http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 108  

PETITIONER: RUSTOM CAVASJEE COOPER

       Vs.

RESPONDENT: UNION OF INDIA

DATE OF JUDGMENT: 10/02/1970

BENCH: SHAH, J.C. BENCH: SHAH, J.C. SIKRI, S.M. SHELAT, J.M. BHARGAVA, VISHISHTHA MITTER, G.K. VAIDYIALINGAM, C.A. HEGDE, K.S. GROVER, A.N. RAY, A.N. REDDY, P. JAGANMOHAN DUA, I.D.

CITATION:  1970 AIR  564            1970 SCR  (3) 530  1970 SCC  (1) 248  CITATOR INFO :  F          1972 SC 106  (20,21,22,41,42,105)  RF         1972 SC1660  (9)  F          1973 SC 602  (44,46)  RF         1973 SC 974  (5,9,10)  RF         1973 SC1425  (28,39)  RF         1973 SC1461  (413,435,601,605,711,712,1033,  R          1974 SC1300  (24)  R          1974 SC2077  (17)  RF         1974 SC2098  (22,28)  RF         1974 SC2154  (21)  R          1974 SC2192  (131)  F          1975 SC  32  (30,32)  R          1975 SC 550  (12)  RF         1975 SC1699  (4,10)  RF         1975 SC2299  (606)  R          1976 SC1031  (17)  RF         1976 SC1207  (53,57,58,59,274,450,458,518,5  RF         1977 SC 915  (8)  R          1978 SC 215  (15,41,73,74,75,76,79,85)  R          1978 SC 597  (9,40,41,54,55,68,68A,118,131,  R          1978 SC 803  (30,34)  RF         1979 SC  25  (35)  E&R        1979 SC 248  (9,15,16,19,27)  RF         1979 SC 478  (101)  RF         1979 SC1925  (16)  R          1980 SC 898  (41,45,47,57,61)  RF         1980 SC1789  (36)  F          1980 SC1955  (16)  RF         1981 SC 234  (99)  RF         1981 SC1597  (3)  F          1982 SC 697  (20)  R          1982 SC 710  (16,71,87)  MV         1982 SC1325  (80)  R          1983 SC   1  (71)  R          1983 SC 473  (6,24)

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 108  

R          1983 SC 937  (12,31)  R          1983 SC1190  (14)  R          1984 SC 774  (9,15)  RF         1984 SC1178  (17)  D          1984 SC1346  (5)  D          1985 SC1416  (103,104)  R          1985 SC1737  (13)  RF         1986 SC 468  (26,28,30,31)  RF         1986 SC 555  (6)  RF         1986 SC 872  (77)  R          1986 SC1466  (11)  D          1987 SC 579  (8)  RF         1987 SC1706  (2)  RF         1988 SC 151  (13)  RF         1988 SC 782  (50)  RF         1988 SC1208  (27)  RF         1988 SC1353  (18)  D          1988 SC1737  (53)  RF         1989 SC 389  (6)  F          1989 SC1629  (16)  R          1991 SC 101  (32,259)  RF         1991 SC 855  (21)  F          1992 SC1701  (26,27)

ACT: Banking Companies (Acquisition and Transfer of Undertakings) Act  22  of 1969-Sections 4, 5, 6, 15(2)  and  Schedule  II- Fundamental rights, infringement of-Legislative  competence- Constitution of India, Arts. 14, 19 and 31 (2), Entries  43, 44, 45 List I, Entry 42 List III Seventh Schedule. Constitution  of  India,  1950,  Art.   14-Equality--Banking Companies  (Acquisition  and Transfer of  Undertakings)  Act 1969, s. 15(2)-Statute permitting Banks to do business other than Banking but practically preventing them from doing not- banking business--If discriminatory. Constitution  of  India, 1950, Art. 19(1) (f) cl.  (6)  (ii) anel 19(1) (g)- Banking Companies  (Acquisition and Transfer of Undertakings)    Act, 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  non- banking business-If unreasonable. Constitution  of  India, 1950, Arts. 19(1)(f)  and  31(2)-If mutually -exclusive. Constitution of India, 1950, Art. 31(2)-Compensation-Meaning of compensation-Undertaking-Acquisition as a unit-Principles of valuation-Justiciability of compensation. Constitution of India, 1950, Art. 123-Ordinance-Promulgation of Nature of power conferred by Article. Constitution  of  India, 1950,  Art.  32--Banking  Companies (Acquisition  and Transfer of Undertakings)  Act,  1969-When shareholder  can  move  petition for  infringements  of  the rights of the Company. Legislative  competence-Entry 45 List I, Entry 42, List  III Seventh  Schedule-"Banking", meaning  of-"Property"  meaning of-Banking   Companies   (Acquisition   and   Transfer    of Undertakings-)  Act, 1969 Section  4-"Undertaking",  meaning of-Validity of law acquiring undertaking.

HEADNOTE: On  July  19,  1964, 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 108  

vesting the undertaking of 14 named Commercial Banks,  which held  deposits of not less than rupees fifty crores, in  the corresponding   new  Banks  set  up  under  the   Ordinance. Petitions challenging the constitutionality of the Ordinance were  lodged  in  this Court, 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 Undertakings of certain banking companies in order to  serve better the needs of development of the economy in conformity with  the  national policy and _objectives and  for  matters connected therewith or incidental 531 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 vested 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 11  provided  for and prescribed the method  of  determining compensation    for   acquisition   of   the    undertaking. Compensation to be determined 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  11  of  the  Act,  the  amount   of compensation  was to be deemed to be a single  compensation. Under Schedule 11 the compensation payable was to be the sum -total  of  the value of the assets under the heads  (a)  to (h), calculated in accordance with the provisions of Part  I less  the  sum  total of  the  liabilities  and  obligations calculated  in  accordance with the provisions of  Part  11. The  corresponding new 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 It 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.  (1)  ascertained value"’ in respect of buildings wholly occupied on the  date of  the commencement of the Act was to be twelve  times  the amount  of  annual rent 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 with reference to the price at which sale or purchase of comparable’lands were made  during the   period  of  three  years  immediately  preceding   the commencement  of  the  Act.   The  compensation  was  to  be determine(1), in the absence of agreement, by a tribunal 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 32 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 23  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 108  

the  State  Legislature and (b) the power to  legislate  for acquisition of property in entry 42 List III did not include the power to legislate for acquisition of an undertaking; (iii)     Articles  19(1)(f)  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 ness, impaired the freedoms guaranteed by Articles 19(1) (f)               and (g); (iv) the  provisions of the Act which prohibited  the  named Banks  from  carrying on banking  business  and  practically prohibited  them  from  carrying  on  non-banking   business violated  the  guarantee  of  equal  protection  and   were, therefore, discriminatory; (v)  the  Act violated the guarantee of  compensation  under Article 31(2); (vi) the  Act  impaired the guarantee of ’freedom  of  trade under Article 301; and (vii)     -retrospective  operation given to Act 22 of  1969 was  ineffective  since  there was  no  valid  Ordinance  in existence  and  the  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 of India a preliminary objection  was raised that the petitions were 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. HELD   :   (Per  Shah,  Sikri,  Shelat,   Bhargva,   Mitter, Vaidialingam Hegde, Grover, Reddy and Dua, JJ.) 1. The petitions were maintainable. A  company  registered under the Indian Companies Act  is  a legal  person,  separate and distinct  from  its  individual members.  Hence a shareholder, 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 rights 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 Corporation of India Ltd.  Ors.  v.  The Commercial  Tax  Officer,  Visakhapatnam &  Ors.,  [1964]  4 S.C.R.  99 and Tata Engineering and Locomotive Co.  Ltd.  v. State   of  Bihar  and  Ors.,  [1964]  6  S.C.R.  885   held inapplicable. Dwarkadas  Shrinivas v. The Sholapur Spinning & Weaving  Co. Ltd. and Ors., [1954] S.C.R. 674 and Chiranjit Lal  Chowdury v. The Union of India" [1950] S.C.R. 869, referred to. 2.   (i)  Exercise of the power to promulgate  an  Ordinance under  Article  123  is strictly  conditioned.   The  clause relating to the satisfaction is composite; the  satisfaction relates to the existence of circumstances, as well as to the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 108  

necessity  to  take  immediate action on  account  of  those circumstances.   Determination  by  the  President  of   the existence  of  circumstances  and  the  necessity  to   take immediate  action on which the satisfaction depends, is  not declared final. 533 [Since the Act was declared invalid no opinion was expressed on  the extent of the jurisdiction of the court  to  examine whether  the  condition  relating  to  satisfaction  of  the President was fulfilled.] [559 H-560 B; 561 G] (ii) Act 22 of 1969 was within the legislative competence of Parliament. The competence of Parliament is not covered in its  entirety by  entries 43 and 44 of List I of the Seventh Schedule.   A law  regulating the business of a corporation is not  a  law with respect to regulation of a corporation. [563 B] Parliament has exclusive power to legislate with respect  to "Banking"  in  entry  54 List I. A  legislative  entry  must receive a meaning conducive to the widest amplitude  subject to   limitations  inherent  in  the  federal  scheme   which distributes  legislative  power between the  union  and  the constituent  units.  But, the field of "banking"  cannot  be extended  to  include trading activities  which,  not  being incidental  to banking, encroach upon the substance  of  the entry "trade and commerce" in entry 26 List II. It cannot be said that all forms of business described in s. 6(1) of  the Banking  Regulation  Act,  1949, cls. (a)  to  (n)  are,  if carried  on in addition to banking as defined in s. 5(b)  of the  Act,  banking,  and that  Parliament  is  competent  to legislate  in respect that business under entry 54  List  I. [565 D, 566 D] The contention that Parliament was incompetent to  legislate for  acquisition of the named Banks in so far as it  related to  assets of the non-banking business had to fail  for  two reasons  :  (a) there was no evidence that the  named  Banks held  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. [568E] Power to legislate for acquisition of "Property" in entry 42 List III includes the power to legislate for acquisition  of an undertaking.  The expression "property" in entry 42, List III, has a wide connotation and it includes not only assets, but the Organisation, liabilities and obligations of a going concern as a unit.  The expression "undertaking" in  section 4  of  the Act clearly means a going concern  with  all  its rights, liabilities and assets as distinct from the  various rights  and  assets which compose it.  The  obligations  and liabilities  of  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 enacted for compulsory acquisition  of an undertaking as defined in s. 5 of the Act. [568 B-D] There was no satisfactory proof in support of the plea  that the Act was not enacted in the larger interest of nation but to  serve  political ends.  Whether by the exercise  of  the power  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, 584 H] Commonwealth  of Australia v. Bank of New South Wales,  L.R. [1950] A.C. 235 and Rajahmundry Electric Supply  Corporation Ltd. v. The State of Andhra, [1954] S.C.R. 779, referred to.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 108  

(iii)     (a)  Articles 19(1)(f) and 31(2) are not  mutually exclusive. 534 Under  the  Constitution the extent  of  protection  against impairment  of a fundamental right is determined not by  the object of the legislature nor by the form of the action, but by its direct operation upon the individual’s tights. [576C] In  this Court, there is, however. a body di authority  that the  nature and extent of the protection of the  fundamental rights is measured not by the 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 allotted 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  person  may  claim  is circumscribed by the object of the State action.  The  deci- sion in A. K. Gopalan v. The State of Madras, [1950]  S.C.R. 88, given early in the history of the Court. has formed  the nucleus  of  this  theory.   The  principle  underlying  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(1)(f) and 31(2) were mutually exclusive in their operation and that the substantive provisions of a law 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 Kavalappara Kochuni v. State of Kerala, [1960] 3 S.C.R.  887, there arose two divergent lines of authority  : (i)  "authority  of law" in Art. 31 ( 1 ) is  liable  to  be tested  on  the ground that it  violates  other  fundamental rights  and  freedoms including the right to  hold  property guaranteed ’by Art. 19(1)(f); and (ii) "authority of a  law" within the meaning of Art. 3 1(2) is not liable to be tested on  the ground that it impairs the guarantee of Art. 19(  1) (f),  in  so  far as  it  imposed  substantive  restrictions through  it  may be tested on the ground  of  impairment  of other  guarantees.  The expression "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 the  aggrieved party  may claim is not consistent with  the  constitutional scheme.  Clause (5) of Art. 19 and cls. (1) & (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.  31(1)  &  (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 of   the  limitations  under  the  two  provisions  is   not different.  Clause (5) of Art. 19 and cls, (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  cls. (1) & (2) of Art. 31 dealing with the  limitations which  may be placed by law subject to which the rights  may be  exercised.   Limitations  prescribed  for  ensuring  due exercise  of the authority of the State to deprive a  person of his property and of the power to compulsorily acquire his property are, therefore, specific classes of limitations  on the right to property falling within Art. 19(1)(f).  In  the Constitution  the enunciation of rights either expressly  or by  implication does not follow a uniform pattern.  But  one

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 108  

thread  runs through them; they seek to protect the  ’rights of   the  individual  or  groups  of   individuals   against infringement of those rights within specific limits.  [576E- 577 G] Formal compliance with the conditions under Article 31(2) is not  sufficient to negative the protection of the  guarantee of the right to pro-                             535 perty.   The validity of "law" which authorises  deprivation of   property  and  a  "law"  which  authorises   compulsory acquisition  of  property  for  a  public  purpose  must  be adjudged by the application of the same tests.   Acquisition must  be  under the authority of a law  and  the  expression ’law"  means  a law which is within the  competence  of  the legislature and does not impair the guarantee of the  rights in  Part  III. if property is compulsorily  acquired  for  a public  purpose and the law satisfies the  ’requirements  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 imposed in the interest  of  the general public.  This is so, not because the claim to  plead infringement  of the fundamental right under  Art.  19(1)(f) does not avail the owner; it is because the acquisition  im- poses  permissible restriction on the right of the owner  of the, property compulsorily acquired. [577 H-578 D] The  assumption  in A. K. Gopalan v. The  State  of  Madras, [1950] S.C.R. 88, held incorrect. [578 E] Kavalappara  Kottarathi Kochuni & Ors. v. State  of  Madras, [1960] 3 S.C.R. 887, Swami Motor Transport Co.. (P) Ltd.  v. Sri  Sankaraswamigal  Mutt,  [1963]  Supp.   1  S.C.R.  282, Maharana  Shri  Javavantsingji v. State of  Gujarat,  [1962] Supp. 2 S.C.R. 411, 438, Ram Singh & Ors. v. State of Delhi, [1951]  S.C.R.  451, State of West Bengal v.  Subodh  Gopal, [1954] S.C.R. 587.  State of Bombay v. Bhanji Munji  &  Anr. [1966] 1 S.C.R. 777, Babu Barkya Thakur v. State of  Bombay, [1961]  1 S.C.R.. 128, Smt. Sitabati Debi v. State  of  West Bengal,  [1967] 2 S.C.R.940 and State of Madhya  Pradesh  v. Ranojirao Shinde, [19681 3 S.C.R.489, referred to. (b)  The law which prohibited, after July 19,  1969,the named  Banks  from  carrying on banking  business,  being  a necessary incident of the right assumed by the Union,  could not  be challenged because of Art.19(6)(ii) in so far as  it affected the right to carry on business. [583 C] Clause (6) of Art. 19 consists of two parts : (i) -the right declared  by  sub-cl.  (g)  is  not  protected  against  the operation  of  any  law imposing, in the  interests  of  the general  public, reasonable restrictions on the exercise  of the  right  conferred  by  that  sub-clause;  and  (ii)   in particular sub-cl. (g) does not affect the operation of. any law relating inter alia, to carrying on by the State or by a Corporation owned or controlled by the State, of any. trade, business,  industry  or  service whether  or  not  such  law provides   for  the  exclusion,  complete  or  partial,   of citizens.   It  cannot  be  held  that  the  expression  "in particular"   used  in  cf.  (6)  is  intended’  either   to particularise  or to illustrate the general law set  out  in the  first limb of the clause and, therefore, is subject  to the  enquiry whether it imposes reasonable  restrictions  on the  exercise  of the right in the interest of  the  general public.  The rule enunciated by this Court in Akadasi Padhan v.  State of Orissa, [1963] Supp. 12 S.C.R. 691, applies  to all  laws  relating to the carrying on by the State  of  any trade,  business,.  industry  or  service.   The  basic  and essential  provisions  of  law  which  are  "integrally  and essentially  connected"  with the carrying of trade  by  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 108  

State wilt not be exposed to the challenge that they  impair guarantee  under  Art. 19(1)(g), whether  the  citizens  are excluded  completely  or  partially from  carrying  on  that trade, or the trade is competitive.  Imposition of  restric- tions which are incidental or subsidiary to the carrying  on of  trade  by  the State whether to  the  exclusion  of  the citizen  or not must however. satisfy the test of  the  main limb of the Article. [580 F, H; 581 H] Akadasi  Padhan  v. State of Orissa, [1963] Supp.  2  S.C.R. 691,. followed. 536 Early  Fitzwilliam’s  Wentworth Estates Co. v.  Minister  of Housing  &  Local Government & Anr. [1952] 1 All  E.R.  509, Saghir  Ahmad  v. State of U.P. [1955] 1  S.C.R.  707,  727, Rasbihari  Panda  v., State of Orissa [1969] 3  S.C.R.  374, Vrajlal  Manilal  & Co. v. State of Madhya  Pradesh  &  Ors. [1970]  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) (e) of the Act the Banks were entitled to engage in business other than banking.  But a business organisation deprived   of  its  entire  assets  and   undertaking,   its managerial and other staff, its premises and its name,  even if it had a right to carry on non-banking business 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 carrying on of a business are so  stringent that  the business cannot, in practice, be carried  on,  the Court   will  regard  imposition  of  the  restrictions   as unreasonable. [579 F, 586 H] Mohammad  Yasin  v. Town Area Committee,  Jalalabad  &  Anr. [1952]  S.C.R.  572  and  Dwarkadas  Shrinivas  v.  Sholapur Spinning  &  Weaving Co.  Ltd. & Ors.,  [1954]  S.C.R.  674, referred to. (iv) When,   after   acquiring  the   assets,   undertaking, organisation, goodwill and the 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  discri- mination  is  practised.  There is no  explanation  why  the named  Banks are specially selected for being  subjected  to this  disability.   Section 15(2) of the  Act-which  by  the clearest   implication  prohibited  the  named  Banks   from carrying  on  banking business is, therefore, liable  to  be 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 preventing  the  named  Banks from  carrying  on  nonbanking business. [590 E-H] [In  the  absence  of any reliable data the  Court  did  not express any opinion on the question whether selection of the undertaking  of  some out of many banking  institutions  for compulsory  acquisition  is  liable to  be  struck  down  as hostile discrimination.] [589 F] Chiranjit Lal Chowdhuri v. The Union of India, [1950] S.C.R. 869.  State of Bombay v. F. N. Balsara, [1951]  S.C.R.  682, State of West Bengal v. Anwar Ali Sarkar, [1952] S.C.R. 284, Budhan Choudhry and Ors. v. State of Bihar, [1955] 1  S.C.R. 1045,  Shri  Ram  Krishna  Dalmia  v.  Shri  Justice  S.  R. Tendolkar,  [1959]  S.C.R.  279 and State  of  Rajasthan  v.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 108  

