# RUS1'0M CAVASJEE COOPER v. UNION OF INDIA

- **Citation:** [1970] 3 S.C.R. 530
- **Court:** Supreme Court of India
- **Decided:** 1970-02-10
- **Case number:** Writ Petitions Nos. 222, 300 and 298 of 1969
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/rus1-0m-cavasjee-cooper-v-union-of-india-5062
- **Pages:** 32

## Headnote

530
RUS1'0M CAVASJEE COOPER
v.
UNION OF INDIA
February 10, 1970
A
(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 ofNature 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, 1969Section 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 o·r incidental
E
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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 prescrib-
~d 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 liabilit

## Text

_Characters 0–39,717 of 99,653. This is a partial read: ask again with offset=39717 for what follows._

530
RUS1'0M CAVASJEE COOPER
v.
UNION OF INDIA
February 10, 1970
A
(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 ofNature 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, 1969Section 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 o·r incidental
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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 prescrib-
~d 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 busi-
532
SUPREME COURT REPORTS
[1970) 3 S.C.R.
ness. 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
8
(vii) ·retrospe·ctive 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.
D
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~~.
v·warkadas 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
cir~umstances and the necessity to take immediate action on \\•hich the
.atisfactii>n depends. is not declared final.
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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
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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 busi-
~ess 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 conduch·e
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
non~banking 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 exp·rcssion "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 o·r 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 enact-
~u 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.
534
SUPREME COURT REPORTS
[1970] 3 S.C.R.
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 pe·rson
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~
autho~ity of the State to deprive a person df his property and of
the
po\ver to compulso·rity <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 E577 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\'-
A
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R. C. COOPER v. UNION
53 5
p~rty. 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 re4uirements 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
h~cause 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
Kavalappara Kottarathi Koclmni & Ors. v. St~te of Madras, [1960] 3
S.C.R. 887, S1va11ii Motor TrGnsporl Co. (P) "Ltd. v. ~ri Sankai-aswamigal
.\!1111, [1963] Supp. 1 S.C.R. 282, Maharana Slzri Javavantsingji v. State
.. ; Gujc.rat, [1962] Supp. 2 S.C.R. 41 l, 438, Ram Singh & Ors. v. State i!Jf
Delhi, [1951] S.C.R. 451, State of West Bengal v. Subodh Gopal, [1954}
S.C.R. 587, State of Bombay v. Blzanji Mun/i & Anr. [1966] 1 S.C.R.
-77. Babu Barkya Thakur v. State of Bombay, [1961] I S.C.R. 128, Smt •
. \itabati Debi v. State of West Bengal, [1967] 2 S.C.R. 940 and State of
.\fadlzya P~odesh v .. Ranojirao Shinde, [1968] 3 S.C.R. 489, referred to.
(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.
536
SUPREME COURT REPORTS
[1970) 3 S.C.R.
Early Fitzwilliani's WentH10rth Estates Co. v. Minister of Housing &:
Local Governmellt & Anr. (1952] 1 All E.R. 509, Saghir Ahmad v. State
of U.P. [1955] 1 S.C.R. 707, 727, RGsbihari Panda v. State of Orlssa
[1969] 3 S.C.R. :i74, Vrajlal Manila/ & Co. v. State of Madhya Pradesh &
Ors, [\970] 1 S.C.R. 400 and Municipal Committee Amritsar v. State of
Punjab, [1969] 3 S.C.R. 447, referred to.
(c) The restrictions imposed upon the right of the named Banks to
carry "non·banking'' business . were plainly unreasonable.
By s. 15(2)(") 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 non~banking 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]
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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. State of Bihar, [1955] 1 S.C.R. 1045, Shri Ra111
KriJhna Da!111ia '"
G
Shri Justice S. R. Te1u!olkar, [1959] S.C.R. 279 and S1af(' of Raja.Hhan v.
Mukancha11d, [1964] 6 S.C.R. 903, 910. referred to.
(v) The Act violated the guarantee of compensation under .Art. 31 (2)
in that it provided for giving certain amounts determined -according
to
principles which were not relevant in the determination 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
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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 1·iz., "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 awarded- as 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 Mangaldas·cases 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
538
SUPREME COURT REPORTS
(1970] 3 S.C.R.
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.
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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 provid·zd for deduction of a capital charge
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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 B605 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 o·r
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 ..
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"(' ''SUPREME . COURT REPORTS ..
[1970) 3 S.C.R.
. ---~--...+'---:----4- -
.F~r 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 .
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_ -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 in- the 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\\o·een sessions- the -
, _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 Prcsid~nt. 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.
S.C.R. 311 and Rohtas Industries case •. [1969] 3 S.C.R. 108; distinguished.
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(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]
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Under s.