REVIEWS

THE BANK NATIONALISATION CASE AND THE CONSTITUTION.

By R.S. Gae. N.M. Tripathi, Bombay. Pp. xxxii+346. Rs. 30.

NO SINGLE issue has so bedevilled relations between Parliament and the

Supreme Court as the ambit and substance of the constitutional protection
to property. The Supreme Court has repeatedly interpreted the property
provisions of the Constitution in a way that Parliament has found unaccept-
able and which it has been quick to alter by constitutional amendments.
Neither institution emerges with credit from this long-standing confronta-
tion. To insist, as the court has done, on upholding the sanctity of private
property is to ignore the realities and needs of contemporary Indian
society. To make an arguable case for downgrading the right to property
an excuse for an assault on other fundamental rights, as Parliament has
done, is to attempt to legitimise state tyranny.
The nationalisation of fourteen leading Indian banks in 1969 was the
occasion for the latest confrontation between Parliament and Supreme
Court on the property issue. 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.
There is a surfeit of literature on the right to property but the novel
approach of the book under review makes it worthy of interest. The author,
who is Law Secretary to the Government of India, has used the Bank
case as a framework for a critical analysis of the judicial interpretation of
the property provisions of the Constitution. While the author professes not
to take sides in the argument about the correctness of the judgment 2 it is
clear that his sympathies are with the critics. At times, one wishes that
the author had been more forceful in his comments.
The book deals with twelve important questions arising from the
judgment, some of which were left open by the court : (i) the constitutio-

1. R.C. Cooper v. Union of India, A.I.R. 1970 S.C. 564.

2. The author describes his aim as "providing a systematic, objective and
dispassionate analysis of the judgment". Gae, Bank Nationalisation Case And the
Constitution at 185 hereinafter referred to as Gae).

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nal validity of the ordinance which preceded the Act, (i7) the competence
of Parliament to enact the impugned legislation, (///) the competence of
Parliament to make laws with respect to acquisition of property under
entry 42 of the Concurrent List, (iv) the meaning of the expression
"banking" in entry 45 of the Union List and the subject-matter of
legislation to which the impugned Act was relatable, (v) the relationship
between articles 19(1)(/), 19(5), 31(1) and 31(2) of the Constitution,
(vi) the prohibition on the named banks from carrying on the business
of banking from the point of view of article 19(l)(g), (v/7) hostile discrimi-
nation in respect of the named banks under article 14, (v//7) the guarantee
under article 31(2) and "compensation" for acquisition of property, (ix) the
validity of the principles of compensation prescribed in the impugned Act,
(x) the validity of certain provisions giving retrospective operation to the
impugned Act, (xi) the validity of the provision empowering the central
government to give directions to the new banks and (x/7) the validity
of the provision empowering the central government to remove difficulties.
The device of using a case, even a landmark one, as a framework for
discussion of large legal issues has both advantages and drawbacks. The
factual situation in the case demarcates the frontiers of the discussion and
abstract concepts can be illustrated by actual judicial pronouncements.
On the other hand, each case turns upon its own facts and an attempt to
stretch the principles laid down in the particular case into broad generali-
zations, particularly on the larger issues, tends to distort those principles
and may lead to erroneous conclusions. The author has avoided this
danger by his restrained approach and also because the Bank case, covering
as it does almost every facet of the right to property, is eminently suited for
an overall analysis of this problem.
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 Gopalan3 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* However, in Kochuni5 the court held that article 31(1) and
19(1) were not mutually exclusive but Sitabati* continued the principle
with regard to article 31(2). In the Bank case the court held that articles

3. A.K. Gopalan v. State of Madras, A.I.R. 1950 S.C. 27.

4. State of Bombay v. Bhanji Munjit A.I.R. 1955 S.C. 41.
5. K.K. Kochuni v. State of Madras, A.I.R. 1959 S.C. 725.
6. Sitabati Debi v. State of West Bengal, (1967) 2 S.C.R. 949.