Mukanchand, [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 of compensation of the undertaking  of the named Banks and by the method prescribed the amounts  so declared could not be regarded as compensation. [610 F] In  P.  Vajravelu  Mudalkar  v.  Special  Deputy  Collector, Madras,  [1965] 1 S.C.R. 614, and in the cases following  it arising under statutes enacted. 537 after  the  coming into force of  the  Constitution  (Fourth Amendment)  Act,  1955 this Court held that  the  expression compensation  in Art. 31(2) after the  Constitution  (Fourth Amendment) Act continued to have the same meaning it had  in Art. 31(2) before it was amended viz., "just equivalent"  or "full  indemnification".   But this Court in Tile  State  of Gujarat  v.  Shantilal  Mangaldas,  [1969]  3  S.C.R.   341, observed that compensation payable as compulsory acquisition of  property was 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 determination of  value of lands, buildings, machinery and other classes of property differed,   and  the  application  of  several  methods   or principles lead to 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  was awarded as a result of  the  application  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 would be in clear  violation of   the  constitutional  declaration  that  inadequacy   of compensation  provided is not justiciable.   Notwithstanding the  difference in Vajravelu and Shantilal  Mangaldas,  both the lines of thought, which converge in the ultimate result, support the view that the principle specified by the law for determination   of  compensation  is  beyond  the  pale   of challenge,  if  it  is  relevant  to  the  determination  of compensation and is a recognised principle applicable in the determination  of  compensation  for  property  compulsorily acquired and the principle is appropriate in determining the value  of the class of property sought to be  acquired.   On the  application  of  the view expressed  in  Vajravelu  and Shantilal  Mangaldas cases the Act had to be struck down  as it  failed  to provide the expropriated  Banks  compensation determined according to relevant principles. [594 G, 595  C, 598 F-H] P.   Vajravelu Mudaliar v. Special Deputy Collector, Madras, [1965] 1 S.C.R. 614 and State of Gujarat v. Mangaldas & Ors. [1969] 3 S.C.R. 341 applied. Attorney-General  v.  De Keyser’s Royal Hotel,  L.R.  [1920] A.C. 508. State of West Bengal v. Mrs. Bela Banerjee, [1954] S.C.R.  558, N. B. Jeejeebhoy v. Assistant Collector,  Thana Prant,  [1965]  1 S.C.R. 636. Union of  India  v.  Kamalabai Harjiwandas  Parekh  & Ors., [1968] 1 S.C.R. 463,  Union  of India  v. Metal Corporation of India, [1967] 1  S.C.R.  255, State  of Madras v. D. Namasivaya Mudaliar, [1964] 6  S.C.R. 936,  Lachman Dass v. Municipal Committee, Jalalabad  A.I.R. 1969 S.C. 1126, Trego v. Huni, L.R. [1896] A.C. 7, State  of Bihar  v. Maharajadhiraja Sir Kameshwar Singh of  Darbhanga, [1952] S.C.R. 889 and Bombay Dyeing & Manufacturing Co. Ltd. v. State of Bombay, [1958] S.C.R. 1122. referred to. There are different methods applicable to different  classes of property and a method appropriate to the determination of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 108  

value  of one class of property may be wholly  inappropriate in  determining  the value of another  class.   A  principle specified by Parliament for determining compensation for the property  to be acquired is not conclusive.  But if  several principles   are  appropriate  and  one  is   selected   for determination  of the value of the property to be  acquired, selection  of  that  principle to  the  exclusion  of  other principles is not open to challenge, for, the selection must be left to the wisdom of the Parliament. [599 C, F] The  object  underlying the principles of  valuation  is  to award,  the  owner the equivalent of his property  with  its existing advantages and its 538 potentialities.   Where there is an established  market  for the  property  acquired the problem  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, including  the  benefit  of advantages present  as  well  as future,  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 facie not a method relevant to the determination of compensation for acquisition of  the undertaking, for, the aggregate value of the component-,  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 was liable to  be  declared invalid  for  it impaired the constitutional  guarantee  for payment of compensation for acquisition of property by  law. [601 D] 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 as a  going  concern,  the principles  specified did not give a true recompense to  the bank  for loss of the undertaking.  In determining the  com- pensation for the undertaking (i) certain important  classes of  assets were omitted from the heads (a) to (h); (ii)  the method  specified for valuation of lands 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 was also irrelevant. 1602 B] The  undertaking of a Banking Company taken once as a  going concern would ordinarily include the good-will 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 important components of  the undertaking such as the good-will and the  value  of the unexpired period of cases would not be compensation  for the  undertaking.   The  view of  this  Court  in  Vajravelu

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 108  

Mudaliar  that  exclusion  of potential  value  amounted  to giving  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 B] Trego v. Hunt, L.R. [1896] A.C. 7, referred to. Making a provision ’for 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  market.   Again,  the annual rent was reduced by several outgoings and the balance was capitalised.  The vice of items (v) & (vi) of cl. (1) of Explanation  2  was that they provided for  deduction  of  a capital charge                             539 out  of  the annual rental which according  to  no  rational system  of valuing property by capitalisation of the  rental method  was  admissible.   The method provided  by  the  Act permitted   the  annual  interest  on  the  amount  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 computing 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 value  determined by the method of capitalisation of  annual rent   or  market  value  whichever  was  less.   The   Act, therefore,   did  not  specify  a  relevant  principle   for determination of compensation for lands and buildings.  [604 B605 B, 606 B-607 F] The  deficiencies  in  the  Act did  not  result  merely  in inadequate  compensation within the meaning of  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  value  determined  is  not compensation.   Therefore, determination of compensation  to be  paid  for the acquisition of an undertaking  as  a  unit after awarding compensation :for some items which go to make up the under-, taking and omitting important items  amounted to adopting an irrelevant principle in the determination  of the   value   of  the  undertaking  and  did   not   furnish compensation to the expropriated owner. [607 H, 608 E] 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 of the bonds is not approximately equal to the face value, the expropriated owner may raise  a grievance that the guarantee under Art. 31 (2) is  impaired. [609 D-E]

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 108  

[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 of one or  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  aggregating  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 B] 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.. 540 For the same reason the court did not consider the  validity of the retrospective operation given to the Act by ss. 1 (2) and 27.] [609 H] Section  4  is  the kingpin in the  mechanism  of  the  Act. -Sections  4,  5  and 6 read with Sch. 11  provide  for  the statutory  transfer  and vesting of the undertaking  of  the named  banks in the corresponding new batiks  and  prescribe the method of determining of compensation for  expropriation of  The  undertaking.   Those provisions are  void  as  they impair the fundamental guarantee under Art. 31(2).  Sections 4,  5 and 6 and Sch. 11 are not 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 since the  petitions were heard on merits.] (i)  The interpretation of Article 123 is 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  President who the executive  head  and  the circumstances contemplated in the Article are a guide to the President for exercise of such power.  Parliament is not  In session  throughout  the year and during  the  gaps  between sessions the legislative power of promulgating Ordinance  is reposed   in  the  Presidence,  in  cases  of  urgency   and emergency.  The President is the sole, judge whether he will make  the Ordinance.  The President under Article  74(1)  of the  Constitution, acts on the advice of Ministers  who  are responsible  to  Parliament  and under  Article  74(2)  such advice  is  not  to  be enquired into  by  any  Court.   The Ordinances  promulgated  under Article 123, are  limited  in life  and the Ordinance must be laid before  Parliament  and the  life  of the Ordinance may be further  shortened.   The President,  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 it  an  objective test is applied the  satisfaction  of  the President  contemplated in the Article will be shorn of  the power of the President himself and as the President will  be acting on the advice of Ministers it may lead to  disclosure of facts which under Article 75(4) are not to be  disclosed.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 108  

For these reasons it had to he held that the satisfaction of the President under Article 123 is subjective. [657 D-H] The only way in which the exercise of power by the President can be challenged is by establishing bad ’faith or mala fide or  corrupt motive.  The fact that the Ordinance was  passed shortly  before the Parliament session -began, did not  show any mala fide.  Besides, the respondent was not called  upon to meet any case of mala fides. [659 G] Bhagat  Singh v. King Emperor, 58 I.A. 169, King Emperor  v. Sibnath Banerjee, 72 I.A. 241, Lakhi Narayan Das v. Province of  Bihar,  [1949]  S.C.R.  693,  Liversidge  v.  Sir   John Anderson,  [1942] A.C. 206, Point of Ayr Collieries Ltd.  v. Lloyd-George,  [1943] 2 All E.R. 546 and Carltona,  Ltd.  v. Commissioners  of  Works,  [1943] 2  All  E.R.  5610,  Hugli Electricity Co., Ltd. v. Province of Bombay, 76 I.A. 57  and Padfield  v.  Minister of Agriculture, Fisheries  and  Food, [1968] 1 All E.R. 604, referred to. Barium Chemicals Ltd. v. The Company Law Board, [1966] Supp. S.C.R. 311 and Rohtas Industries case, [1969] 3 S.C.R.  108, distinguished. (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 List III     (Acquisition          and requisitioning  of property) and entry 45 List  I  (Banking) and  it did not trench upon entry 26 List II, namely,  trade and ,commerce within the State. [633 D-F] 541 Under s. 6(1) of the Banking Regulation Act, 1949, the  four types of businesses, namely, (i) the receiving of scrips  or other valuables on deposit or for safe custody and providing of safe deposit vaults, (ii) agency business, (iii) business of guarantee, giving of indemnity and underwriting and  (iv) business  of acting as executors and trustees,  disputed  by the petitioner not to be banking business, are recognised as legitimate  forms  of business of a  banking  company.   The provisions   contained   in  s.  6(1)  are   the   statutory restatement of the gradual evolution, over a century, of the various kinds of business of banking companies.  By cl.  (n) of  s. 6(1), in addition to the forms of business  mentioned in cls;. (-a) to (n), a banking company may engage in "doing all such other things as are incidental or conducive, to the promotion  or advancement of the business of  the  company". The  words  "other  things" ’appearing  in  cl.  (n),  after enumerating  the  various types of business in cls.  (a)  to (n),  point to the inescapable conclusion that the  business mentioned in cls. (a) to (n) are all incidental or conducive to  the  promotion or advancement of the  business  or  the, banking company.  Entry 45 in List I of Seventh Schedule  is only "banking" and it does not contain any qualifying  words like "the conduct of business" occurring in entry 38 of  the Government of India Act, 1935.  "Banking will therefore have the  wide  meaning to include all legitimate business  of  a banking company referred to in s. 5(b) as well as in s. 6(1) of  the 1949 Act.  Further, the restriction contained in  s. 6(2) of the 1949 Act that no banking company shall engage in any form of business other than those referred to in  sub-s. (1) establishes that the various types of business mentioned in  sub-s. (1) are, normal recognised business of a  banking company  and, as such, are comprised in the  Undertaking  of the bank. [624 F, 625 F-G, 627 D-E] Tennant v. The Union Bank of Canada, [1894] A.C. 51, Banbury v.  Bank  of  Montreal, [1918]  A.C.  624,  Commonwealth  of Australia and Others v. Bank of New South Wales and  Others, [1950] A.C. 235, Bank of Chettinad v. T.C. of Colombo [1948] A.C.  378  P.C., United Dominions Trust  Ltd.  v.  Kirkwood,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 108  

[1966] 1 Q.B. 783, United Provinces v. Mst.  Atiqa Begum and Others,  [1940]  F.C.R. 110 and Union  Colliery  Company  of British Columbia v. Bryden, [1899] A.C. 580, referred to. The  Undertaking of a banking company is property which  can be validly acquired under Article 31(2) of the Constitution. The  word  " property" should be given a  liberal  and  wide connotation and would take in those well recognised types of interest  which  have  the insignia  or  characteristics  of proprietary  right.  By Undertaking of a bank is  meant  the entire  integrated Organisation consisting of all  property, movable or immovable and the totality of undertaking is  one concept   which   is  not  divisible  into   components   or ingredients. [635 H, 636 D] Gardner v. London Chatham and Dover Railway Co., [1867] Vol. II  Chancery  Appeals  201, Re :  Panama,  New  Zealand  and Australian  Royal  Mail Company, Re :  Portsmouth  (Kingston Fratton and Southsea) Tramsway Co., [1892] 2 Ch. 362, H.  H. Vivian  and  Company  Ltd., [1900] 2  Ch.  654,  Doughty  v. Lomagunda  Reefs  Ltd. [1902] 2 Ch.  D.  837.  Minister  for State for the Army v. Datziel, 68 C.L.R. 261,  Commissioner, Hindu  Religious  Endowments,  Madras  v.  Sri   Lakshmindra Thirtha  Swamiar of Sri Shirur Mutt, [1954] S.C.R. 1005  and J. K. Trust Bombay v. The Commissioner of Income-tax  Excess Profits Tax, Bombay [1958] S.C.R. 65, referred to. State of Madhya Pradesh v. Ranojirao Shinde & Anr., [1968] 3 S.C.R. 489, held inapplicable. 542 (iii)     (a) Article 19(1) (f) and (g) do not at all  enter the domain of Art. 31(2). The view of this Court in Kavalappar Kochunni  v.  Slate  of Madras ;and Sitabati Devi v. State of West Bengal was;  that Art.  31(2),  after the Constitution Fourth  Amendment  Act, 1955,  related  entirely to acquisition  or  requisition  of property  by  the State and was totally distinct  from  .the scope  and content of Art. 31(1) with the result  that  Art. 19(1)(f)   ,did  not  enter  the  area  of  acquisition   or requisition  of property by the .State.  Again, in State  of Gujarat   v.  Shantilal  Mangaldas  the  Court  observed   : ["Sitabati  Devi] unanimously held that the validity of  the Act  ,relating  to  acquisition and  requisition  cannot  be questioned on the ground ’hat it offended Art. 19(1)(f)  and cannot  be decided by the criterion ,under  Article  19(5)". [621 C. H] The provisions of the Constitution are to be interpreted  in a  harmonious  manner,  that  is,  each  provision  must  be rendered  free  to  operate  with full  vigour  in  its  own legitimate field.  If acquisition or requisition of property for  a  public  purpose has to satisfy  again  the  test  of reasonable  restriction  in  the  interest  of  the  general public,  harmony is repelled and Art. 31(2) -becomes a  mere repetition  and  meaningless.  A reasonable  restriction  is inherent and implicit in public purpose.  That is why public purpose is dealt with separately in Art. 31 (2).  It will be pedantry  to say that acquisition for public purpose is  not in the interest of the public.  Articles 31(2) and 31(2)(A.) form  a self contained code, because : (i) it  provides  for acquisition or requisition with authority of a law; (ii) the acquisition  or requisition is to be for a  public  purpose; (ii)  the  law  should provide for  compensation;  (iv)  the adequacy  of  compensation  is not to  be  questioned;  and, finally,  the amendment of Art. 31 indicates in bold  relief the  separate and distinctive field of law  for  acquisition and  requisition,  by  the State,  of  property  for  public purpose. [622 C-623 C] A public purpose is a purpose affecting the interest of  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 108  

general  public and, therefore, the welfare State  is  given powers of acquisition or requisition of property for  public purpose.   One  cannot  be  guided  either  by  passion  and property on the one hand or prejudice against deprivation on the other.  Public purpose steers clear of both passion  and prejudice The object of the Act according to the legislation is to use the deposits in wider public interest and what was true of public purpose when the Constitution was ushered  in the mid-century is a greater truth after two decades.[623 H] A.   K. Gopalan v. State of Madras, [1950] S.C,R. 88.  State of  West  Bengal v. Subodh Gopal Bose,  [1954]  S.C.R.  587, State  of Bombay V. Bhanji Munji and Anr., [1955]  1  S.C.R. 777, Kavalappara Kottarthil Kochuni and Ors. v. The State of Madras  and Ors., [1960] 3 S.C.R. 887, Smt.   Sitabati  Devi and  Anr. v. State of West Bengal and Anr. [1967]  2  S.C.R. 940,  State  of Gujarat v. Shantilal Mangaldas  and  Others, A.I.R. 1969 S.C. 634, State of Bihar v. Maharaja  Darbhanga, [1952] S.C.R. 889 and Iswari Prasad v. N. R. Sen A.I.R. 1952 Cal. 273. referred to. Even  on  the  assumption that Article 19(1)(f)  or  (g)  is attracted in case of     acquisition   or   requisition   of property dealt with by Article 31(2), the Act     had to  be upheld as a reasonable -restriction in the interest of the general   public. [654 H] (b)  Article  19(6)  in the two limbs and in  the  two  sub- articles of the second limb deals with separate matters  and state monopoly in respect of 543 trade  or ’business is not open to be reviewed in courts  on the ground of reasonableness. [638 D] Akadasi  Padhan  v. State of Orissa, [1963] Supp.  2  S.C.R, 691, followed, Motilal  v. Government of the State of Uttar Pradesh  I.L.R. [1951]  1  All. 269 and Municipal Committee of  Amritsar  v. State  of Punjab, Writ Petition No. 295 of 1965 decided  on- 30 January, 1969, referred to. Earl  Fitzwilliant’s  Wentworth Estates Co. v.  Minister  of Housing  and Local Government and Another, [1952] A.C.  362, distinguished. (c)  Section  15(2)  of the Act allowed the named  Banks  to carry  on  business  other  than  banking.  if  the   entire undertaking  of  a  banking company was  -taken  by  way  of acquisition,   the   assets  could  not  be   separated   to distinguish  those belonging to the banking  business  from, others  belonging to non-banking business,  because,  assets were not in fact divisible on any such basis.   Furthermore, that  would  be striking at the root of acquisition  of  the entire  undertaking.  No acquisition or requisition  of  the undertaking   of   a   banking  company   is   complete   or comprehensive  without all businesses which  are  incidental and conducive to the entire business of the bank.  It  would be: strange to hold that in the teeth of express  provisions in the Act permitting the banks to carry on businesses other than banking that the same would amount to a prohibition  On the bank to carry on those businesses.  Constitutionality of the  Act  could not be impeached on the ground  of  lack  of immediate resources to carry on. business.  The  petitioners contention based on Art. 19(6) therefore had to fail. [639B- E] (iv) The acquisition of the undertaking did not offend  Art. 14  because of intelligible differentia and  their  rational relation  to  the object to be achieved by the  Act  and  it followed that these Banks could not, therefore, be,  allowed to  carry on banking business to nullify the very object  of the  Act.  The fourteen banks were not in the same class  as

