The validity of the nationalisation measure was challenged successfully in what has come to be

known as the Bank Nationalisation case.1 The Supreme Court, while upholding the competence of
Parliament to enact the measure, held the Act to be unconstitutional on the grounds that, in
prohibiting the named banks from carrying on banking and in reality any business, it made a hostile
discrimination against them in relation to other banks and that the "compensation" provided to the
named banks did not satisfy the requirements of article 31(2) of the Constitution. This article thus
attempts to critically revisit the landmark judgment and point out the core principles on which the
Court seemed to deviate from its original stance. It further sheds light on the developments which
resulted as immediate consequences of this decision, majorly upon the 25 th amendment, which gave
untrampled powers to the Court to interfere with the fundamental rights of the citizens.

Since Independence, the distribution of credit in rural areas was at a great low. This was because
of the inaccessibility of banks and other financial institutions in the rural areas. Therefore, in
order to target the rural area, the government schemed a plan to target the needy sectors. This
solution they devised was, Nationalization. The Indira Gandhi government in 1969 at the instance
of the then Acting President M. Hidayatullah promulgated the Banking Companies (Acquisition
& Transfer of Undertaking) Ordinance, 1969 nationalizing 14 banks. These 14 banks were
chosen on the basis that they had deposits exceeding 50 crores. The ordinance w.e.f. 19 July 1969
brought more than 75% banking sector under state control along with its assets, liabilities, entire
paid-up-capital. The most horrific and controversial part of the Ordinance was the second
schedule which it contained. 2 days later when Parliament came in session, it enacted the
Banking Companies (Acquisition & Transfer of Undertaking) Act, 1969 with the same provisions
as were in the Ordinance. Therefore, Rustom Cavasjee Cooper the majority shareholder of
Central Bank of India & Bank of Baroda filed a writ petition in Supreme Court u/a 32 for the
violation of his Fundamental Rights mentioned under articles 14, 19(1)(f) & 31(2).

Issues And Judgement : –

Whether a shareholder can file a petition on behalf of the company?

R. C. Cooper pleaded that, as a shareholder of the company, his fundamental rights were getting
violated due to the enactment of the said ordinance. Whereas, the respondent argued that a
company is a juristic body, and hence, it cannot claim fundamental rights, as also mentioned in The
Indian Citizenship Act, 1955[5].

Ultimately, in the verdict, the Supreme Court pronounced that the shareholder or director cannot
move to the courts for the protection of infringement of Fundamental Rights of the company
unless it is proved that by the impugned action his rights are also violated. The apex court
overruled the 20 years law laid down by K. Gopalan rejecting the mutual exclusivity theory. The
court held that the violation of citizen’s fundamental rights could not be ignored on mere
technicalities. The court by holding this laid down the Effect test and overruled the Object test.

Whether Schedule II of the ordinance was justified?

Schedule II of Ordinance provisioned that when the government will acquire any bank then the
compensation would be decided through an agreement. And if the agreement fails then such matter
shall be discussed in a tribunal. Moreover, after the verdict of the tribunal, the company would get
the compensation amount after 10 years. These 10 years would be counted from the date on which
the agreement would be declared failed.

This was the most controversial point of the ordinance. The Apex Court opined that the concept of
compensation after 10 years is completely illogical and baseless. And thus, the process of
compensation as mentioned in Schedule II is completely violative of the citizen’s fundamental rights.

Whether the act was violative of Articles 19(1), 13, and 31(2)?

The court found the impugned act in contravention of the Article 31 since the act failed to comply
with said provision. The said provision provided that the in case any property is acquired by the
government then they have to provide compensation to the property owner. Since there was clear
violation of the said provision therefore, the court struck down the said act. However, the court
upheld the validity of the act in the context of Article 19(1)(f). The court said that the act is not
violative of the freedom to carry trade & business. The justification for the said ruling that the
state can always create a partial and absolute monopoly. But the court held the said act in clear
violation of Article 14c since only these 14 banks were restrained from conducting banking
business n the future while other banks including the foreign banks were allowed to continue
Banking in India. The court this discrimination as a flagrant hostile discrimination.
On the two main issues in the case, namely, the relationship between articles 19 (1)(/) and 31(2),
and the measure of compensation to be provided for the compulsory acquisition of property, it is
difficult to sustain the majority judgment. On both these questions the court has gone contrary to its
own previous decisions while expressly dissociating itself from such intention. In the Gopalan 3 case
the court had ruled that a person deprived of his liberty under article 21 could not claim the
fundamental rights guaranteed by article 19(1) as these provisions were mutually exclusive. This
principle was extended to article 31 with respect to property in Bhanji Munji .4 However, in Kochuni
5 the court held that article 31(1) and 19(1) were not mutually exclusive but Sitabati 6 continued the
principle with regard to article 31(2). In the Bank case the court held th 19(F)(/) and 31(2) were no
tion of property must sa also the test laid down in While there seems to be deprivation to the restri
in article 31(1) is against e acquisition of property b safeguards provided in ar purpose may be
presumed property.7 It can also be had intended that every test of "reasonable restri been easier
than to inser been pointed out,8 the generalization and what i circumstances of the p massive
programme of so as to the possible judicial of deprivation of private p The question of the adeq
under article 31 (2) has re Supreme Court. Despite a the question of the adequ Supreme Court had
dog required under article acquired as determined this view was that the le in the amended article 3
interpretation of that author has rightly pointed case that the mischief sou into In Shantilal
Mangalda Corporation and held tha could not be agitated in Despite this express pron to its earlier
view th by the court and made the startling statement that its earlier decisions "converge in the
ultimate result".13 The author has rightly pointed out the difficulty of reconciling the Various
decisions of the Supreme Court on this question.

The Bank Nationalisation case indeed served as a landmark judgement for

guiding the Parliament, as well as the Constitutional jurisprudence of the
country for years to come. However, the aftermath of the judgement maybe
noted from the fact that the Parliament, in order to strengthen its position,
made the 25th Constitutional (Amendment) Act, in which the following points
were noted-

1. The word ‘compensation’ in Article 31(2) was replaced by the word

‘amount’. This meant that the Government was now not liable to
 pay an ‘adequate’ amount to the person whose property was being
acquisitioned as earlier.
2. Article 19(1)(g) was clearly detached from Article 31(2).
3. Article 31C, a new provision was added to the Constitution to
remove all difficulties that-
4. Articles 14, 19 and 31 are not to be applied to any law enacted
under the fulfilment of objectives laid down under Articles 39(b) and
39(c).
5. Any law to give effect to Articles 39(b) & 39(c) will be immunized
from Court’s intervention.