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1973] REVIEWS 167

19(1)(/) and 31(2) were not mutually exclusive. Thus all acts of depriva-
tion of property must satisfy not only the requirements of article 31 but
also the test laid down in article 19(5).
While there seems to be some justification for subjecting mere acts of
deprivation to the restriction of article 19(5) because the only safeguard
in article 31(1) is against executive action, the extension of this principle to
acquisition of property by the state rests on a weaker basis because of the
safeguards provided in article 31(2), particularly as acquisition for a public
purpose may be presumed to be reasonable restriction on the right to hold
property.1 It can also be argued that if the framers of the Constitution
had intended that every act of deprivation of property should meet the
test of "reasonable restriction" in the public interest nothing would have
been easier than to insert such a provision in article 31. Further, as has
been pointed out,8 the test of "reasonable restriction" is incapable of
generalization and what is reasonable must be determined on the facts and
circumstances of the particular case. A legislature embarking on a
massive programme of social and economic reform can have little guidance
as to the possible judicial view on the reasonable nature of a particular act
of deprivation of private property.
The question of the adequacy of compensation for property acquired
under article 31 (2) has received conflicting treatment at the hands of the
Supreme Court. Despite a specific constitutional amendment to remove
the question of the adequacy of compensation from judicial review, the
Supreme Court had doggedly stuck to the view that the compensation
required under article 31(2) was the just equivalent of the property
acquired as determined by the court.9 One of the grounds for taking
this view was that the legislature in retaining the word "compensation"
in the amended article 31(2) must be deemed to have accepted the judicial
interpretation of that expression in the pre-amendment cases.10 The
author has rightly pointed out that this ground ignores the rule in Heydon's
case that the mischief sought to be cured by the legislation must be taken
into account.11
In Shantilal Mangaldas11 the court expressly overruled Metal
Corporation and held that the question of the adequacy of compensation
could not be agitated in a court of law after the Fourth Amendment.
Despite this express pronouncement, the court in the Bank case reverted
to its earlier view that compensation must be just equivalent as interpreted

7. Supra note 1 at 596.

8. State of Madras v. V.G. Row, A.I.R. 1952 S.C. 196, 200.
9. Vajravelu Mudaliar v. Special Deputy Collector, A.I.R. 1965 S.C. 1017 ;
Union of India v. Metal Corporation of India, A.I.R. 1967 S.C. 637.
10. Vijravelu case, supra note 9 at 1028.
11. Gae at 126-130.
12. State of Gujarat v. Shantilal Mangaldas, A.I.R. 1969 S.C. 634. For a
Comment on this decision see Upendra Baxi, State of Gujarat v. Shantilal: A Requiem
for Just Compensation 9 Jaipur L.J. 29-97 (1969).

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168 JOURNAL OF THE iNbiAN LAW INSTITUTE [Vol. 15:1

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.
Article 31 (2) permits the legislature to either fix the quantum oi
compensation or to lay down the principles on which compensation must
be based. In all the cases, including the Bank case, in which the measure
of compensation has been held to be improper, the legislature has chosen
the alternative of prescribing the principles of compensation. The finding
in these cases was that the compensation was not based on "relevant
principles'' in the sense of being "appropriate in determining the value of
the class of property sought to be acquired". 14 As has been pointed out.16
however, this ultimately relates to the adequacy of compensation which is
beyond the pale of judicial review.
The author has suggested that if the quantum is fixed instead of
the principles being laid down, it would be difficult for a court to hold
that article 31 (2) was violated.16 This method was adopted in the new
Act which replaced the impugned Act and it is interesting that no challenge
was made to this new Act. However, one wonders whether, from the
point of view of the owner of the property, it is better to be kept in the
dark as to the principles on which his compensation is based or whether
the specification of those principles might not sweeten the pill. The
author has pointed out that the compensation originally fixed exceeded the
total market value of the shares of the named banks and has rightly
criticized the court for not giving an opportunity for evidence to be led
on this point.17 By any standard of justice, compensation of this level
can hardly be called inadequate.
To put an end to the controversy on the question of compensation
and to affirm the finality of the legislative valuation, the word "amount''
has now been substituted for the word "compensation*' in article 31 (2)18.
Since the ruling of the Supreme Court in the State Trading case19
that a corporation is not a citizen of India and the subsequent ruling in
Tata Engineering20 that a shareholder cannot enforce the company's
rights, companies have been denied the protection of the rights guaranteed