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 108  

other scheduled banks.  The classification, was on the basis of  the fourteen Banks having deposit of Rs. 50  crores  and over.   The  object of the Act was to  control  the  deposit resources  for developing national economy and as  such  the selection  of fourteen Banks, having regard to their  larger resources,  their  greater coverage,, their  managerial  and personal resources and the administrative and organisational factors  involved  in expansion, was both  intelligible  and sound and related to the object of the Act.  From the  point of view of resources these fourteen banks were better suited than others and, therefore, speed and efficiency which  were necessary for implementing the objectives of the Act  ’Could be  ensured by such classification.  The legislature is  the best judge, of what should subserve public interest. [644 E, 642 E-H] Shri  Ram  Krishna Dalmia v. Shri Justice S.  R,  Tendolkar, [1959]  S.C.R. 279, P. V. Sivarajan v. The Union  of  India, [1959]  1  Supp.  779,  Kathi  Raning  Rawat  v.  State   of Saurashtra  [1952]  S.C.R.  435,  The  Board  of   Trustees, Ayurvedic  and  Unani Tibia College, Delhi v. The  State  of Delhi,  [1962] Supp. 1 S.C.R. 156, Mohd.  Hanif Quareshi  v. State  of  Bihar,  [1959] S.C.R. 628  and  Harnam  Singh  v. Regional  Transport  Authority, Calcutta, 1954  S.C.R.  371, referred to. (v)  When  principles are laid down in a statute  and  those principles.  are relevant to determination of  compensation, namely,  they are principles in relation’ to  the,  property acquired   or  are  principles  relevant  to  the  time   of acquisition of property or the amount fixed is not obviously and shockingly 544 illusory, there is no infraction of Art. 31(2) and the owner cannot impeach it on the ground of "just equivalent" of  the property acquired.  The relevancy is to compensation and not to  adequacy.  It is unthinkable that Parliament, after  the Constitution  Fourth Amendment Act, intended that  the  word compensation  should mean ’just equivalent’ when  Parliament had put a bar on challenge to the adequacy of  compensation. Just  compensation cannot be inadequate, and anything  which is  impeached as unjust or unfair is impinging on  adequacy. [649 C-E] Vajravelu  Mudaliar  v. Special  Deputy  Collector,  Madras, [1965],  1  S.C.R.  614, Shantilal  Mangaldas  v.  State  of Gujarat,  [1969] 3 S.C.R. 341, Bela Banerjee’s case,  [1954] S.C.R. 558, Union of India v. The Metal Corporation of India Ltd., [1967] 1 S.C.R. 255 and Cruttwell v. Lye, 17 Ves. 335, referred to. Under  the Act entire undertaking was the subject matter  of acquisition  and  compensation  was  to  be  paid  for   the undertaking   and  not  for  each  of  the  assets  of   the undertaking.  There is no uniform established principle  for valuing  an  undertaking as a going concern  but  the  usual principle  is assets minus liabilities.  If it be  suggested that  no compensation was provided for any particular  asset that would be Questioning adequacy of compensation, because, compensation was provided for the entire undertaking.   When the  relevant  principle set out was  ascertained  value  it could  not be urged that market value should have  been  the principle.   It  would  really be  going  into  adequacy  of compensation  by preferring the metrits of one principle  to that  of  the other for the oblique purpose of  arriving  at what  was suggested to be just equivalent. [650 G, 651  F-G. 649 D] The  contention  as to exclusion of  good-will  amounted  to questioning adequacy and would not vitiate the principle  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 108  

valuation  which  had been laid down.  Good-will  can  arise when  the  undertaking  is sold as  a  going  concern.   The fourteen  banks carried on business under licence by  reason of  s. 22 of the Banking Regulation Act, and the concept  of sale in such it situation is unreal.  In case of  compulsory acquisition  no goodwill passes to the acquiring  authority. Besides, no facts were pleaded in the petition to $.how what goodwill the banks had. [653 F] In the valuation of lands and buildings market value is  not the, only principle.  That is why the Constitution has  left the  laying  down  of the  principles  to  the  legislature. Ascertained  value; is a relevant and sound principle  based on capitalisation method which is accepted for valuation  of land  and properties.  The contention that twelve times  the annual  rent  was not a relevant principle and  was  not  an absolute  rule and compensation might be illusory could  not be accepted.  Capitalisation method is not available to land because  land is not generally let out.  Nor can it he  said that  the principle is irrelevant when there are  two  plots side by side one with building and the other vacant  because standard  rent necessarily takes into account value of  land on  which  the building is situated.  If  rental  method  be applied  to  land  the  value may be little,  but  it  is  a principle   relevant  to’  determination  of   compensation. Furthermore,  there was no case in the petition  that  there was  land with building side by side with vacant land.  [651 F-H, 652 A-C] As to securities shares and debentures Explanation (iv)  and (v)  to Part 1(c) would be operative only when market  value of  shares;  and  debentures was  considered  reasonable  by reason  of its having been affected by abnormal  factors  or when   market  value  of  shares  and  debentures  was   not ascertainable.   In both cases principles were.  laid  down, namely, how 545 valuation had to be made taking into account various factors and  these  principles  were relevant  to  determination  of compensation. Deductions   on  account  of  maintenance  and  repairs   is essential  in  the capitalization method.   Insurance  would also be an essential deduction in the capitalisation  method and it could not be assumed that the Bank would insure for a value higher than what was necessary; also payment of tax or ground  rent  might  be out of income but these  had  to  be provided for in ascertaining value of the building under the capitalisation method. There  was no basis for the argument that Explanation 2  (i) (vi)  which  dealt with deduction of  interest  on  borrowed capital  was included twice, namely, under Explanation  2(i) (vi)  and  also under liabilities in Part II.   Interest  on mortgage  or  borrowed capital is one of the  deductions  in calculating outgoings under capitalisation method.  In  Part 11  the liabilities were those existing at the  commencement of  the Act and contingent liabilities  which  corresponding new Bank might reasonably be expected to be required to meet out of its own resources on or after the commencement of the Act.  Interest payable on mortgage or borrowed capital on or after  the commencement of the Act would not be  taken  into account  as outground for saying that the principle was  not relevant. [654 G] The contentions that no time limit was mentioned with regard to  payment of compensation in s. 6(1) and that s. 6(6)  was an unreasonable: restriction had no force because (i)  there was no question of fixing time within which agreement was to be  reached or determination was to be, made by  a  tribunal

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 18 of 108  

and  (ii) ’under s. 6(6) the government would pay the  money to  the  Bank only if the Bank agreed to pay to  the  share- holders; therefore, s. 6(6) was a provision for the  benefit of  the  Bank  and  the,  share-holders  and  there  was  no unreasonableness in it. [652 D-653 D] The  principles  set  out in the Act  was  relevant  to  the determination of compensation.  It might be that adoption of one principle conferred lesser sum of money than adoption of another; but that would not be. a ground for saying that the principle was not relevant. [654 G] (vi) Article  305  directly  applies to a  law  relating  to banking  and  all  business  necessarily  incidental  to  it carried on by the State to the complete or partial exclusion of the fourteen banks.  Article 302 can have no  application and  an individual cannot complain of violation of Art.  301 in  such  a case.  Article 305 applied in the  present  case arid,   therefore  neither  Art.  301  nor  Art.   302   was applicable. [641 H] (vii)     A  legislation  which  has  retrospective   effect affecting  acquisition  or requisition of  property  is  not unconstitutional   and   is  valid.   The  Act   which   was retrospective  in  operation did not violate  article  31(2) because the Article speaks of "authority of law" without any words of limitation or restriction as to law being in  force at  the time.  Further, the vital distinction  between  Art. 20(1) and Art. 31(2), namely, that the former cannot have by its  own  terms have any retrospective operation  while  the latter  can, is to be kept in the forefront in  appreciating the   soundness  of  the  proposition   that   retrospective legislation  as to acquisition of property does not  Violate Art. 31(2). [615 A-B, 617 B] M/S.   West  Ramand Electric Distribution  Company  Ltd.  v. State of Madras, [1963] 2 S.C.R. 747, and State of Mysore v. Achiah Chetty, A.I.R. 1969 S.C. 477. followed. Punjab  Province  v.  Daulat Singh &  Others,  73  I.A.  59, explained. Sup.  CI/70-5 546 (viii)    The  Act contained enough guidelines for  reaching the  objectives  set  out  in  the  preamble.   First,   the government  could give directions only in regard  to  policy involving  public interest; secondly, directions could  only be given by the Central Government and no one else; thirdly, these  directions  could only be given  after  consultations with   the  Governor  of  the  Reserve  Bank;  the   Central Government  and  the Governor of the Reserve Bank  are  high authorities; fourthly, matters involving public interest are objective and subject to judicial scrutiny.  In working  the Act directions from the Central Government were necessary to deal  with  policy and other matters to serve the  needs  of national economy. [640D] Harishankar  Bagla v. The State of Madhya Pradesh, [1955]  1 S.C.R. 380, reffered to.

JUDGMENT: ORIGINAL JURISDICTION : Writ Petitions Nos. 222, 300 and 298 of 1969. Writ  Petitions under Art. 32 of the Constitution  of  India for enforcement of the fundamental rights. N.   A.  Palkhivala,  M.  C.  Chagla,  A.  J.  Raja,  N.  N. Palkhivala, R.   N. Bannerjee, S. Swarup, B. Datta, J.B. Dadachanji,  0. C. Mathur, -and Ravinder Narain, for the petitioner (in W.P.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 19 of 108  

Nos. 222 -and 300 of 1969). R.   V.  S.  Mani, for the petitioner (in W.P.  No.  298  of 1969). Niren  De,  Attorney-General,  Jagadish  Swarup,  Solicitor- General, M. C. Setalvad, C. K. Daphtary, R. H. Dhebar R.  N. Sachthey  and S. P. Nayar, for the respondent (in  W.P.  No. 222 of 1969). Niren  De,  Attorney-General,  Jagadish  Swarup,  Solicitor- General, M. C. Setalvad, C. K. Daphtary, N. S. Bindra, R. H. Dhebar, R. N. Sachthey, S. P. Nayar and N. H. Hingorani, for respondent (in W.P. No. 300 of 1969). Niren De, Attorney-General, Jagadish Swarup, Solicitor-Gene- ral"  M. C. Setalvad, C. K. Daphtary, V. A. Seyid  Muhammad, R.  H.  Dhebar,  R. N. Sachthey and S.  P.  Nayar,  for  the respondent (in W.P. No. 298 of 1969). M.   C. Setalvad, S. Mohan Kumaramangalam, R. K. Garg, S.   C. Agarwal and V. J. Francis, for intervener No. 1. M.   C.  Setalvad,  R.  H.  Dhebar  and  S.  P.  Nayar,  for intervener No. 2. S.   Mohan  Kumaramangalam and A. V. Rangam, for  intervener No. 3. Lal Narain Sinha, Advocate-General, Bihar, R. K. Garg and D.   P. Singh, for interevener No. 4. V.   K. Krishna Menon, M. R. K. Pillai and D. P. Singh,  for intervener No. 5. 547 P.   Ram Reddy and P. Parameswara Rao, for intervener No. 6. M.   C. Chagla, Santosh Chatterjee and G. S. Chatterjee, for intervener No. 7. The Judgment of J. C. SHAH, S. M. SIKRI, J. M. SHELAT, V.   BHARGAVA,  G.  K.  MITTER, C. A.  VAIDIALINGAM,  K.  S. HEGDE, A.   N. GROVER, P. JAGANMOHAN REDDY AND 1. D. DUA, JJ. was delivered  by  SHAH  J.  A. N. RAY,  J.  gave  a  dissenting Opinion. Shah,  J.  Rustom Cavasjee  Cooper-hereinafter  called  ’the petitioner’-holds shares in the Central Bank of India  Ltd., the  Bank of Baroda Ltd., the Union Bank of India Ltd.,  and the  Bank of India Ltd., and has accounts-current and  fixed deposit  -with  those Banks : he is also a director  of  the Central  Bank of India Ltd.  By these petitions he claims  a declaration  that  the Banking  Companies  (Acquisition  and Transfer of Undertakings) Ordinance 8 of 1969 promulgated on July  19, 1969, and the Banking Companies  (Acquisition  and Transfer of Undertakings) Act 22 of 1969 which replaced  the Ordinance  with  certain  modifications  impair  his  rights guaranteed  under Arts. 14, 19 and 31 of  the  Constitution, and are on that account invalid. In  India there was till 1949 no  comprehensive  legislation governing  banking business and banking  institutions.   The Central Legislature enacted the Banking Companies Act 10  of 1949   (later  called  "The  Banking  Regulation  Act")   to consolidate  and amend the law relating to  certain  matters concerning banking.  By s. 5 (b) of that Act, "banking"  was defined  as  meaning  "the accepting,  for  the  purpose  of lending or investment, of deposits of money from the public, repayable  on  demand  or  otherwise",, and  by  s.  5(c)  a "banking  company"  meant "any company which  transacts  the business of banking in India".  By s. 6 it was enacted  that in addition to the business of banking as defined in s. 5(b) a banking company may engage in one or more of the forms  of business  specified  in cls. (a) to (o) of sub-s.  (1).   By sub-s.  (2) of s. 6 banking companies were  prohibited  from engaging "in any form of business other than those  referred to  in  sub-section  (1)".  The Act  applied  to  commercial

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 20 of 108  

banks,  and enacted provisions, amongst others, relating  to prohibition   of   employment   of   managing   agents   and restrictions on certain forms of employment; minimum paid-up capital  and  reserves;  regulation  of  voting  rights   of shareholders and election of Board of Directors; prohibition of  charge  on  unpaid capital; restriction  on  payment  of dividend;  maintenance of a percentage of assets; return  of unclaimed  deposits;  and accounts and balance  sheets.   It also  enacted  provisions authorising the  Reserve  Bank  to issue directions 548 to  and for trial of proceedings against the Banks  and  for speedy disposal of winding up proceedings of Banks. The Banking Regulation Act was amended by Act 58 of 1968, to give   effect  to  the  policy  of  "social  control"   over commercial   banks.    Act   58   of   1968   provided   for reconstitution  of  the Boards of  Directors  of  commercial banks  with a Chairman who had practical experience  of  the working  of  a  Bank or  financial,  economic  and  business administration,  and  with a membership not  less  than  51% consisting of persons having special knowledge or  practical experience  in accountancy, agriculture and  rural  economy, banking,  cooperation,  economics, finance, law  and  small- scale  industry.  The Act also provided that no loans  shall be granted to any director of the Bank or to any concern  in which  he  is  interested  as  Managing  Director,  Manager, employee,  or  guarantor  or partner or in  which  he  holds substantial  interest.  The Reserve Bank was  invested  with power to give directions to commercial banks and to  appoint directors  or  observers in the interest  of  depositors  or proper  management  of  the Banking  Companies,  or  in  the interest of Banking policy (which expression was defined  by s.  5  (ca) as "any policy which is specified from  time  to time  by  the Reserve Bank in the interest  of  the  banking system  or  in the interest of monetary stability  or  sound economic  growth, having due regard to the interests of  the depositors,  volume of deposits and other resources  of  the bank  -and  the  need  for  equitable  allocation  and   the efficient use of these deposits and resources".  The Reserve Bank  was also invested with power to remove managerial  and other  personnel  from  office  and  to  appoint  additional directors,  and  to  issue  directions  prohibiting  certain activities  in relation to Banking Companies.   The  Central Government  was given power to acquire the business  of  any Bank  if it failed repeatedly to comply with  any  direction issued by the Reserve Bank under certain specific  provision in  regard to any matter concerning the affairs of the  Bank and  if acquisition of the Bank was considered necessary  in the  interest  of the depositors or in the interest  of  the banking  policy  or  for  the  better  provision  of  credit generally  or  of credit to any particular  section  of  the community or in a particular area. During the last two decades the Reserve Bank reorganised the banking structure.  A number of units which accounted for  a small  section  of the banking  business  were,  amalgamated under  directions of the Reserve Bank.  The total number  of commercial banking institutions was reduced from 566 in 1951 to 89 in 1969, 73 scheduled and 16 non-scheduled. In exercise of the authority conferred by the State Bank  of India  Act  21 1955 the undertaking of the  former  Imperial Bank  of  India  was  taken over  by  a  public  corporation controlled by the 549 Central  Government.  The State Bank took over seven  subsi- diaries under authority conferred by Act 38 of 1959.   There

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 21 of 108  

were  in  June 1969 14 commercial banks operating  in  India each having deposits exceeding Rs. 50 crores.  The following is an analysis of the commercial banking structure in  India in June 1969 :                     No. of   No. of   Deposits       Credit                       Banks Offices  (in crores) (in crores) State Bank of India   1            1,566       948967 Subsidiaries of State Bank of India          7            888        291     219 Indian scheduled     com- mercial banks (each with deposit exceeding Rs. 50 cores)                  14           4,130      2,632  1,829 Banks incorporated in foreign countries       15*          130        478     385 Other Indian Scheduled Banks  .......   .      36           1,324      296      197 Non-scheduled commer- cial Banks              16            216       28        16 --------------------------------- *Only 13 were operating. Late  in the afternoon of July 19, 1969 (which was a  Satur- day)  the Vice-President (acting as President)  promulgated, in exercise of the power conferred by cl. (1) of Art. 123 of the  Constitution, Ordinance 8 of 1969 transferring  to  and vesting  the  undertaking of 14 named  commercial  banks  in corresponding  new  banks set up under the  Ordinance.   The long little of the Ordinance read as follows "An Ordinance to provide for the acquisition and transfer of the  undertakings of certain banking companies in  order  to serve  better  the needs of development of  the  economy  in conformity  with  national  policy and  objectives  and  for matters connected therewith or incidental thereto." By  S.  2 "banking company" was defined as not  including  a foreign  company  within  the  meaning  of  S.  591  of  the Companies  Act, 1956.  An "existing bank" was defined by  s. 2(b) as meaning " a banking company specified in column 1 of the  First Schedule, being a company the deposits of  which, as shown in the return as on the last Friday of June,  1969, furnished to the Reserve Bank 550 under  section 27 of the Banking Regulation Act, 1949,  were not less than rupees fifty crores".  In the Schedule to  the Act were included the names of fourteen commercial banks 1.   The Central Bank of India Ltd. 2.   The Bank of India Ltd. 3.   The Punjab National Bank Ltd. 4.   The Bank of Baroda Ltd. 5.   The United Commercial Bank Ltd. 6.   Canara Bank Ltd. 7.   United Bank of India Ltd. 8.   Dena Bank Ltd. 9.   Syndicate Bank Ltd. 10.  The Union Bank of India Ltd. 11.  Allahabad Bank Ltd. 12.  The Indian Bank Ltd. 13.  The Bank of Maharashtra Ltd. 14.  The Indian Overseas Bank Ltd. These banks are hereinafter referred to as the named  banks. A  "corresponding  new bank" was defined in relation  to  an existing  bank  as  meaning "the  body  corporate  specified against such bank in column 2 of the First Schedule".  By s. 2 (g) it was provided that the words and expressions used in the  Ordinance and not defined, but defined in  the  Banking Regulation Act, 1949, had the meaning respectively  assigned

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 22 of 108  

to  them in that Act.  Thereby the definitions of  "banking" and  "banking  company"  in s. 5 (b) and s.  5  (c)  of  the Banking Regulation Act were incorporated ill the Ordinance. The principal provisions of the Ordinance were (1)  Corporations styled in the ordinance "corresponding new banks"  shall be established, each such  corporation  having paid  up capital equal to the paid-up capital of  the  named bank  in relation to which it is a corresponding  new  bank. The entire capital of the new bank shall stand vested in the Central  Government.  The corresponding new banks  shall  be authorised to carry on and transact the business of  banking as defined in cl. (b) of s. 5 of the Banking Regulation Act, 1949,  and also to engage in one or more forms  of  business specified  in sub-s. (1) of s. 6 of that Act.  The  Chairman of  the  named bank holding office  immediately  before  the commencement of the Ordinance; shall be the Custodian of the corresponding  new  bank.  The general  superintendence  and direction  of  the affairs and business of  a  corresponding bank  shall  be vested in the Custodian, who  shall  be  the chief executive officer of that bank. 551 (2)  The undertaking within or without India of every  named bank on the commencement of the Ordinance shall stand trans- ferred to and vested in the corresponding new bank.  The ex- pression  "undertaking"  shall include all  assets,  rights, powers,  authorities  and  privileges,  and  all   property, movable   and   immovable,  cash  balances,   reserve   fund investments  and all other rights and interests arising  out of such property as are immediately before the  commencement of  the  Ordinance in the ownership,  possession,  power  or control  of the named bank in relation to  the  undertaking, including -all books of accounts, registers, records and all other  documents  of whatever nature relating  thereto.   It shall   also   include  all  borrowings,   liabilities   and obligations  of whatever kind then subsisting of  the  named bank  in relation to the under-taking.  If according to  the law of any foreign country, the provisions of the  Ordinance by themselves do not effectively transfer or vest any  asset or  liability situated in that country in the  corresponding new bank, the affairs of the named bank in relation to  such asset  or  liability  shall stand  entrusted  to  the  chief executive  officer  of  the  corresponding  new  bank   with authority to take steps to wind up the affairs of that bank. All contracts, deeds, bonds, agreements, powers of attorney, grants  of  legal representation and  other  instruments  of whatever  nature  subsisting or  having  effect  immediately before  the commencement of the Ordinance, and to which  the named  bank is a party or which are in favour of  the  named bank  shall  be of as full force and effect  against  or  in favour  of  the corresponding new bank, and be  enforced  or acted  upon as fully and effectively as if in the  place  of the named bank the corresponding new bank is a party thereto or as if they are issued in favour of the corresponding  new bank.   In pending suits or other proceedings by or  against the  named  bank,  the  corresponding  new  bank  shall   be substituted in those suits or proceedings.  Any reference to any  named bank in any law, other than the Ordinance, or  in any  contract  or other instrument shall be construed  as  a reference to the corresponding new bank in relation to it. (3)  The  Central  Government shall have power  to  frame  a scheme  for carrying out the provisions of the Act, and  for that  purpose to make provisions for the  corresponding  new banks  relating  to capital structure, constitution  of  the Board of Directors, manner of payment of compensation to the shareholders,  and  matters  incidental,  consequential  and

