint all the materials which
a.ro necessary for pronouncing upon tho matt-0r in
controversy before him; and (b) that tho adjudicator by whom tho controversy between the parties
should be decided should be an impartial person
or body who would render the decision or award
after fully hearing the parties, and that no rnatt-0r
in controversy should be the subject of ex patle ~
decision by an interested party or without tho
disputants having an opportunity to know the
>,
•
•
3 S.C.R.
SUPREME COURT REPORTS
287
materials on which the decision is reached, as also
an opportunity to place their case with reference to
such material.
( 5) In regard to the right of la hour unions to
function effectively and to achieve the object of their
existence as set out earlier, by negotiated settlement or by compulsory adjudication, the only limitatio,ns permitted to be imposed by law are those set
out in cl.(4) of Art. 19 and unless, therefore, either
the objects of tho association or the manner of
achieving them are contrary to, or transgress public
order or morality, for which reason alone reasonable
restrictions might be imposed upon the guaranteed
right, the freedom gnarar,teed is absolute.
(6)
The lcgislat~on now impugned withdraws
as it were a vital issue in dispute between the parties before the adjudicator, viz., the capacity of the
industry to pay, from his cognisance and vests the
power of deciding that issue in the Reserve Bank
which is a biased and interested party, the decision
itself being rnndered ex parte, the trade unions
being deprived even of the knowledge of facts which
lead to the decision .
It was on this line of reasoning that learned
Counsel submitted that the impugned enactment
violated the freedom guaranteed by sub-cl. (c) of
cl. (1) of Art. 19 .
We shall now proceed to consider the soundness and tenability of the steps in the reasoning. It
is not necessary to discuss in any detail the first
step as sub-cl. (c) of cl. (l) of Art.