13. Supra note 1 at 608.

14. Id. at 609.
15. Seervai, The Bank Nationalization case 17-18 (University of Bombay,
1970).
16. Gae at 171-173.
17. Id. at 162463.
18. By the Constitution (Twenty-fifth) Amendment Act 1972. The validity of
this Amendment is being considered by the Supreme Court at the time of writing.
19. State Trading Corporation of India Ltd. v. Commercial Tax Officer, A.I.R.
1963 S.C. 1811.
20. Tata Engineering and Locomotive Co. Ltd. v. State of Bihar, A.I.R. 1965
S.C. 40.

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19?3] REVIEWS 169

under article 19. In the Bank case the court got round this difficulty by
holding that relief can be granted under article 19 on a shareholder's
petition if the state action impairs the rights of both the company and the
shareholders.21 Since these are distinct rights vested in different legal
persons, subtlety may be required in a particular case to make article 19
applicable. The author has rightly pleaded for extending the protection
of this article to companies and has suggested an amendment to the
Citizenship Act to confer the status of citizen on companies. 22
It is submitted that such a course may not be advisable as the whole
scheme of the Citizenship Act is peculiarly directed towards natural persons
and the Act would require major alteration to encompass artificial persons.
A constitutional amendment to bring companies within the scope of
article 19 or, better still, a reconsideration of the question by the Supreme
Court would be more advisable. The* court in the State Trading case
proceeded on the footing that the Citizenship Act expressly applies only
to natural persons and that companies can be nationals but not citizens.
The two expressions "nationality'' and "citizenship" are more or less
interchangeable and it is difficult to agree with the view of the court that
nationality is applicable only in the international law sense and citizenship
only in the municipal law sense. Whatever method is adopted to correct
the injustice done to companies there can be no doubt that there is a
strong case for extending the protection of article 19 to corporate entities.
Apart from anything else, this will obviate the necessity of making subtle
distinctions between the rights of a company and those of its shareholders
which the Supreme Court has been compelled to do.
The author concludes with an appeal for mutual accommodation
between the three branches of government. Every right-thinking person
must share in this appeal as the health of the body politic requires
cooperation between its various organs. A democratic system postulates
that the people must be final arbiters of their own destiny and that
decisions must be made by their chosen representatives in the light of
what they conceive to be in the best interest of the people. However,
power must be reposed in some authority to control the excesses of
legislators and administrators and such power under the Indian system is
reposed in the judiciary. One cannot help the feeling that in the Bank
case the Supreme Court went beyond its allotted role of umpire and gave
a decision which led directly to the enactment of the unfortunate Twenty-
Fifth Amendment, which gives the legislature untrammelled power to
interfere with fundamental rights on the basis of its own judgment as to
the nature of such action.
The book under review is a valuable addition to the growing

21. Supra note 1 at 585. This principle was affirmed in Bennett Coleman
and Co. Ltd v. Union of India, A.I.R. 1973 S.C. 106, 114-115.
22. Gae at 92-93.

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170 JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 15 :1

literature on Indian constitutional law. It is heartening to see highly-

placed officials joining the ranks of legal scholars. The author has cast
his net wide by covering questions which were not decided in the Bank
case and by introducing foreign decisions to support his arguments. The
book thus emerges as a comparative treatise on the right to property.
The inclusion of the texts of the judgment, the ordinance and the two
Acts in the form of appendices enhances the utility of the book. The
printing and get-up are of the high quality one has come to expect of the
publishers.
P.K. Irani*

Professor and Head, Department of Law, University of Bombay.

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