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 23 of 108  

supplemental.  Corresponding new banks shall also be  guided in  the discharge of their functions by such  directions  in regard to matters of policy involving public interest as the Central Government may give. (4)  On  the  commencement of the  Ordinance,  every  person holding  office  as Chairman, Managing  Director,  or  other Direc- 552 tor of a named bank, shall be deemed to have vacated office, and  all officers and other employees of a named bank  shall become officers or other employees of the corresponding  new banks.  Every named bank shall stand dissolved on such  date as the Central Government may by notification in that behalf appoint. (5)  The  Central Government shall give compensation to  the named  banks determined according to the principles set  out in Second Schedule, that is to say,- (a)  where  the  amount  of compensation  can  be  fixed  by agreement,  it shall be determined in accordance  with  such agreement; (b)  where  no  such agreement can be reached,  the  Central Government  shall refer the matter to the Tribunal within  a period  of three months from the date on which  the  Central Government and the existing bank fail to reach an  agreement regarding the amount of compensation. Compensation so determined shall be paid to each named  bank in  marketable  Central  Government  securities.   For   the purpose of determining compensation, Tribunals shall be  set up by the Central Government with certain powers of a  Civil Court. (6)  The  Central Government shall have power to  make  such orders not inconsistent with the provisions of the Ordinance which may be necessary for the purpose of removing defects. Under  the Ordinance the entire undertaking of  every  named commercial  bank  was taken over by  the  corresponding  new bank,  and  all  assets  and  contractual  rights  and   all obligations  to  which  the named  bank  was  subject  stood transferred to the corresponding new bank.  The Chairman and the   Directors  of  the  Banks  vacated  their   respective officers.   To  the named banks survived only the  right  to receive   compensation  to  be  determined  in  the   manner prescribed.  Compensation, unless settled by agreement,  was to  be  determined by the Tribunal, and was to be  given  in marketable  Government securities.  The entire  business  of each  named  bank  was accordingly  taken  over,  its  chief executive  officer  ceased to hold office  and  assumed  the office  of  Custodian  of the corresponding  new  bank,  its directors  vacated  office;  and the  services  of  the  ad- ministrative  and  other  staff  stood  transferred  to  the corresponding  new bank.  The named bank had  thereafter  no assets,  no business, and no managerial,  administrative  or other  staff, it was incompetent to use the word  "Bank"  in its name, because of the provisions contained in s. 7 (1) of the  Banking  Regulation  Act, 1949, and was  liable  to  be dissolved by a notification of the Central Government. 553 Petitions  challenging  the competence of the  President  to promulgate  the Ordinance were lodged in this Court on  July 21,  1969.  But before the petitions could be heard by  this Court,  a Bill to enact provisions relating  to  acquisition and  transfer  of  undertakings of the  existing  banks  was introduced  in the Parliament, and was enacted on August  9, 1969, as "The Banking Companies (Acquisition and Transfer of Undertakings)  Act 22 of 1969".  The long title of  the  Act was in terms identical with the long title of the Ordinance.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 24 of 108  

By  sub-s. (1) of s. 27 of the Act, Ordinance 8 of 1969  was repealed.  In the First Schedule were included the-names  of the  14 banks named in the Ordinance in  juxtaposition  with the names of the corresponding new banks.  By sub-s. (2)  of s.  1,  the Act came into force on July 19,  1969,  and  the undertaking of every named bank was deemed, with effect from that  date, to have, vested in the corresponding  new  bank. By s. 27 (2), (3) and (4) actions taken or things done under the  Ordinance inconsistent with the provisions of  the  Act were  not  to  be  of any force or  effect,  and  no  right, privilege, obligation or liability was to be deemed to  have been acquired, accrued or incurred under the Ordinance. The general scheme of the Ordinance relating to the transfer to  and  vesting  in  the  corresponding  new  bank  of  the undertaking of each named bank, payment of compensation, and management   of   the  corresponding  new   bank,   remained unaltered.   The Act departed from the Ordinance in  certain matters : (1)  Under  the Act the named banks remain in existence  for certain purposes and they are not liable to be dissolved  by order of the Government.  If under the laws in force in  any foreign country it is not permissible for a banking company- ,  owned  or  controlled  by Government,  to  carry  on  the business  of  banking in that country, the  assets,  rights, powers, authorities and privileges and property, movable and immovable,  cash balances and investments of any named  bank operating   in   that  country  shall  not   vest   in   the corresponding  new bank.  The directors of the  named  banks shall  remain  in  office  and  may  register  transfers  or transmission  of, shares; arrive at an agreement  about  the amount  of compensation payable under the Act  or  appearing before the Tribunal for obtaining a determination as to  the amount  of  compensation;  distribute  to  shareholders  the amount  of compensation received by the Bank under  the  Act for  the  acquisition  of  its  undertaking;  carry  on  the business  of banking in any country outside India  if  under the  law  in  force  in that  country  any  bank,  owned  or controlled by Government, is prohibited from carrying on the business  of banking there; an carry on any  business  other than  the business of banking.  The Central  Government  has power to authorise the corresponding new bank to advance the amount  required  by the named bank in connection  with  the functions which the directors may perform.  Reference to any named bank in any law, or in any 554 contract  or  other  instrument  shall  be  construed  as  a reference  to the corresponding new bank in relation to  it, but  not  in  cases where the named bank may  carry  on  any business and in relation to that business. (2)  Principles  for determination of compensation  and  the manner of payment are modified.  Interim compensation may be paid  to  a  named bank if it agrees to  distribute  to  its shareholders in accordance with their rights and  interests. A  major  change is made in the principles  for  determining compensation  set out in Sch. 11.  By Explanation I  to  cl. (e)  of  Part  I  of Sch.  II, the  value  of  any  land  or buildings to be taken into account in valuing the assets  is to  be the market value of the land or buildings, but  where such  market  value exceeds the  "ascertained  value",  that "ascertained  value"  is to be taken into  account,  and  by Explanation  II  the  "ascertained value"  of  any  building wholly  occupied on the date of the commencement of the  Act is  to be twelve times the amount of the annual rent or  the rent for which the building may reasonably be expected to be let  out from year to year, and reduced by one-sixth of  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 25 of 108  

amount  of the rent on account of maintenance  and  repairs, annual  premium paid to insure the building against risk  of damage  or  destruction,  annual  charge,  if  any,  on  the building,  ground  rent, interest on any mortgage  or  other capital charge on the building, interest on borrowed capital if  the building has been acquired,  constructed,  repaired, renewed  or  re-constructed with borrowed capital,  and  the sums  paid  on  account of land revenue or  other  taxes  in respect of such building. (3)  The Central Government may reconstitute any correspond- ing  new bank into two or more corporations; amalgamate  any corresponding  new  bank with another  banking  institution; transfer  the  whole  or any part of the  undertaking  of  a corresponding new bank to any other banking institution;  or transfer  the  whole or any part of the undertaking  of  any other banking institution to a corresponding new bank.   The Board  of  Directors of the corresponding new banks  are  to consist   of  representatives  of  the  depositors  of   the corresponding  new bank, employees of such  banks,  farmers, workers and artisans to be elected in the prescribed  manner and of other persons as the Central Government may appoint. (4)  The  profits remaining after making provision  for  bad and doubtful debts, depreciation in assets, contributions to staff  and  superannuation funds and all other  matters  for which   provision   is   necessary  under   any   law,   the corresponding new bank shall transfer the balance of profits to the Central Government. (5)  Provision of law relating to winding up of corporations do  not  apply  to  the  corresponding  new  banks,  and   a corresponding new bank may be ordered to be liquidated  only by the order of the Central Government. 555 The petitioner challenges the validity of the Ordinance  and the Act on the following principal grounds : (i)  The  Ordinance  promulgated in exercise  of  the  power under Art. 123 of the Constitution was invalid, because  the condition  precedent  to the exercise of the power  did  not exist; (ii) That in enacting the Act the Parliament encroached upon the State List in the Seventh Schedule of the  Constitution, and  to  that  extent the Act  is  outside  the  legislative competence of the Parliament; (iii)     That  by enactment of the Act, fundamental  rights of  the  petitioner guaranteed by  the  Constitution-  under Arts. 14, 19 (1) (f) & (g) and 31(2) are impaired; (iv) That by the Act the guarantee of freedom of trade under Art. 301 is violated; and (v)  That in any event retrospective operation given to  Act 22  of  1969  is  ineffective,  since  there  was  no  valid Ordinance   in   existence.   The  provision  in   the   Act retrospectively  validating infringement of the  fundamental rights  of  citizens was not within the  competence  of  the Parliament.  That sub-sections (1) & (2) of s. 11 and s.  26 are invalid. The  Attorney-General contended that the petitions  are  not maintainable, because no fundamental right of the petitioner is,’ directly impaired by the enactment of the Ordinance and the  Act, or by any action taken thereunder.   He  submitted that the petitioner who claims to be a shareholder, director and holder of deposit and current accounts with the Banks is not the owner of the property of the undertaking taken  over by  the  corresponding  new banks and  is  on  that  account incompetent  to maintain the petitions complaining that  the rights  guaranteed  under  Arts.  14,  19  and  31  of   the Constitution were impaired.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 26 of 108  

A  company  registered under the Companies Act  is  a  legal person,  separate and distinct from its individual  members. Property  of  the  Company  is  not  the  property  of   the shareholders.   A shareholder has merely an interest in  the Company arising under its Articles of Association,  measured by  a  sum of money for the purpose of liability, and  by  a share  in  the  profit.  Again a director of  a  Company  is merely its agent for the purpose of management.  The  holder of  a deposit account in a Company is its creditor :  he  is not  the owner of any specific fund lying with the  Company. A 556 shareholder, a depositor or a director may not therefore  be entitled  to move a petition for infringement of the  rights of  the Company, unless by the action impugned by  him,  his rights are also infringed. By  a  petition praying for a writ against  infringement  of fundamental  rights, except in a case where the petition  is for a writ of habeas corpus and probably for infringement of the guarantee under Arts. 17, 23 and 24, the petitioner  may seek relief in respect of his own rights and not of  others. The shareholder of a ,Company, it is true, is not the  owner of  its assets; he has merely a right to participate in  the profits of the Company subject to the ,contract contained in the  Articles  of  Association.  But  on  that  account  the petitions will not fail.  A measure executive or legislative may  impair the rights of the Company alone, and not of  its shareholders;  it may impair the rights of the  shareholders and  not  of the Company : it may impair the rights  of  the shareholders as well as of the Company.  Jurisdiction of the Court to grant relief cannot be denied, when by State action the  rights of the individual shareholder are  impaired,  if that action impairs the rights of the Company as well.   The test  in  determining  whether the  shareholder’s  right  is impaired  is not formal: it is essentially  qualitative:  if the  State action impairs the right of the  shareholders  as well  as to the Company, the Court will  not,  concentrating merely  upon  the technical operation of  the  action,  deny itself jurisdiction to grant relief. The  petitioner claims that by the Act and by the  Ordinance the  rights guaranteed to him under Arts. 14, 19 and  31  of the Constitution are impaired.  He says that the Act and the Ordinance  are without legislative competence in  that  they interfere with the guarantee of freedom of trade and are not made  in  the public interest; that the  Parliament  had  no legislative  competence, to enact the Act and the  President had  no  power  to promulgate  the  Ordinance,  because  the subject-matter of the Act and the Ordinance is (partially at least) within the State List; and that the Act and Ordinance are  invalid because they vest the undertaking of the  named banks  in the new corporations without a public purpose  and without   setting   out  principles  and   the   basis   for determination and payment of a just equivalent for the  pro- perty  expropriated.   He says that in  consequence  of  the hostile  discrimination practised by the State the value  of his  investment in the shares is substantially reduced,  his right  to receive dividend from his investment  has  ceased, and he has suffered great financial loss, he is deprived  of the right as a shareholder to carry on business through  the agency  of the Company, and that in respect of the  deposits the obligations of the-- corresponding new banks -not of his choice are substituted without his consent. (1)  [1954] S.  C. R. 674. 557 In  Dwarkadas Shrinivas v. The Sholapur Spinning  &  Weaving

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 27 of 108  

Co.  Ltd.  and Others(1) this Court held that  a  preference shareholder  of  a company is competent to maintain  a  suit challenging  the  validity  of the  "Sholapur  Spinning  and Weaving Company (Emergency Provisions) Ordinance" 2 of  1950 (which was later replaced by Act 27 of 1950), which deprived the Company of its property without payment of  compensation within the meaning of Art. 31.  Mahajan, J., observed : "The plaintiff and the other preference shareholders are  in imminent  danger of sustaining direct injury as a result  of the  enforcement of this Ordinance, the direct injury  being the amount of the call that they are called upon to pay  and the consequent forfeiture of their shares." Das, J., in the same case examined the matter in some detail and observed at p. 722 : "The impugned Ordinance,......the preference shareholders by imposing  on  them this liability, or the risk- of  it,  and gives  them a sufficient interest to challenge the  validity of  the  Ordinance, . . . . Certainly he can show  that  the Ordinance under which these persons have been appointed  was beyond  the  legislative competence of the  authority  which made it or that the Ordinance had not been duly promulgated. If  he can, with a view to destroy the locus standi  of  the persons  who have made the call, raise the question  of  the invalidity  of the Ordinance .... I can see no valid  reason why,  for the self same purpose, he should not be  permitted to challenge the validity of the Ordinance on the ground  of its  unconstitutionality for the breach of  the  fundamental rights of the company or of other persons." A  similar view was also taken in Chiranjit Lal Chowduri  v. The  Union of India(1) by Mukherjea, J., at p. 899, by  Fazl Ali,  J., at p. 876, by Patanjali Sastri, J., at p. 889  and by Das, J., at p. 922. The judgment of this Court in The State Trading  Corporation of  India  Ltd.  & Others v.  The  Commercial  Tax  Officer, Visakhapatnam & Ors.(2) has no bearing on this question.  In that  case in a petition under Art. 32 of  the  Constitution the State Trading Corporation challenged the infringement of its  right to hold property and to carry on  business  under Art. 19 (1) (f) & (g) of (1)  [1950] S. C. R. 869.                     (2)  [1964]  4 S.C.R. 99. 558 the Constitution and this Court opined that the  Corporation not  being a citizen was incompetent to enforce  the  rights guaranteed  by  Art.  19.   Nor has  the  judgment  in  Tata Engineering  and Locomotive Co. Ltd. v. State of  Bihar  and Ors.  (1)  any  bearing on the  question  arising  in  these petitions.  In a petition under Art. 32, of the Constitution filed by a Company challenging the levy of sales-tax by  the State  of  Bihar, two shareholders were  also  impleaded  as petitioners.   It  was urged on behalf of  the  shareholders that  in substance the interests of the Company and  of  the shareholders  were  identical  and  the  shareholders   were entitled to maintain the petition.  The Court rejected  that contention,  observing  that  what  the  Company  could  not achieve directly, it could not relying upon the "doctrine of lifting the veil" achieve indirectly.  The petitioner  seeks in this case to challenge the infringement of his own rights and  not  of the Banks of which he is a  shareholder  and  a director and with which he has accounts-, current and  fixed deposit. It  was urged that in any event the guarantee of freedom  of trade  does not occur in Part III of the  Constitution,  and the  petitioner is not entitled to maintain a  petition  for breach of that guarantee in this Court.  But the  petitioner

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 28 of 108  

does not seek by these petitions to enforce the guarantee of freedom of trade and commerce in Art 301: he claims that  in enacting   the   Act   the   Parliament   has   violated   a constitutional  restriction  imposed  by Part  XIII  of  its legislative power and in determining the extent to which his fundamental  freedoms  are impaired, the statute  which  the Parliament is incompetent to enact must be ignored. It is not necessary to consider whether Art. 31 A ( 1 )  (d) of  the Constitution bars the petitioner’s claim to  enforce his  rights  as a director.  The Act prima  facie  does  not (though  the Ordinance purported to) seek to  extinguish  or modify the right of the petitioner as a director : it  seeks to take away expressly the right of the named Banks to carry on banking business, while reserving their right to carry on business  other  than  banking.  Assuming  that  he  is  not entitled  to  set  up his right to  enforce  his  guaranteed rights as a director, the petition will not still fail.  The preliminary objection raised by the Attorney-General against the maintainability of the petitions must fail. I.   Validity of Ordinance 8 of 1969- Power to issue Ordinance is by Art. 123 of the Constitution vested in the President.  Article 123 provides : "(1)  If at any time, except when both Houses of  Parliament are in session, the President is satisfied that (1)  [1964] 6 S.C.R. 885. 559 circumstances  exist  which render it necessary for  him  to take  immediate action, he may promulgate such Ordinance  as the circumstances appear to him to require. (2)  An Ordinance promulgated under this Article shall  have the same force and effect as an Act of Parliament, but every such Ordinance- (a)  shall  be  laid before both Houses  of  Parliament  and shall  cease to operate at the expiration of six weeks  from the re-assembly of Parliament, or, if before the  expiration of  that  period resolutions disapproving it are  passed  by both Houses, upon the passing of the second of those resolu- tions; and (b)  may be withdrawn at any time by the President. Explanation.-Where the Houses of Parliament are summoned  to reassemble on different dates, the period of six weeks shall be  reckoned from the later of those dates for the  purposes of this clause. (3)  If and so far as an Ordinance under this article  makes any   provision  which  Parliament  would  not  under   this Constitution be competent to enact, it shall be void." Under   the   Constitution,   the   President   being    the constitutional head, normally acts in all matters  including the  promulgation  of  an Ordinance on  the  advice  of  his Council of Ministers.  Whether in a given case the President may  decline  to be guided by the advice of his  Council  of Ministers  is  a  matter  which need  not  detain  us.   The Ordinance is promulgated in the name of the President and in a  constitutional sense on his satisfaction: it is in  truth promulgated on the advice of his Council of Ministers and on their satisfaction.  The President is under the Constitution not  the repository of the legislative power of  the  Union, but  with a view to meet extraordinary situations  demanding immediate  enactment  of  laws, provision  is  made  in  the Constitution investing the President with power to legislate by promulgating Ordinances. Power  to  promulgate such Ordinance  as  the  circumstances appear  to  the President to require is  exercised-(a)  when both  Houses  of  Parliament are not  in  session;  (b)  the provision  intended to be made is within the  competence  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 29 of 108  

the Parliament to enact; and (c) the President is  satisfied that  circumstances exist which render it necessary for  him to take immediate action.  Exercise of the power is strictly conditioned.  The clause relating to 560 the  satisfaction is composite: the satisfaction relates  to the existence of circumstances, as well as to the  necessity to take immediate action on account of those  circumstances. Determination  by  the.   President  of  the  existence   of circumstances and the necessity to take immediate action  on which the satisfaction depends, is not declared final. The Attorney-General contended that the condition of  satis- faction  of  the President in both the  branches  is  purely subjective and the Union of India is under no obligation  to disclose  the existence of, or to justify the  circumstances of  the necessity to take immediate action.  He relied  upon the  decisions of the Judicial Committee in Bhagat Singh  v. The  King Emperor(1); King Emperor v. Benoari Lal  Sarma(2). and  upon a decision of the Federal Court in  Lakhi  Narayan Das  v.  The  Province of Bihar(2),  which  interpreted  the analogous  provisions of the Government of India Act,  1935, conferring upon the GovernorGeneral in the first two  cases, and upon the Governor of a Province in the last case,  power to  issue Ordinances.  He also relied upon the  judgment  of the,  Judicial Committee in Hubli Electricity Co.   Ltd.  v. Province of Bombay(3). The  Attorney-General  said that investment  of  legislative power  upon the President being an incident of the  division of  sovereign functions of the Union and a "matter  of  high policy",  the  expression "the President is  satisfied  that circumstances  exist  which render it necessary for  him  to take immediate action" is incorporated as a guidance and not as  a  condition of the exercise of power.  He  invited  our attention to the restraints inherent in the Constitution  on the  exercise of the power to promulgate Ordinance  in  cls. (1)  &  (2) of Art. 74; cls. (3) & (4) of Art. 75  and  Art. 361, and submitted that the rule applicable to the interpre- tation  of parliamentary statutes conferring authority  upon officers of the State to act in a prescribed manner on being satisfied  about the existence of certain  circumstances  is inept  in determining the true perspective of the  power  of the head of the State in situations of emergency. ,On the other hand, Mr. Palkhivala contended that the Presi- dent  is  not  made by Art. 123 the  final  arbiter  of  the existence of the conditions on which the power to promulgate an  Ordinance  may  be exercised.  Power  to  promulgate  an Ordinance  being conditional, counsel urged, this  Court  in the  absence of a provision-express or necessarily  implicit in  the  Constitution-to  the  contrary,  is  competent   to determine  whether  the  power  was  exercised  not  for   a collateral purpose, but on relevant circumstances (1)  L. R. 58 1. A. 169. (2) L. R. 72 I. A. 57. (3)  [1949] F. C. R. 693. (4) L. R. 76 I. A. 57. 561 which,   prima  facie,  establish  the  necessity  to   take immediate   action.   Counsel  submitted  that   the   rules applicable  to  the interpretation  of  statutes  conferring power   exercisable   on  satisfaction  of   the   specified circumstances  upon the President and upon officers  of  the State,  are  not  different.  The nature  of  the  power  to perform an official act where the authority is of a  certain opinion, or that in his view certain circumstances exist  or that  he has reasonable grounds to believe, or that  he  has

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 30 of 108  

reasons to believe, or that he is satisfied, springing  from a constitutional provision is in no manner different from  a similar power under a parliamentary statute, and no  greater sanctity  may  attach to the exercise of  the  power  merely because  the source of the power is in the Constitution  and not  in  a parliamentary statute.  There is, it  was  urged, nothing,  in  the constitutional scheme which  supports  the contention that the clause relating to satisfaction is not a condition of the exercise of the power. Counsel   relied  upon  the  judgments  of  this  Court   in Barium  Chemical Ltd. and Another v. The Company  Law  Board and Ors.(1) and Rohtas Industries Ltd. v. S. D. Agarwal  and Anr;(2) upon the decisions of the House of Lords in Padfield & Others v. Minister of Agriculture, Fisheries and Food  and Others  (3) and of the Judicial Committee in  Durayappah  v. Fernando  and  Others(4);  Nakkuda  Ali  v.  M.  F.  De   S. Jayaratne(5); RossClunis v. Papadopoullos(6), and  contended that  the  decisions  of the Judicial  Committee  in  Bhagat Singh’s   case  (7)  and.   Benoari  Lal   Sarma’s   case(8) interpreted  a  provision which was in  substance  different from  the provision of Art. 123, that the decision in  Lakhi Narayan  Das’s case(9) merely followed the two judgments  of the Judicial Committee and since the status of the President under the Constitution qua the Parliament is not the same as the constitutional status of the Governor-General under  the Government  of India Act, 1935, the decisions cited have  no bearing on the interpretation of Art. 123. The  Ordinance has been repealed by Act 22 of 1969, and  the question  of  its validity is now academic.  It  may  assume significance  only if we hold that Act 22 of 1969 is  valid. Since  the  Act  is,  in  our  view,  invalid  for   reasons hereinafter  stated,  we  accede to the  submission  of  the Attorney-General  that  we need express no opinion  in  this case  on  the  extent of the jurisdiction of  the  Court  to examine  whether the condition relating to  satisfaction  of the President was fulfilled.      1. [1966] Supp. S.C.R. 311.2.[1969] 3 S.C.R. 108.      3. [1968] 1 All E. R. 694.4. L.R. [1967] A.C. 337.      5. L.R. [1951] A.C. 66.  6. [1958] 2 All E.R. 23.      7. L.R. 58 I.A. 169.     8. L.R. 72 I.A. 57.      9.  [1949] F.C.R. 693. 8SuPCI/70-6 562 II Authority of Parliament to enact Act 22 of 1969-- On behalf of the petitioner it is urged that the Act is  not within the legislative power of the Parliament and that,  in any  event,  to  the  extent  to  which  it  vests  in   the corresponding  new banks the assets of business  other  than banking,  it  trenches  upon  the  authority  of  the  State Legislature,  and  is on that account  void.   The  relevant legislative entries in the Seventh Schedule and the  consti- tutional provisions which have a bearing on the question  of acquisition  and  taking over of undertaking of a  bank  may first be read. The Parliament has exclusive legislative power with  respect to "Banking" Entry 45 List I; "Incorporation, regulation and winding  up  of  trading  Corporations  including   banking, insurance and financial corporations, but not including  co- operative societies" : Entry 43 List I; and  "Incorporation, regulation  and winding up of corporations, whether  trading or  not,  with objects not confined to one  State,  but  not including Universities" : Entry 44 List I. The States have exclusive legislative authority with respect to the following subjects in List II : Entry  26-"Trade and commerce within the Stale,  subject  to

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 31 of 108  

the provisions of entry 33 of List III;" Entry   30-"Money-lending  and  money-lenders;   relief   of agricultural indebtedness." The  Parliament and the States have  concurrent  legislative authority with respect to the following subjects in List III : Entry 33-"Trade and commerce in, and the production,  supply and distribution of,- (a)  the products of any industry where the control of  such industry by the Union is declared by Parliament by law to be expedient in the public interest, and imported goods of  the same kind as such products; (b)  foodstuffs, including edible oil-seeds and oils; (c)  cattle  fodder,  including  oilcakes  and  other   con- centrates; (d)  raw cotton, whether ginned or unginned and cotton seed; and (e)  raw jute." Entry 42-"Acquisition and requisition of property." 563 The argument raised ’by Mr. Setalvad, intervening on  behalf of  the  State  of Maharashtra and the State  of  Jammu  and Kashmir, that the Parliament is competent to enact Act 22 of 1969, because the subject-matter of the Act is "with respect to"   regulation   of  trading  corporations   and   matters subsidiary  and incidental thereto, and on that  account  is covered  in its entirety by Entries 43 and 44 of List  I  of the Seventh Schedule cannot be upheld.  Entry 43 deals  with incorporation,   regulation  and  winding  up   of   trading corporations  including banking companies.   Law  regulating the  business of a corporation is not a law with respect  to regulation  of a corporation.  In List I  entries  expressly relating  to trade and commerce are Entries 41 & 42.   Again several entries in List I relate to activities commercial in character.  Entry 45 "Banking"; Entry 46 "Bills of exchange, cheques, promissory notes and other like instruments;  Entry 47  "Insurance";  Entry  48  "Stock  exchanges  and   future markets"; Entry 49 "Patents, inventions and designs".  There are  several  entries relating to activities  commercial  as well  as  non-commercial in List  II-Entry  21  "Fisheries". Entry 24 "Industries . . . ."; Entry 25 "Gas and Gas works": Entry  26 "Trade and commerce"; Entry 30 "Money lending  and money-lenders";  Entry 31 "Inns and Inn-keeping";  Entry  33 "Theatres  and dramatic performances, cinemas etc.". We  are unable to accede to the argument that the State Legislatures are competent to legislate in respect of the  subject-matter of  those  entries only when the commercial  activities  are carried  on by Individuals and not when they are carried  on by corporations. The object of Act 22 of 1969 is to transfer the  undertaking of  each named bank and to vest it in the corresponding  new bank  set  up with authority to carry on banking  and  other business.  Each such corresponding new bank is controlled by the  Central  Government of which the entire capital  is  to stand vested in and allotted to the Central Government.  The principal provisions of the Act which effectuate that object relate  to-setting  up  of  "corresponding  new  banks"   as statutory corporations to carry on and transact the business of banking as defined in s. 5 (b) of the Banking  Regulation Act, 1949, and one or more other forms of business specified in  s.  6 (1) of that Act, with power to  acquire  and  hold property for the purpose of the business, and to dispose  of the  same; administration of the corresponding pew banks  as institutions  carrying  on banking and other  business;  the undertaking  of  each  named bank  in  its  entirety  stands

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 32 of 108  

transferred  to and vested in a new corporation set  up  for that  purpose; principles for determination of  compensation and  method  of  payment  thereof to  each  named  bank  for transfer of its undertaking; and that the named bank may not carry on banking business, but may carry out business  other than banking. 564 Mr.  Palkhivala submitted that the Parliament may  legislate in respect of the business of banking as defined in S. 5 (b) of the Banking Regulation Act, 1949, and matters  incidental thereto,  and  also  for acquisition of  that  part  of  the undertaking of each named bank which relates to the business of  banking,  but not in respect of any other  business  not incidental  to banking in which the named bank  was  engaged prior  to  July  19, 1969, for the  power  to  legislate  in respect of such other business falls within Entry 26 of List II.  As a corollary thereto, counsel submitted that power to legislate  in respect of acquisition under Entry 42 of  List III may be exercised by the Parliament only for effectuating legislation  under a head falling in List I or List  III  of the Seventh Schedule. It is necessary to determine the true scope of "banking"  in Entry  45 List I, the meaning of the expression  "property", and  the  limitations  on the power  of  the  Parliament  to legislate in respect of acquisition of property in Entry, 42 List III.  Matters not in contest may be eliminated.   Power to legislate for setting up corporations to carry on banking and  other  business  and to acquire, hold  and  dispose  of property   and   to  provide  for  administration   of   the corporations is conferred upon the Parliament by Entries 43, 44 and 45 of the first list.  Power to enact that the  named banks  shall not carry on banking business (as defined  ins. 5(b)  of  the Banking Regulation Act) is incidental  to  the power  to  legislate  in  respect  of  banking.   Power   to legislate  for determination of compensation and  method  of payment  of compensation for compulsory acquisition  of  the assets  of  the  named banks, in so far  as  it  relates  to banking business is also within the power of the Parliament. The  expression  "banking"  is not  defined  in  any  Indian statute except the Banking Regulation Act, 1949.  It may  be recalled  that by s. 5(b) of that Act "banking"  means  "the accepting  for  the  purpose of  lending  or  investment  of deposits  of  money from the public repayable on  demand  or otherwise, and withdrawable by cheque, draft or  otherwise". The  definition did not include other commercial  activities which a banking institution may engage in. In support of his contention Mr. Palkhivala relied upon  the observation  of Lord Porter in Commonwealth of Australia  v. Bank  of  New  South Wales(1)that banking  consists  of  the creation  and  transfer  of credit,  the  making  of  loans, purchase  and  disposal  of investments  and  other  kindred transactions;  and upon the statement in Halsbury’s Laws  of England, 3rd Edn., Vol 2, Art. 270 at pp. 150 & 151 that : (1)  L.R. [1950] A. C. 235. 565 "A  ’banker’  is an individual partnership  or  corporation, whose sole or predominating business is banking, that is the receipt  of  money  on current or deposit  account  and  the payment  of cheques drawn by and the collection  of  cheques paid by a customer", and in the foot-note (g) at p. 151 that "Numerous other functions are undertaken at the present  day by banks such as the payment of domiciled bills, custody  of valuables, discounting bills, executor and trustee business, or  acting in relation to stock exchange  transactions,  and

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 33 of 108  

banks    have    functions    under    certain     financial legislation,  .  .  . . These  functions  are  not  strictly banking business." The  Attorney-General said that the expression "banking"  in Entry 45 List I means all forms of business which since  the introduction of western methods of banking in India, banking institutions have been carrying on in addition to banking as defined  in  s. 5(b) of the Banking Regulation Act,  and  on that  account all forms of business described in s. 6(1)  of the  Banking  Regulation  Act in cls. (a)  to  (n)  are,  if carried  on  in  addition  to  the  "hardcore  of  banking", banking,  and  the Parliament is competent to  legislate  in respect  of that business under Entry 45 List I. In  support of his contention that apart from the business of  accepting money  from the public for lending or investment, and  with- drawable  by  cheque, draft or otherwise,  banking  includes many  allied business activities which banking  institutions engaged  in, the Attorney-General invited our  attention  to cl. 21 of the Charter of the Bank of Bengal (Act VI of 1839) :  s. 27 of Act 4 of 1862; to ss. 36 & 37 of the  Presidency Banks  Act  XI of 1876; to s. 91(15) of  the  British  North America  Act; to Paget’s Law of Banking, 7th Edn., at p.  5; to  the  standard  form of memorandum of  association  of  a Banking Company in Palmer’s Company Precedents Form 138; and to  the statement of objects and reasons in support  of  the Bill  which was enacted as the Indian Companies  (Amendment) Act, 1936. The Charter of the Bank of Bengal, the Presidency Banks  Act 4  of 1862, Ch.  X-A of the Indian Companies Act,  1913,  as incorporated by the Indian Companies (Amendment) Act,  1936, merely  described the business which a  banking  institution could  carry  on.  It was not intended  thereby  to  include those activities within the expression "banking".  The  Acts enacted after the Banking Regulation Act, 1949, also support that inference.  Under s. 33 of the State Bank of India Act, 1955,  the  State  Bank  is entitled  to  carry  on  diverse business  activities  beside banking.  Similarly  the  Banks subsidiary to the State Bank were by s. 36 566 ,of  Act 38 of 1959 to act as agents of the State Bank,  and also to carry on and transact business of banking as defined in  S.  5(b) of the Banking Regulation Act, 1949,  and  were also competent to engage in such one or more other forms  of business  specified  in  s.  6  (1)  of  that  Act.    These provisions  do not aid in construing the Entry "Banking"  in Entry 45 List I. In modern times in India as elsewhere, to attract  business, banking  establishments render, and compete in rendering,  a variety  of miscellaneous services for  their  constituents. If  the  test for determining what "banking"  means  in  the constitutional  entry  is  any  commercial  activity   which bankers  at a given time engage in, great obscurity will  be introduced in the content of that expression.  The  coverage of  constitutional  entry in a  Federal  Constitution  which carves  out a field of legislation must depend upon  a  more satisfactory basis. The legislative entry in List I of the ;Seventh Schedule  is "Banking"  and not "Banker" or "Banks".  To  include  within the connotation of the expression "Banking" in Entry 45 List I,   power  to  legislate  in  respect   of-all   commercial activities  which  a  banker by the  custom  of  bankers  or authority  of law engages in would result in re-writing  the Constitution.   Investment  of  power  to  legislate  on   a designated topic covers all matters incidental to the topic. A  legislative entry being expressed in a broad  designation

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 34 of 108  

indicating the contour of plenary power must receive a mean- ing  conducive to the widest amplitude, subject  however  to limitations inherent in the federal scheme which distributes legislative  power  between the Union  and  the  constituent units.   But the field of "banking" cannot be  extended  to, include  trading  activities which not being  incidental  to banking encroach upon the substance of the entry "trade  and commerce" in List II. Rejection  of the argument of the Attorney-General does  not lend any practical Support to the argument of Mr. Palkhivala that  Act 22 of 1969, to the extent it makes  provisions  in respect  of the undertaking of the named banks  relating  to non-banking business, is ultra vires the Parliament.  In the first  instance  there is no evidence that the  named  banks were before July 19, 1969, carrying on non-banking  business distinct  and independent of the banking business,  or  that the banks held distinct assets for any non-banking business, apart  from  the assets of the banking business.   Again  by Act-22  of  1969  the corresponding banks  are  entitled  to engage  in  business of banking and  non-banking  which  the named banks were engaged in or competent to engage in  prior to July 19, 1969, and the named banks are entitled to engage in  business other than banking as di.-fined in s.  5(b)  of the Banking Regulation Act, but not the business of banking. By  enacting that the corresponding new banks may  carry  on business 567 specified in s. 6(1) of the Banking Regulation Act and  that the  named  banks  shall not carry on  banking  business  as defined  in s. 5 (b) of that Act, the impugned Act  did  not encroach upon any entry in the State List.  By s. 15 (2) (e) of the impugned ,Act the named banks are expressly  reserved the right to carry on business other than banking, and it is not claimed that thereby there is any encroachment upon  the State  List.   Exercise  of  the  power  to  legislate   for acquisition of the undertaking of the named banks also  does not trespass upon the State List. Before  the Constitution (Seventh Amendment) Act,  Entry  33 List I invested the Parliament with power to enact laws with respect to acquisition or requisitioning for the purpose  of the  Union,  and Entry 36 List II conferred upon  the  State Legislature   the  power  to  legislate  with   respect   to acquisition  or requisitioning for the  remaining  purposes. Those  entries are now deleted, and a single Entry  42  List III  invests the Parliament and the State Legislatures  with power   to  legislate  with  respect  to  "acquisition   and requisitioning" of property.  By Entry 42 in the  Concurrent List power \was conferred upon the Parliament and the  State Legislatures  to  legislate with respect to  "Principles  on which  compensation for property acquired  or  requisitioned for the purpose of the Union or for any other public purpose is to be determined, and the form in which such compensation is  to  be given".  Power to legislate  for  acquisition  of property is exercisable only under Entry 42 of List III, and not as an incident of the power to legislate in respect of a specific  head  of legislation in any of the three  lists  : Rajahmundry Electric Supply Corporation Ltd. v. The State of Andhra(1).  Under that entry "property" can be  compulsorily acquired.   In its normal connotation "property"  means  the "highest right a man can have to anything, being that  right which one has to lands or tenements, goods or chattels which does  not  depend  on  another’s  courtesy  :  it   includes ownership,  estates and interests in corporeal  things,  and also  rights  such as trade-marks, copyrights,  patents  and even rights in personam capable of transfer or transmission,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 35 of 108  

such  as  debts; and signifies a beneficial right  to  or  a thing considered as having a money value, I especially  with reference  to transfer or succession, and to their  capacity of being injured".  The expression "undertaking" in s. 4  of Act  22 of 1969 clearly means a going concern with  all  its rights, liabilities and assets-as distinct from the  various rights  and assets which compose it.  In Halsbury’s Laws  of England,  3rd Edn., Vol. 6, Art. 75 at p. 43, it  is  stated that  "Although  various  ingredients  go  to  make  up   an undertaking, the term describes not the ingredients but  the completed work from which the earnings arise." (1)  [1954] S.C.R. 779 at p. 785. 568 Transfer  of  and vesting in the State Corporations  of  the entire  undertaking  of a going concern is  contemplated  in many  Indian Statutes: e.g., Indian  Electricity Act,  1910, ss.  6,  7  & 7A; Air Corporation Act, 1953, ss.  16  &  17; Imperial Bank of India: Act, 1920, ss. 3 & 4; State Bank  of India  Act,  1955, S. 6(2), (3) & (4); State Bank  of  India (Subsidiary Banks) Act, 1959; Banking Regulation Act,  1949, S. 36 AE; and Cotton Textile Companies Act, 1967, ss.  4-(1) & 5(1).  Power to legislate for acquisition of "property" in Entry 42 List III therefore includes the power to  legislate for   acquisition   of  an  undertaking.   But,   says   Mr. Palkhivala,  liabilities of the banks which are included  in the  connotation of the expression "undertaking", cannot  be treated  as " property".  It is however the  assets,  rights and  obligations  of a going concern  which  constitute  the undertaking: the obligations and liabilities of the business form an integral part of the undertaking, and for compulsory acquisition  cannot be divorced from the assets, rights  and privileges.  The expression "property" in Entry 42 List  III has a wide connotation, and it includes not only assets, but the  organisation,  liabilities and obligations of  a  going concern  as  a unit.  A law may, therefore, be  enacted  for compulsory acquisition of an undertaking as defined in s.  5 of Act 22 of 1969. The contention raised by Mr. Palkhivala that the  Parliament is  incompetent  to legislate for acquisition of  the  named banks  in so far as it relates to assets of the  non-banking business fails for two reasons-(i) that there is no evidence that the named banks held, any assets for any distinct  non- banking business; and (ii) that the acquisition is not shown to fall within an entry in List II of the Seventh Schedule. III.    Infringement  of  the  fundamental  rights  of   the petitioner- Clauses (1) & (2) of Art. 31 subordinate the exercise of the power of the State to the basic concept of the rule of  law. Deprivation  of  a  person of his  property  and  compulsory acquisition may be effectuated by the authority of law.   It is superflous to add that the law limiting the authority  of the  State must be within the competence of the  Legislature enacting   it,  and  not  violative  of   a   constitutional prohibition,  nor impairing the guarantee of  a  fundamental right.  This Court held in Kavalappara Kottarathil Kochuni & Others  v.  The State of Madras and Others(1);  Swami  Motor Transport  Company (P) Ltd. v. Sri Sankaraswamigal Mutt  (2) and Maharana Shri Jayavantsingji v. The State of Gujarat (3) that a person may. be deprived of his property by  authority of a statute only if it does not impair the fundamental (1). [1960] 3 S.C.R. 887.         (2) [1963] Supp. 1  S.C.R. 282. (3) [1962] Supp. 2 S.C.R. 411, 433. 569 rights  guaranteed  to him.  It is again  not  contested  on

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 36 of 108  

behalf of the Union that the law authorising acquisition  of property  must  be within the competence of  the  law-making authority and must not violate a constitutional  prohibition or impair the guarantee of any of the fundamental rights  in Part 111.  But it is claimed that since Art. 31(2) and  Art. 19(1) (f) while operating on the same field of the right  to property  are mutually exclusive, a law  directly  providing for  acquisition of property for a public purpose cannot  be tested  for  its  validity  on  the  plea  that  it  imposes limitations   on  the  right  to  property  which  are   not reasonable. By Arts. 31 ( 1 ) & (2) the right to property of individuals is  protected  against specific invasions by  State  action. The function of the two clauses-cls. (1) & (2) of Art. 31-is to  impose  limitations  on the power of the  State  and  to declare the corresponding guarantee of the individual to his right to property.  Limitation on the power of the State and the   guarantee   of  right   are   plainly   complementary. Protection  of the guarantee is ensured by declaring that  a person  may  be deprived of his property  by  "authority  of law":  Art.  31  (  1  and  that  private  property  may  be compulsorily  acquired  for  a public purpose  -and  by  the "authority  of  a  law"  containing  provisions  fixing   or providing  for  determination and payment  of  compensation: Art.  31(2).   Exercise  of either  power  by  State  action results  in  abridgement-total or partial-of  the  right  to property of the individual.  Article 19(1) (f) is a positive declaration  in  the widest terms of the right  to  acquire, hold and dispose of property, subject to restrictions (which may assume the form of limitations or complete  prohibition) imposed by law in the interests of the general public.   The guarantee under Art. 19(1)(f) does not protect merely an ab- stract  right to property: it extends to concrete rights  to property  as  well   Swami Motor Transport  Co.  (P)  Ltd.’s case(1). The constitutional scheme declares the right to property  of the  individual  and  then  delimits  it  by  two  different provisions : Art. 19(5) authorizing the State to make  -laws imposing  reasonable  restrictions on the exercise  of  that right,  and  cls.  (1)  & (2) of  Art.  31  recognizing  the authority of the State to make laws for taking the property. Limitations under Art. 19(5) and Art. 31 are not generically different, for the law authorizing the exercise of the power to  take the property of an individual for a public  purpose or  to ensure the well-being of the community, and  the  law authorising the imposition of reasonable restrictions  under Art.  19(5)  are  intended  to  advance  the  larger  public interest.  It is true that the guarantee against deprivation and  compulsory  acquisition  operates  in  favour  of   all persons,  citizens  as  well  as  noncitizens,  whereas  the positive declaration of the right to property (1)  [1963] Supp.  1 S.C.R. 282. 570 guarantees the right to citizens.  But a wider operation  of the  guarantee  under  Art.  31  does  not  after  the  true character of the right it protects.  Article 19(5) and  Art. 31(1)  &  (2),  in  our judgment,  operate  to  delimit  the exercise of the right to hold property. Under the Constitution, protection against impairment of the guarantee of fundamental rights is determined by the  nature of  the right, the interest of the aggrieved party  and  the degree of harm resulting from the State action.   Impairment of  the  right of the individual and not the object  of  the State  in  taking  the impugned action, is  the  measure  of protection.  To concentrate merely on power of the State and

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 37 of 108  

the  object of the State action in exercising that power  is therefore to ignore the true intent of the Constitution.  In this Court, there is, however, a body of authority that  the nature  and  extent  of the protection  of  the  fundamental rights is measured not by the 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 allotted  fields, fundamental, got blurred and gave  impetus to a theory that certain Articles of the Constitutions enact a code dealing exclusively with matters dealt with  therein, and  the protection which an aggrieved person may  claim  is circumscribed by the object of the State action. Protection  of the right to property or personal freedom  is most  needed when there is an actual threat.  To argue  that State   action  which  deprives  a  person  permanently   or temporarily  of his right to property, or personal  freedom, operates to extinguish the right or the remedy is to  reduce the guarantee to an empty platitude.    Again  to hold  that the   extent  of,  and  the  circumstances  in  which,   the guarantee of protection is available depends upon the object of   the   State   action,  is  to   seriously   erode   its effectiveness. Examining the problem not merely in semantics but  in  the  broader and more appropriate  context  of  the constitutional scheme which aims at affording the Individual the  fullest  protection  of his basic rights  and  on  that foundation  to  erect  a structure  of  a  truly  democratic polity, the conclusion, in our judgment, is inevitable  that the  validity  of the State action must be adjudged  in  the light of its operation upon the rights of the individual and groups of individuals in all their dimensions. But  this  Court  has held in some  cases  to  be  presently noticed  that Art. 19 (1) (f) and Art. 31 (2)  are  mutually exclusive. Early  in the history of this Court the question  of  inter- relation  between  the  diverse  provisions  affording   the guarantee  of  fundamental  rights in Part III  fell  to  be determined.  In A. K. Gopalan 571 v.   The State of Madras(1) a person detained pursuant to an order  made  in  exercise  of the  power  conferred  by  the Preventive Detention Act 4 of 1950 applied to this Court for a  writ of habeas ,corpus claiming that the Act  contravened the  guarantee under Arts. 19, 21 & 22 of the  Constitution. The majority of the Court (Kania C.J., and Patanjali Sastri, Mahajan,  Mukherjea  & Das, JJ) held that Art.  22  being  a complete code relating to preventive detention, the validity of  an  order  of  detention  must  be  determined  strictly according  to the terms and "within the four comers of  that Article".   They held that a person detained may  not  claim that  the  freedom guaranteed under Art.  19(1)(d)  was  in- fringed  by  his  detention, and that validity  of  the  law providing for making orders of detention will not be  tested in  the  light  of the reasonableness  of  the  restrictions imposed  thereby  on  the freedom of movement,  nor  on  the ground  that  his  right to personal  liberty  is  infringed otherwise  than  according to the procedure  established  by law.   Fazl Ali, J., expressed a contrary view.   This  case has formed the nucleus of the theory that the protection  of the  guarantee of a fundamental freedom must be adjudged  in the ’light of the object of State action in relation to  the individual’s  right  and  not upon its  influence  upon  the guarantee  of  the fundamental freedom. and as  a  corollary thereto,  that the freedoms under Arts. 19, 21, 22 & 31  are exclusive-each   article   enacting  a  code   relating   to

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 38 of 108  

protection of distinct rights. Kania, C.J., proceeded on the theory that different articles guarantee distinct rights.  He observed at p. 100 "......  it (Art. 19) .... means that the legislation to  be examined  must be directly in respect of one of  the  rights mentioned  in  the sub-clauses.  If there is  a  legislation directly attempting to control a citizen’s freedom of speech or  expression’,  or  his right to  assemble  peaceably  and without arms, etc., the question whether that legislation is saved  by  the  relevant saving clause of  article  19  will arise.   If,  however, the legislation is  not  directly  in respect  of  any of these subjects, but as a result  of  the operation of other legislation, . . . . the question of  the application of article 19 does not arise.  The true approach is  only to consider the directness of the  legislation  and not  what  will  be the result of  the  detention  otherwise valid, on the mode of the detenue’s life." The learned Chief Justice also observed that Art. 19 (1) (d) had  nothing to do with detention, preventive  or  punitive, and  I  the  concept of personal liberty in  Art.  21  being entirely different (1)  [1950] S.C.R. 88. 572 from the concept of the right to move freely throughout  the territory of India, Art. 22 was a complete code dealing with preventive detention. Patanjali Sastri, J., observed at p. 191 "....    article  19  seems      to  pre-suppose  that   the citizens to whom the possession of these fundamental  rights is  secured  retains the substratum of personal  freedom  on which alone the enjoyment of these rights necessarily  rests article  19  guarantees  to the citizens  the  enjoyment  of certain civil liberties while they are free, while  articles 20-22     secure     to     all     persons-citizens     and non-citizens--certain constitutional guarantees in regard to punishment and prevention of crime." Mahajan,  J.,  was  of the view that Art.  22  was  "  self- contained  in respect of laws on the subject  of  preventive detention".  Mukherjea, J., observed (at p. 254) that  there was no conflict between Art. 19 (1) (d) and Art. 22, for the former  did  not contemplate freedom from  detention  either punitive or preventive, but speaks of a different aspect  or phase of civil liberty.  In his view Arts. 20 to 22 embodied the  entire  protection guaranteed by  the  Constitution  in relation  to deprivation of life and personal  liberty  with regard  to  substantive  as  well  as  procedural  law.   He proceeded to observe at p. 261 : "....by reason of preventive detention, aman   may    be prevented from exercising the right offree movement within the territory of Indiabut  that  is merely incidental  to or consequential uponloss of liberty resulting from  the order of detention." But the learned Judge observed at p. 263 "  It may not, I think, be quite accurate to state that  the operation  of article 19 of the Constitution is  limited  to free  citizens only and that the rights have been  described in that article on the pre-supposition that the citizens are at liberty.  The deprivation of personal liberty may  entail as  a  consequence the loss or abridgement of  many  of  the rights  described  in article 19, but that  is  because  the -nature  of these rights is such that free exercise of  them is not possible in the absence of personal liberty. Das, J. observed at p. 304 : "  Therefore, the conclusion is irresistible that the rights protected by article 19(1), in so far as they

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 39 of 108  

573 relate  to rights attached to the person, i.e.,  the  rights referred  to in sub-clauses (a) to (e) and (g),  are  rights which only a free citizen, who has the freedom of his person unimpaired, can exercise.   The learned Judge further observed a lawful detention, whether punitive or preventive, does not               offend  against the protection confer  red  by               article  19 (1) (a) to (e) and (g), for               those  rights must necessarily cease when  the               freedom of the person is lawfully taken  away.               In  short, those rights end where  the  lawful               detention  begins.  So construed,  article  19               and  article  21  may,  therefore,  easily  go               together and there is, in reality, no conflict               between them." Fazl  Ali,  J., struck a different note: he observed  at  p. 148: rights does not contemplate ... that each article is a  code by itself and is independent of the others........ The  case of  a person who is convicted of an offence will come  under article  20 and 21 and also under article 22 so far  as  his arrest and detention in custody before trial are  concerned. Preventive  detention,  which is dealt with in  article  22, also  amounts  to deprivation of personal liberty  which  is referred  to in article 21, and is a violation of the  right               of  freedom of movement dealt with in  article               19(1) At p. 149 the learned Judge observed " The words used in article 19 (1) (d) must be, construed as               they stand, and we have to decide upon the   words  themselves  whether  in  the  case   preventive               detention the right under article 19 (1 )  (d)               is or is not infringed.  But, . . .,  however,               literally  we may construe the words  used  in               article 19 (1 ) (d) and however restricted may               be  the  meaning  we may  attribute  to  those               words, there can be no escape from the conclu-               sion  that  preventive detention is  a  direct               infringement   of  the  right  guaranteed   in               article 19(1)(d)." At p. 170 he observed : " .... this article (Art. 22) clude  the operation of articles 19 and 21, and it  must  be read  subject  to  those two articles, in the  same  way  as articles 19 and 21 must be read subject to article 22.   The correct position is that article 22 must prevail in               574 so  far as there are specific provisions  therein  regarding preventive  detention, but, where there are no  such  provi- sions  in that article, the operation of articles 19 and  21 cannot be excluded.  The mere fact that different aspects of the  same  right  have been dealt with  in  three  different articles will not make them mutually exclusive except to the extent I have indicated." The view expressed in A. K. Gopalan’s case(1) was reaffirmed in Ram Singh and Others v. The State of Delhi (2) . The  principle underlying the judgment of the  majority  was extended  to  the protection of the freedom  in  respect  of property, and it was held that Art. 19 ( 1) (f) and Art.  31 (2)  were. mutually exclusive in their operation.  In A.  K. Gopalan’s  case(3), Das, J., suggested that if the  capacity to  exercise  the  right to property was  lost,  because  of lawful compulsory acquisition of the subject of that  right, the owner ceased to have that right for the duration of  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 40 of 108  

incapacity.   In Chiranjit Lai Chowduri’s case(4), Das,  J., observed at p. 919 : "...the  right  to property guaranteed by Art.  19(  1)  (f) would  ....  continue  until the owner  was  under  Art.  31 deprived of such property by authority of law." In  The  State of West Bengal v. Subodh  Gopal(1)  the  same learned Judge observed that "Art. 19 (I ) (f) read with Art. 19  (5) presupposes that the person to whom the  fundamental right  is  guaranteed  retains his  property  over  or  with respect  to  which alone that right may be  exercised."  The principle  so  stated was given a more concrete shape  in  a later decision : State of Bombay v. Bhanji Munji & Another 5 In Bhanji, Munji’s case(1), speaking for a unanimous  Court, Bose,, J., observed "  ...... it is  enough to say that Art. 19 ( I ) (f )  read               with  clause (5) postulates the  existence  of               property which can be enjoyed, and over  which               rights can be exercised because otherwise -the               reasonable restrictions contemplated by clause               (5) could not be brought into play.  If  there               is no property which can be acquired, held  or               disposed  of, no restriction can be placed               on the exercise of the right to acquire,  hold               or   dispose   it  of,  and  as   clause   (5)               contemplates   the   placing   of   reasonable               restrictions  on the exercise of those  rights               it must (1)  [1950]  S.C.R.  88. (2] [1951] S.C.R. 451.  (3)  [1950] S.C.R. 869. (4) [1954] S.C.R. 587. (5)  [1955] 1 S.C.R. 777.               575 follow that the Article postulates the existence of property over which the rights are to be exercised." Bhanji Munji’s case(1) was accepted without -any  discussion in  Babu  Barkya Thakur v. The State of Bombay  (2)  ;  Smt. Sitabati  Debi  and  Anr.  v.  State  of  West  Bengal   and Another(3), and other cases. In  these cases it was held that the substantive  provisions of a law 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. Bhanji  Munji’s,  case, it must be remembered,  arose  under Art.  31 before it was amended by the  Constitution  (Fourth Amendment)  Act.  It was held by this Court that cls. (1)  & (2)  of  Art.  31 as they then stood  dealt  with  the  same subjectmatter, i.e. compulsory acquisition of property;: see Subodh  Gopal’s case(3) and Dwarkadas  Shriniwas’s  case(4). But   since  the  amendment  by  the  Constitution   (Fourth Amendment)  Act it has been held that cls. (1) &  (2)  dealt with  different subjectmatters.  In  Kavalppara  Kottarathil Kochuni’s  case(3), Subba Rao, J.delivering the judgment  of the  majority of the Court observed that cl. (2) of Art.  31 alone  deals with compulsory acquisition of property by  the State  for  a public purpose, and not Art. 31  (1),  and  he proceeded  to  hold that the expression "authority  of  law" means authority of a valid law, and on that account validity of  the law seeking to deprive a person of his  property  is open  to  challenge on the ground that  it  infringes  other fundamental  rights,  e.g., under Art. 19(1)  (f).   It  was broadly  observed  that  Bhanji Munji’s  case(1)  after  the Constitution  (Fourth  Amendment) Act "no longer  holds  the field".   But Kavalappara Kottarathil Kachuni’s case(6)  did not  deal with the validity of a law relating to  compulsory acquisition.   With the decision in Kavalappara  Kottarathil Kochuni’s  case(1)  there  arose  two  divergent  lines   of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 41 of 108  

authority (1) "authority of law" in Art. 31 (1) is liable to be  tested on the ground that it violates other  fundamental rights  and  freedoms including the right to  hold  property guaranteed by Art. 19 (1) (f). and (2) "authority of a  law" within  the  meaning  of Art. 31 (2) is not  liable  to  be, tested  on the ground that it impairs the guarantee of  Art. 19(1)(f)  in so far as it imposes substantive  restrictions- though it may be tested on the ground of impairment of other guarantees.   The  expression "law" in the two  clauses  had therefore  different  meanings.  It was for the  first  time (obiter dicta apart) in The State of Madhya (1)  [1955]  1  S.C.R.  777. (2) [1961] 1  S.C.R.  128.  (3) [1967] 2 S.C.R. 940. (4) [1954] S.C.R. 587. (5)  [1954] S.C.R. 674. (6) [1960] 3 S.C.R. 887. 576 Pradesh  v. Ranojirao Shinde(1) this Court opined  that  the validity of law in cl. (2) of Art. 31 may be adjudged in the light  of Art. 19 (1) (f ). But the Court in that  case  did not  consider  the  previous  catena  of  authorities  which related  to the inter-relation ,between Art. 31(2) and  Art. 19(1) (f). We  have carefully considered the weighty pronouncements  of the  eminent Judges who gave shape to the concept  that  the extent  of protection of important guarantees, such  as  the liberty  of person, and right to property, depends upon  the form and object of the State action, and not upon its direct operation upon the individual’s freedom.  But it is not  the object  of the authority making the law impairing the  right of  a citizen, nor the form of .action that  determines  the protection he can claim: it is the effect of the law and  of the action upon the right which attract the jurisdiction  of the Court to grant relief.  If this be the true view, and we think it is, in determining the impact of State action  upon constitutional guarantees which are fundamental, it  follows that  the  extent  of protection  against  impairment  of  a fundamental  right  is determined not by the object  of  the Legislature nor by the form of the action, but by its direct operation upon the individual’s rights. We are of the view that the theory that the object and  form of  the,  State action determine the  extent  of  protection which  the aggrieved party may claim is not consistent  with the  constitutional  scheme.   Each  freedom  has  different dimensions.   Article 19 (1 ) (f ) enunciates the  right  to acquire,  hold and dispose of property: cl. (5) of  Art.  19 authorize   imposition  of  restrictions  upon  the   right. Article  31  assures  the  right  to  property  and   grants protection  against  the exercise of the  authority  of  the State.  Clause (5) of Art. 19 and cis. (1) & (2) of Art.  31 prescribe  restrictions upon State action, subject to  which the right to property may be exercised.  Article 19(5) is  a broad generalization dealing with the nature of  limitations which  may be placed by law on the right to  property.   The guarantees  under  Arts.  31  (1) & (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  of the  limitations under the two provisions is not  different. Clause  (5)  of Art. 19 and cls. (1) & (2) of  Art.  31  are parts  of a single pattern : Art. 19 ( 1 ) (f  )  enunciates the, basic right to property of the citizens and Art.  19(5) and cis. (1) & (2)  of  Art. 31 deal with limitations  which may be placed by law,    subject to which the rights may  be exercised. Limitations  prescribed  for ensuring due  exercise  of  the authority  of the State to deprive a person of his  property

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 42 of 108  

and of the (1)  [1968] 3S.C.R.489. 577 power  to compulsorily acquire his property are,  therefore, specific  classes  of limitations on the right  to  property falling within Art. 19(1) (f).  Property may be compulsorily acquired only for a public purpose.  Where the law  provides for compulsory acquisition of property for a public  purpose it may be presumed that the acquisition or the law  relating thereto imposes a reasonable restriction in the interest  of the  general  public.   If there is  no  public  purpose  to sustain compulsory acquisition, the law violates Art. 31(2). If  the  acquisition is for a  public  purpose,  substantive reasonableness of the restriction which includes deprivation may, unless otherwise established, be presumed, but  enquiry into reasonableness of the procedural provisions will got be excluded.   For instance if a tribunal is authorised  by  an Act  to  determine compensation  for  property  compulsorily acquired, without hearing the owner of the property, the Act would be liable to be struck down under Art. 19 (1 ) (f ). In dealing with the argument that Art. 31 (2) is a  complete code  relating to infringement of the right to  property  by compulsory  acquisition, and the validity of the law is  not liable  to be tested in the light of the  reasonableness  of the restrictions imposed thereby, it is necessary to bear in mind the enunciation of the guarantee of fundamental  rights which  has  taken different forms.  In some cages it  is  an express  declaration  of a guaranteed right :  Arts.  29(1), 30(1),  26,  25  & 32; in others  to  ensure  protection  of individual  rights they take specific forms of  restrictions on State action-legislative or executive--Arts. 14, 15,  16, 20, 21, 22(1), 27 and 28; in some others, it takes the  form of a positive declaration and simultaneously enunciates  the restriction there on : Arts. 19(1) and 19(2) to (6); in some cases, it arises as an implication from the delimitation  of the authority of the State, e.g., Arts. 31(1) and 31(2);  in still  others,  it takes the form of a  general  prohibition against  the  State as well as others : Arts. 17, 23  &  24. The  enunciation of rights either express or by  implication does  not  follow a uniform pattern.  But  one  thread  runs through  them  :  they seek to protect  the  rights  of  the individual or groups of individuals against infringement -of those  rights  within  specific limits.   Part  III  of  the Constitution  weaves a pattern of guarantees on the  texture of   basic  human  rights.   The  guarantees   delimit   the protection of those rights in their allotted fields: they do not -attempt to enunciate distinct rights. We  are therefore unable to hold that the challenge  to  the validity  of the provision for acquisition is liable  to  be tested only on the ground of non-compliance with Art. 31(2). Article 31(2) requires that property must be acquired for  a public purpose and that it must be acquired under a law with characteristics set out in that Article.  Formal  compliance with the conditions under L8Sup.CI/70 578 Art.  31(2) is not sufficient to negative the protection  of the guarantee of the right to property.  Acquisition must be under the authority of a law and the expression "law"  means a law which is within the competence of the Legislature, and does not impair the guarantee of the rights in Part Ill.  We are unable, therefore, to agree that Arts. 19 ( 1 ) (f ) and 31 (2) are mutually exclusive. The area of protection afforded against State action by  the freedom  under  Art. 19 (1) (f) and by the exercise  of  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 43 of 108  

power  of  the State to acquire property of  the  individual without  his consent must still be reconciled.  If  property is  compulsorily acquired for a public purpose, and the  law satisfies  the requirements of Arts. 31(2) and 31 (2A),  the Court  may  readily  presume  that  by  the  acquisition   a reasonable restriction on the exercise of the right to  hold property is imposed in the interests of the general  public. But  that is not because the claim to plead infringement  of the  fundamental right under Art. 19 (1) (f) does not  avail the   owner;  it  is  because  the  acquisition  imposes   a permissible  restriction on the, right of the owner  of  the property compulsorily acquired. We  have found it necessary to examine the rationale of  the two  lines  of  authority and  determine  whether  there  is anything in the Constitution which justifies this apparently inconsistent  development of the law.  In our judgment,  the assumption in A. K. Gopalan’s case(1) that certain  articles in  the Constitution exclusively deal with specific  matters and  in  determining whether there is  infringement  of  the individual’s  guaranteed rights, the object and the form  of the State action alone need be considered, and effect of the laws  on  fundamental rights of the individuals  in  general will be Ignored cannot be accepted as correct.  We hold that the  validity  "of  law"  which  authorises  deprivation  of property and "a law" which authorises compulsory acquisition of  property  for a public purpose must be adjudged  by  the application  of the same tests.  A citizen may claim  in  an appropriate   case  that  the  law  authorising   compulsory acquisition  of property imposes fetters upon his  right  to hold  property which are not reasonable restrictions in  the interests of the general public.  It is immaterial that the, scope  for such challenge. may be attenuated because of  the nature of the law of acquisition which providing as it  does for expropriation of property of the individual for’  public purpose may be presumed to impose reasonable restrictions in the interests of the general public. Whether  the provisions of ss. 4 & 5 of Act 22. of 1969  and the   other  related  provisions  of  the  Act  impair   the fundamental (1)  [1950] S.C.R. 88. 579 freedoms  under  Art. 19 ( I ) (f ) & (g) now falls  to,  be considered By s. 4 the entire undertaking of each named bank vests in the Union, and the Bank is prohibited from engaging in  the business of banking in India and even in  a  foreign country,  except  where  by the laws of  a  foreign  country banking business owned or controlled by Government cannot be carried on, the named bank will be entitled to continue  the business  in  that country.  The business  which  the  named banks carried on was-(1) the business of banking as  defined in  s.  5  (b)  of the Banking  Regulation  Act,  1949,  and business incidental thereto; and (2) other business which by virtue of s. 6(1) they were not prohibited from carrying on, though not part of or incidental to the business of banking. It  may be recalled that by Act 22 of 1969 the  named  banks cannot  engage in business of banking as defined in s.  5(b) of the Banking Regulation Act, 1949, but may engage in other forms  of  business.   By  the  Act,  however,  the   entire undertaking  of  each  named  bank  is  vested  in  the  new corporation  set up with a name identical with the  name  of that  Bank,  and  authorised to carry  on  banking  business previously carried on by the named bank, and its  managerial and  other  staff is transferred to  the  corresponding  new bank.  The newly constituted corresponding bank is  entitled to engage in business described in s. 6 ( 1 ) of the Banking

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 44 of 108  

Regulation Act, and for that purpose to utilize the  assets, goodwill and business connections of the existing bank. The named banks are declared entitled to engage in  business other than banking : but they have no assets with which that business  may be carried on, and since they  are  prohibited from carrying on banking business, by virtue of s. 7 of  the Reserve  Bank of India Act, they cannot use in  their  title the  words  "Bank"  or "Bankine" and even  engage  in  "non- banking.   business"  in  their  old  names.    A   business organization deprived of its entire assets and  undertaking, its managerial and other staff, its premises, and its  name, even  if it has a theoretical right to carry on  non-banking business,  would not be able to do so, especially when  even the fraction of the value of its undertaking made payable to it as compensation, is not made immediately payable to it. Validity  of  the provisions of the Act which  transfer  the undertaking of the named banks and prohibit those banks from carrying  on  business of banking and  practically  prohibit them  from  carrying  on non-banking business  falls  to  be considered  in the light of Art. 19(1)(f) and Art.  19(1)(g) of  the  Constitution.  By Art. 19(1)(f) right  to  acquire, hold and dispose of property is guaranteed to the  citizens; and by Art. 19 (1) (g) the right to practise any profession, or  to  carry  on  any  occupation,  trade  or  business  is guaranteed to the citizens.  These rights are- 580 not   absolute:  they  are  subject  to   the   restrictions prescribed  in ;the appropriate clauses of Art. 19.  By  cl. (5)  it is provided, inter alia, that nothing in  sub-cl.(f) of  cl. (1) shall affect the -operation of any existing  law in  so far as it imposes, or prevent -the State from  making any  law, imposing in the interests of the  general  public, reasonable  restrictions  on  the  exercise  of  the   right ,conferred by that sub-clause either in the interests of the general public or for the protection of the interests of any Scheduled ’Tribe.  Clause (6) as amended by the Constitution (First -Amendment) Act, 1951, reads " Nothing in sub-clause (g) of the said clause shall  affect the  operation of any existing law in so far as it  imposes, or  prevent the State from making any law imposing,  in  the interests of the general public, reasonable restrictions  on the exercise of the right conferred by the said  sub-clause, and,  in particular, nothing in the said  sub-clause,  shall affect  the  operation of any existing law in so far  as  it relates  to, or prevent the State from making  law  relating to- (i)  the professional or technical qualifications  necessary for practising any profession or carrying on any occupation, trade or business, or (ii).the carrying on by the State, or by a corporation owned or controlled by the State, of any trade, business, industry or  service, whether to the exclusion, complete or  partial, of citizens or otherwise." Clause (6) of Art. 19 consists of two parts : (1) the  right declared  by  sub-cl.  (g)  is  not  protected  against  the operation  of  any  law imposing, in the  interests  of  the general  public, reasonable restrictions on the exercise  of the  right  conferred  by  that  sub-clause;  and  (2)    in particular sub-cl. (g) does not affect the operation of  any law relating, inter alia, to carrying on by the State or  by a  corporation  owned  or controlled by the  State,  of  any trade,  business, industry or service, whether or  not  such law  provides  for the exclusion, complete  or  partial,  of citizens. According  to Mr. Palkhivala it was intended by the  use  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 45 of 108  

the expression "in particular", to denote a special class of trade,  business,  industry or service out  of  the  general class  referred to in the first part, and on that account  a law  which relates to the ,carrying on by the State  of  any -particular   business,   industry  ’or  service,   to   the exclusion-complete or partial--of citizens or -otherwise, is also subject to the enquiry . whether it imposes 581 reasonable restrictions on the exercise of the right in  the interests,  of the general public.  Counsel urged  that  the law imposing restrictions upon the exercise of the right  to carry on any occupation, trade or business is subject to the test of reasonable restrictions imposed in the interests  of the   general  public,  likewise,  the  particular   classes specified  in  the second part of the Article must  also  be regarded  as  liable to be tested in the light of  the  same limitations.   Counsel strongly relied upon the decision  of the  House of Lords in Earl Fitzwilliam’s Wentworth  Estates Co. v. Minister of Housing and Local Government and  Anr.(1) The House of Lords in that case did not lay down any general proposition.  They were only dealing with the meaning of the words "in particular" in the context in which they occurred, and it was held that the expression "in particular" was  not intended  to  confer a separate and  distinct  power  wholly independent of that contained in the first limb.  It  cannot be  said that the expression "in particular" used  in  Art,. 19(1)(g)   is  intended  either  to  particularise   or   to illustrate the general law set out in the first limb. It  was observed in Saghir Ahmad v. The State of  U.P.  and’ Others (2) by Mukherjea, J. at p. 727 : "The  new  clause-Art. 19(6)--has no doubt  been  introduced with a view to provide that a State can create a monopoly in its own favour in respect of any trade or business; but  the amendment does not make the establishment of such monopoly a reasonable  restriction  within  the meaning  of  the  first clause  of Art. 19(6).  The result of the amendment is  that the  State would not have to justify such action as  reason- able  at  all in a court of law, and no objection  could  be taken to it on the ground that it is an infringement of  the rights   guaranteed   under  Art.  19  (1  )  (g)   of   the Constitution." In dealing with the validity of a law creating a State mono- poly  in Akadasi Padhan v. State of Orissa, (3 ) this  Court unanimously  held,  that the validity of a  law  creating  a State  monopoly  which  "indirectly impinges  on  any  other right"  cannot be challenged on the, -round that it  imposes restrictions  which are not reasonable restrictions  in  the interests  of the general’ public.  But if the law  contains other  incidental  provisions, which do  not  constitute  an essential  and integral part of the monopoly created by  it, the validity of those provisios is liable to be tested under the first part of Art. 19(6) If they directly, (1)  [1952] 1 All E.R. 509. (2) [1955] 1 S.C.R. 707, 727. (3)  [1963] Supp. 2 S.C.R. 691. 582 impair any other fundamental right guaranteed by Art. 19(1), the validity of those provisions will be tested by reference to  the  corresponding clauses of Art. 19.  The  Court  also observed that the essential attributes of the law creating a monopoly will vary with the nature of the trade or  business in which the monopoly is created.  They will depend upon the nature of the commodity, the nature of trade in which it  is involved    and   other   Circumstances.    At    p.    707, Gajendragadkar, J. speaking for the Court, observed :

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 46 of 108  

.lm15 "  ’A  law  relating to’ a State monopoly  cannot,  in  the, context,  include all the provisions contained in  the  said law  whether they have direct relation with the creation  of the  monopoly or not.  In our opinion, the  said  expression should be construed to mean the law relating to the monopoly in  its absolutely essential features.  If a law  is  passed creating  a State, monopoly, the Court should  enquire  what are  the provisions of the said law which are basically  and essentially  necessary for creating the State monopoly.   It is  only  those  essential and basic  provisions  which  are protected  by the latter part of Art. 19(6).  If  there  are other  provisions  made  by the Act  which  are  subsidiary, incidental or helpful to the operation of the monopoly, they do not fall under the first part of Art. 19(6). -He also observed at p. 705 : that State monopoly in respect of any trade or business must be presumed to be reasonable and in the interests of general public, so far as Art. 19 (1) (g) is concerned." This  was  reiterated in Rasbihari Panda and Others  v.  The State of Orissa;(1) M/s.  Vrajlal Manilal & Co. and Another- v.  The State of Madhya Pradesh & Others;(2)  and  Municipal Committee,  Amritsar  and  Others v.  State  of  Punjab  and Others.(3)  These  ,cases dealt with the  validity  of  laws creating monopolies in the State.  Clause (6) is however not restricted  to laws creating State monopolies, and the  rule enunciated  in Akadasi Padhan’s case(4) applies to all  laws relating  to  the  carrying on by the State  of  any  trade, business,  industry  or service.  By Art. 298 the  State  is authorized  to  carry  on trade  which  is  competitive,  or excludes   the  citizens  from  that  trade  completely   or partially. (1)  [1969] 3 S.C.R. 374. (2)  [1970] 1 S.C.R. 400. (3)  [1969] 3 S.C.R, 447. (4) [1963] Supp. 2 S.C.R. 691. 583 The  "basic  and  essential" provisions  of  law  which  are "integrally and essentially connected" with the carrying  on of  a  trade  by  the State will not be  exposed  -  to  the challenge   that  they  impair  the  guarantee  under   Art. 19(1)(g),  whether the citizens are excluded  completely  or partially  from  carrying on that trade, -or  the  trade  is competitive.    Imposition   of   restrictions   which   are incidental or subsidiary to the carrying on of trade by  the State whether to the exclusion of the citizens or not  must, however, satisfy the test of the main limb. The law which prohibits after July 19, 1969, the named banks from  carrying  on  banking  business,  being  a   necessary incident of the right assumed by the Union, is not liable to be  challenged because of Art’ 19 (6) (ii) in so far  as  it affects the right to carry on business. There  is no satisfactory proof in support of the plea  that the  enactment  of  Act 22 of 1969 was  not  in  the  larger interest  of the nation, but to serve political  ends,  i.e. not with the object to ensure better banking facilities,  or to  make them available to a wider public, but only to  take control  over  the  deposits of the public  with  the  major banks,  and  to  use  them  as  a  political  lever  against industrialists  who  had built up industries by  decades  of industrial planning and careful management.  It is true that social  control  legislation  enacted by  the  Banking  Laws (Amendment)  Act 58 of 1968 was in operation and  the  named banks  were  subject to rigorous control which  the  Reserve Bank  was competent to. exercise and did in  fact  exercise.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 47 of 108  

Granting  that the objectives laid down by the Reserve  Bank were  being carried out, it cannot be said that the Act  was enacted  in abuse of legislative power.  Our  attention  was invited  to  a  mass of evidence from the  speeches  of  the Deputy  Prime Minister, and of the Governor and  the  Deputy Governor  of  the Reserve Bank, and also extracts  from  the Reserve  Bank Bulletins issued from time to time  and  other statistical  information collected from official sources  in support of thesis of the petitioner that the performance  of the  named  banks  exceeded the targets  laid  down  by  the Reserve  Bank  in its directives; that the named  banks  had effectively complied with the requirements of the law;  that they had served the diverse interests including  small-scale sector,  and  had  been instrumental in  bringing  about  an increasing tempo of industrial and commercial activity; that they had discouraged speculative holding of commodities, and had   followed   essential  priorities   in   the   economic development of the nation coupled with a vigorous  programme of branch development in the rural sector, bringing about  a considerable  expansion in deposits, and large  advances  to the small-scale business and industry.  Mr. Palkhivala urged that under the scheme of social control the 584 commercial  banks had achieved impressive results  comparing favourably  with the performance of the State Bank of  India and  its  subsidiaries in the public sector,  and  that  the performance  of  the named banks could not be  belittled  by referring to the banking structure and development in highly developed  countries  like  Canada,  Japan,  France,  United States  and  the  United Kingdom.  On the  other  hand,  the Attorney-General  said that the commercial banks followed  a conservative  policy because they had to look- primarily  to the interests of the shareholders, and on that account could not  adopt bold policies or schemes for financing the  needy and  worthy  causes; that if the resources  of  the  banking industry  are properly utilised for the weaker  sections  of the  people  economic  regeneration of  the  nation  may  be speedily  achieved, that 28% of the towns in India were  not served  by  commercial banks; that there  had  been  unequal development of facilities in different parts of the  country and  deserving sections were deprived of the benefit  of  an important   national   resource   resulting   in    economic disparities,  especially because the major banks catered  to the large-scale industries. , This  Court  is  not the forum in  which  these  conflicting claims may be debated.  Whether there is a genuine need  for banking facility in the rural areas, whether certain classes of  the  community  are  deprived  of  the  benefit  of  the resources of the banking industry, whether administration by the  Government  of the commercial banking sector  will  not prove beneficial to the community and will lead to  rigidity in the administration, whether the Government administration will eschew the profit-motive, and -even if it be  eschewed, there  will  accrue  substantial  benefits  to  the  public, whether  an  undue accent on banking as a  means  of  social regeneration,  especially  in  the,  backward  areas,  is  a doctrinaire approach to a rational order of priorities  -for attaining   the   national  objectives  enshrined   in   our Constitution,  and  whether  the  policy  followed  by   the Government  in  office  or  the  policy  propounded  by  its opponents may reasonably attain the national objectives  are matters  which  have  little relevance  in  determining  the legality of the measure.  It is again not for this Court  to consider  the  relative merits of  the  different  political theories  or  economic policies.  The Parliament  has  under

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 48 of 108  

Entry 45 List I the power to legislate in respect of banking and   other  commercial  activities  of  the   named   banks necessarily   incidental  thereto;  it  has  the  power   to legislate  for acquiring the undertaking of the named  banks under  Entry  42 List III.  Whether by the exercise  of  the power vested in the Reserve Bank under the preexisting laws, results could be achieved which it is the object of the  Act to  achieve,.  is. in our judgment, not relevant  in  consi- dering  whether  the  Act amounts to  abuse  of  legislative power. 585 This Court has the power to strike down a law on the  ground of  want of authority, but the Court will not sit in  appeal over  the policy of the Parliament in enacting a  law.   The Court  cannot find fault with the Act merely on  the  ground that it is inadvisable to take over the undertaking of banks which, it is said by the petitioner, by thrift and efficient management  had set up an impressive and efficient  business organization serving. large sectors of industry. By s. 15 (2) (e) of the Act the Banks are entitled to engage in  business other than banking.  But by the  provisions  of the Act they are rendered practically incapable of  engaging in any business.  By the provisions of the Act, a named bank cannot  even use its name, and the compensation which is  to be given will, in the absence of agreement, be determined by the  Tribunal and paid in securities which will  mature  not before  ten  years.   A  named bank  may  if  it  agrees  to distribute among the shareholders the compensation which  it may receive, be paid in securities an amount equal to,  half the  paid-up share capital, but obviously the fund will  not be  available to the, Bank.  It is true that under s.  15(3) of  the  Act  the  Central  Government  may  authorise   the corresponding new banks to make advances to the named  banks for any of the purposes mentioned in s. 15(2).  But that  is a  matter  which  rests only upon the will  of  the  Central Government and no right can be founded upon it. Where  restrictions imposed upon the carrying on of a  busi- ness  are so stringent that the business cannot in  practice be  carried on, the Court will regard the imposition of  the restrictions as unreasonable.. In Mohammad Yasin v. The Town Area   Committee,  Jalalabad  and  Another(1)   this   Court -observed  that  under Art. 19(1)(g) of the  Constitution  a citizen  has the right to carry on any occupation, trade  or business  and  the only restriction on ’this  right  is  the authority  of  the  State  to make a  law  relating  to  the carrying  on  of  such  occupation,  trade  or  business  as mentioned  in  cl.  (6) of that Article as  amended  by  the Constitution  (First  Amendment)  Act,  1951.  In   Mohammad Yasin’s  case by the, bye--laws of the Municipal  Committee, it  was provided that no person shall sell or  purchase  any vegetables or fruit within the limits of the municipal  area of  Jalalabad, wholesale or by auction, without  paying  the prescribed  fee.   It  was urged on behalf  of  a  wholesale dealer ’in vegetables that although there was no prohibition against  carrying on business, in vegetables by anybody,  in effect  the bye-laws brought about a total stoppage  of  the wholesaler’s business in a commercial sense, for, he had  to pay prescribed fee to the contractor, and under the bye-laws the wholesale dealer could not charge a (1)  [1952] S.C.R. 572. 586 higher   rate  of  commission  than  the  contractor.    The wholesale  ,dealer, therefore, could charge the  growers  of vegetables  and fruit only the commission permissible  under the bye-laws, and he had to make over the entire  commission

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 49 of 108  

to  the contractor without retaining any part thereof.   The wholesale  dealer  was -thereby converted into a  mere  tax- collector  for  the contractor or the  Town  Area  Committee without any remuneration The bye-laws in this situation were struck down as impairing the freedom to carry on business. In  Dwarkadas Shrinivas’s(1) case the Sholapur Spinning  and Weaving  Company  " (Emergency Provisions) Ordinance  11  of 1950 and Act 28 of 1950 passed by the Parliament to  replace the  Ordinance  were challenged.  Under  the  Ordinance  the managing agent and the elected directors were dismissed  and new directors were appointed by the State.  The Company  was denuded of possession of its property and all that was  left to the Company was a bare legal title.  In an appeal arising out of a suit challenging the validity of the Ordinance  and the  Act  which  replaced  it,  this  Court  held  that  the Ordinance and the Act violated the fundamental rights of the Company  and of the plaintiff a preference shareholder  upon whom  a demand was made for payment of unpaid  calls.   This Court held that the Ordinance and the Act in effect deprived the  Company of its property within the meaning of  Art.  31 without compensation.  It was observed by Mahajan, J.,  that practically  all incidents of ownership were taken  over  by the State and nothing was left with the Company but the mere husk of title, and on that account the impugned statute’ had overstepped   the  limits  of  legitimate   social   control legislation. If compensation paid is in a form that it is not immediately available  for restarting any business, declaration  of  the -right  to carry on business other than banking  becomes  an empty  formality, when the entire undertaking of  the  named banks is transferred to and vests in the new banks, together with the premises and the names of the banks, and the  named banks are deprived of the services of its administrative and other staff. The restriction imposed upon the right of the named banks to carry on "non-banking" business is’ in our judgment, plainly unreasonable.   No attempt is made to Support the Act  which while  theoretically declaring the right of the named  banks to carry on "non-banking" business makes it impossible in  a commercial sense for the banks to carry on any business, (1)  [1954] S.C.R. 674. 587 Protection of Art. 14-- By Art. 14 of the Constitution the State is enjoined not  to deny  any  person  equality  before the  law  or  the  equal protection  of the laws within the territory of India.   The Article  forbids  class  legislation,  ’but  not  reasonable classification  in  making laws.  The  test  of  permissible classification   under  an  Act  lies  in   two   cumulative conditions  :  (i)  classification under  the  Act  must  be founded   on  an  intelligible  differentia   distinguishing persons, transactions or things grouped together from others left  out  of  the group; and (ii)  the  differentia  has  a rational relation to the object sought to be achieved by the Act   :  there  must  be  a  nexus  between  the  basis   of classification  and  the object of the Act :  Chiranjit  Lal Chowduri’s case(1); The State of Bombay v. F. N. Balsara(2); The  State  of  West Bengal v. Anwar  Ali  Sarar(3);  Budhan Choudhry  and  Others  v. The State of  Bihar(1);  Shri  Ram Kishan   Dalmia  v.  Shri  Justice  S.  R.   Tendolkar   and Others,(2); and State of Rajasthan v. Mukandchand & Ors. The Courts recognize in the Legislature some degree of elas- ticity  in  the matter of making  a  classification  between persons,    objects   and   transactions.    Provided    the classification  is  based on some intelligible  ground,  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 50 of 108  

Courts will not strike down that classification, ’because in the view of the Court it should have proceeded on some other ground  or  should have included in the class  selected  for special   treatment   some   other   persons,   objects   or transactions which are not included by the Legislature.  The Legislature  is free to recognize the degree of harm and  to restrict  the operation of a law only to those  cases  where the  need is the clearest.  The Legislature need not  extend the regulation of a law to all cases it may possibly  reach, and  may make a classification founded on practical  grounds of  convenience.  Classification to be valid must,  however, disclose  a  rational  nexus with the object  sought  to  be achieved   by  the  law  which  makes  the   classification. Validity  of  a classification will be upheld only  if  that test is independently satisfied.  The Court in examining the validity of a statute challenged as infringing the  equality clause  makes  an  assumption that  there  is  a  reasonable classification  and that the classification has  a  rational relation to the object sought to be achieved by the statute. By the definition of "existing bank" in s. 2(d) of the  Act, fourteen named banks in the First Schedule are, out of  many commercial  banks  engaged  in the  ’business  of  ’banking, selected  for special treatment, in that the undertaking  of the  named  banks is taken over, they  -are  prevented  from carrying on in India and (1) [1950] S.C.R. 869.   (2) [1951] S.C.R. 682. (3) [1952] S.C.R. 284.   (4) [1955] I S.C.R. 1045. (5) [1959] S.C.R. 279, 300.(6) [1964] 6 S.C.R. 903, 910. 588 abroad banking business and the Act operates in practice  to prevent those banks engaging in business other than banking. By  reason of the transfer of the undertaking of  the  named banks,  the interests of the banks and the shareholders  are vitally affected.  Investment in bank-shares is regarded  in India,  especially in the shares of larger banks, as a  safe investment  on  attractive terms with a  steady  return  and fluidity  of  conversion.  Mr. Palkhivala has  handed  in  a statement  setting out the percentage return of dividend  on market-rates in 1968.  The rate works out at more than,  10% in  the case of. the shares of Bank of Baroda, Central  Bank of  India,  Dena Bank, Indian Bank, United Bank  and  United Commercial  Bank; and at more than 9% in the case of  shares of  Bank of India, Bank of Maharashtra, Canara Bank,  Indian Bank, Indian Overseas Bank and United Bank of India.  In the case of Allahabad Bank it worked out at 5%, and in the  case of  shares  of Punjab National Bank and Syndicate  Bank  the rates are not available.  This statement is not  challenged. Since the taking over of the undertaking, there has resulted a  steep fall in the ruling market quotations of the  shares of  a  majority of the named banks.  The  market  quotations have slumped to less than 50% in the case of Bank of  India, Central  Bank, Bank of Baroda and even at the  quoted  rates probably there are no transactions.  Dividend may no  longer be distributed, for the banks have no liquid assets and they are not engaged in any commercial activity. It may take many years before the compensation payable to the banks may  even be  finalized,  and  be available to  the  named  banks  for utilising  it  in any commercial venture open to  the  banks under  the  Act.   Under  the  scheme  of  determination  of compensation, the total amount payable to the banks will  be a  fraction  of  the value of their  net  assets,  and  that compensation will not be available to the banks immediately. The  ground  for select-ion of the 14 banks  is  that  those banks  held deposits, as shown in the return as on the  last Friday  of June 1969 furnished to the Reserve Bank under  s.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 51 of 108  

27  of  the Banking Regulation Act, 1949, of not  less  than rupees fifty crores. The object of Act 22 of 1969 is according to the long  title to   provide  for  the  acquisition  and  transfer  of   the undertakings of certain banking companies in order to  serve better the needs of development of the economy in conformity with  the  national policy and objectives  and  for  matters connected  therewith  or incidental thereto.   The  national policy may reasonably be taken to be the policy contained in the  directive principles of State policy, especially  Arts. 38 & 39 of the Constitution.  For achieving the need s of  a developing economy in conformity with 589 the  national  policy and objectives, the resources  of  all banks  foreign  as well as Indian-are  inadequate.   of  the total deposits with commercial banks 27% are with the  State Bank  of India and its subsidiaries : the  named  commercial banks   of  which  the  undertaking  is  taken   over   hold approximately 56% of the deposits.  The remaining 17% of the deposits  are  shared  by the foreign banks  and  the  other scheduled  and  non-scheduled commercial banks. 83%  of  the total  resources  may  obviously not  meet  wholly  or  even substantially the needs of development of the, economy. In  support of the plea that there is a reasonable  relation between  the differentia-ground for making  the  distinction between  the  named  banks and the other  banks  Indian  and foreign-and  the  object of the Act, it is  urged  that  the policy  of  the  Union is to control  the  concentration  of private  economic  resources to ensure  achievement  of  the directive principles of State policy, and for that  purpose, selection  has  been made "with an eye, inter alia,  to  the magnitude  and  concentration of the economic  resources  of such  enterprises  for  inclusion in such law  as  would  be essential or- substantially conducive to the achievement  of the  national  objectives  and  policy".  it  is  apparently claimed that the object of the Government-not of  statute-is to  acquire ultimately all banking institutions, but the  14 named  banks are selected for acquisition because they  have "larger  business  and wider coverage"  in  comparison  with other banks not selected, and had also larger organization, better managerial resources and employees better trained and equipped.   These are primarily grounds  for  classification and   not   for   explaining  the   relation   between   the classification  and  the  object of the  Act.   But  in  the absence  of any reliable data, we do not think it  necessary to  express an opinion on the question whether selection  of the  undertaking of some out of many  banking  institutions, for  compulsory acquisition, is liable to be struck down  as hostile  discrimination,  on  the ground that  there  is  no reasonable  relation between the differentia and the  object of the Act which cannot be substantially served even by  the acquisition  of  the undertakings of all the  banks  out  of which the selection is made. It is claimed that the depositors with the named banks  have also a grievance.  Those -depositors who had made  long-term deposits, taking into account the confidence they had in the management of the banks and the- service they rendered,  are now  called  upon  to trust the management  of  a  statutory corporation not selected by them, without an opportunity  of being  placed in the same position in which they would  have been  if  they  were permitted to  transfer  their  deposits elsewhere.  The 590 argument  is  based on several imponderables  and  does  not require any detailed consideration.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 52 of 108  

But  two other grounds in support of the plea of  impairment of  the guarantee of equality clause require to be  noticed. The  fourteen  named banks are prohibited from  carrying  on banking  business--a  disability  for  which  there  is   no rational explanation.  Banks other than the named banks  may carry  on banking business in India and abroad :  new  banks may  be  floated for carrying on banking business,  but  the named   banks  are  prohibited  from  carrying  on   banking business.  Each named bank had, even as claimed on behalf of the  Union,  by  its  superior  management  established   an extensive business organization, and each bank had  deposits exceeding Rs. 50 crores.  The undertakings of the banks  are taken  over  and  they are  prohibited  from  doing  banking business.  In the affidavit filed on behalf of the Union  no serious  attempt  is  made to explain why  the  named  banks should  be  specially selected for being subjected  to  this disability. The  petitioner  also contended that the  classification  is made  on  a  wholly  irrational  ground,  viz.,   penalizing efficiency and good management, for the major fourteen banks had made a sustained effort an had exceeded the Reserve Bank target and had fully complied with the directives under  the social control legislation.  This, it is said, is a reversal of  the policy underlying s. 36AE of the Banking  Regulation Act  under  which  inefficient and  recalcitrant  banks  are contemplated  to be taken over by the Government.   We  need express  no opinion on this part of the argument.   But  the petitioner is on a firm ground in contending that when after acquiring  the assets, undertaking,  organization,  goodwill and  the 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.   Section 15(2) of the Act which by the clearest implication prohibits the  named  banks  from carrying  on  banking  business  is, therefore,  liable  to  be struck down.   It  is  immaterial whether  the  entire  sub-s.  (2)  is  struck  down,  or  as suggested  by  the  Attorney-General that  only  the  ’words "other  than  the  business of banking" in  s.  15(2)(e)  be struck  down.  Again, in considering the validity of  s.  15 (2) (e) in its relation to the guarantee of freedom to carry on business other than banking, we have already pointed  out that  the  named  banks  are  also,  (though  theoretically, competent)  in  substance prohibited from carrying  on  non- banking  business.   For reasons set out by us  for  holding that  the restriction is unreasonable, it must also be  held that the guarantee of equality is impaired by 591 preventing the named banks carrying on the non-banking busi- ness. Protection of the guarantee under Art. 31(2)- The  guarantee under Art. 31(2) arises directly out of  -the restrictions imposed upon the power of the State to  acquire private  property,  without the consent of the owner  for  a public  purpose.  Upon the exercise of the power to  acquire or  requisition  property, by cl. 2)  two  restrictions  are placed  : (a) power to acquire shall not be  exercised  save for a public purpose; and (b) that it shall not be exercised save  by authority of a law which provides for  compensation for  the property acquired or requisitioned, and  fixes  the amount of compensation or specifies the principles on  which and the manner in which the compensation is to be determined and   given.   Sub-clause  (2A)  in  substance  provides   a definition  of "compulsory acquisition or requisitioning  of property".  Existence of a public purpose and provision  for

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 53 of 108  

giving  compensation for compulsory acquisition of  property of  an  individual  are conditions of the  exercise  of  the power.   If either condition be absent, the guarantee  under Art.   31(2)  is  impaired,  and  the  law   providing   for acquisition will be invalid.  But jurisdiction of the  Court to question the law on the ground that compensation provided thereby is not (adequate is expressly excluded. In the case before us we need 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 acquisition of the assets of  one  or more lines of business, but not in respect of all the  lines of  business.   As  we have already observed,  there  is  no evidence  that  the  named  banks  carried  on   non-banking business, distinct from banking business, and in respect  of such  non-banking -business the banks owned distinct  assets apart from the assets of the banking business. The law providing for acquisition must again either fix  the amount  of compensation or specify the principles on  which, and  the  manner  in  which,  the  compensation  is  to   be determined   and  given.   The  owner  whose   Property   is compulsorily  acquired is ’guaranteed the right  to  receive compensation  and the amount of compensation must either  be fixed  by  the  law  or  be  determined  according  to   the principles and in the manner specified by the law.  The  law which  does not ensure the guarantee will, except where  the grievance  only is that the compensation provide the law  is inadequate, be declared void. 592 The petitioner says that the expression "compensation" means a  "just equivalent" in -money of the property acquired  and that the law providing for compulsory acquisition must "aim" at a just equivalent to the expropriated owner : if the  law so  aims at, it will not be deemed to impair  the  guarantee merely  on  the ,ground that the compensation  paid  to  the owner is inadequate.  The Attorney-General on the other hand says that "compensation" in Art. 31(2) does not mean a  just equivalent,  and it is not predicated of the validity  of  a law relating to compulsory ,acquisition that it must aim  at awarding  a  just  equivalent,  for,  if  the  law  is   not confiscatory,  or  the  principles  for  determination   ,of compensation are not irrelevant, "the Courts cannot go ’into the   propriety   of   such  principles   or   adequacy   or reasonableness of the compensation". Two questions immediately arise for determination.  What  is the true meaning of the expression "compensation" as used in Art.  31(2), and what is the extent of the, jurisdiction  of the  Court  when  the  validity  of  a  law  providing   for compulsory  acquisition of property for a public purpose  is challenged ? In  -its  dictionary meaning "compensation"  means  anything given  to make things equal in value : anything given as  an equivalent,  to  make  amends for loss or  damage.   In  all States  where  the  rule  of  law  prevails,  the  right  to compensation  is guaranteed by the Constitution or  regarded as inextricably involved in the right to property. By  the 5th Amendment in the Constitution of the U.S.A.  the right  of  eminent  domain  is  expressly  circumscribed  by providing  "Nor shall private property be taken  for  public use, without just, compensation".  Such a provision is to be found also in every State Constitution in the United  States : Lewis Eminent Domain, 3rd Edn., (pp. 28-50).  The Japanese Constitution, 1946, by Art. 25 provides a similar guarantee. Under the Commonwealth of Australia Constitution, 1900,  the Commonwealth  Parliament  is  invested  with  the  power  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 54 of 108  

acquisition of property on "just terms" : s. 57 (XXXI). Under the Common Law of England, principles for payment   of compensation  for acquisition of property by the  State  are stated  by  Blackstone in his "Commentaries on  the-Laws  of England", 4th Edn., Vol. I, at p. 109 "So  great  moreover is the regard of the  law  for  private property, that it will not authorize the least violation  of it;  no,  not  even  for  the  general  good  of  the  whole community........  Besides,  the public good is  in  nothing moire essentially interested, than in 593 the  protection  of. every individual’s private  rights,  as modelled  by the municipal law.  In this and  similar  cases the  legislature  alone  can, and  indeed  frequently  does, interpose, and compel the individual to, acquiesce.  But how does  it interpose and compel ? Not by absolutely  stripping the  subject  of his property in an  arbitrary  manner;  but giving  him  a full indemnification and equivalent  for  the injury thereby sustained The public is now considered as  an individual,  treating  with an individual for  an  exchange. All  that  the legislature does, is to oblige the  owner  to alienate his possession for a reasonable price......." The  British  Parliament is supreme and its powers  are  not subject to any constitutional limitations.  But the  British Parliament  has rarely, if at all, exercised power  to  take property  without payment of the cash value of the  property taken.  In AttorneyGeneral v. De Keyser’s Royal Hotel(1) the House  of  Lords held that the Crown is not entitled  as  of right  either  by  virtue of its prerogative  or  under  any statute,  to  take possession of the land or building  of  a subject  for administrative purposes in connection with  the defence of the realm, without compensation for their use and occupation. Under the Government of India Act, 1935, by s. 299(2) it was enacted that : "Neither the Federal or’ a Provincial Legislature shall have power to make any law authorising the compulsory acquisition for  public  purposes  of any land,  or  any  commercial  or industrial  undertaking,  or  any interest  in,  or  in  any company  owning, any commercial or  industrial  undertaking, unless the law provides for the payment of compensation  for the  property  acquired and either fixes the amount  of  the compensation, or specifies the principles on which, and  the manner in which, it is to be determined." Article  31(2)  before it was amended  by  the  Constitution (Fourth  Amendment)  Act, 1955, followed  substantially  the same pattern. Prior to the amendment of Art. 31(2) this Court  interpreted the    expression    "compensation"   as    meaning    "full indemnification".   Patanjali Sastri, C.J., in The State  of West   Bengal  v.  Mrs.  Bela  Banerjee  &  Others  (2)   in interpreting  the  guarantee under Art. 31(2),  speaking  on behalf of the Court, observed : "   While  it  is true that the  legislature  is  given  the discretionary power of laying " down the principles (1) L.R. [1920] A.C. 508. (2) [1954] S. C. R. 558. L8Sup CI/70-8 594 which  should govern the determination of the amount  to  be given  to  the  owner for the  property  appropriated,  such principles  must ensure that what is determined  as  payable must be compensation, that is, a just equivalent of what the owner has been deprived of.  Within the limits of this basic requirement  of  full indemnification  of  the  expropriated

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 55 of 108  

owner, the Constitution allows free play to the  legislative judgment   as   to   what  principles   should   guide   the determination   of   the  amount  payable.    Whether   such principles take into account all the elements which make ’up the  true  value of the property  appropriated  and  exclude matters which are to be neglected, is a justiciable issue to be adjudicated by the court." In  the  view of the learned Chief  Justice  the  expression "just  equivalent"  meant  "full  indemnification"  and  the expropriated  owner  was  on that account  entitled  to  the market  value of the property on the date of deprivation  of the property.  This case was decided under a statute enacted before  the Constitution (Fourth Amendment) Act, 1955.   The principle  of that case was approved in N.  B.Jeejeebhoy  v. Assistant  Collector, Thalia Prant, Thana(1) - a case  under the  Land  Acquisition  (Bombay Amendment)  Act,  1948,  and invoking the guarantee under s. 299(2) of the Government  of India  Act, 1935; in Union of India v. Kamlabai  Harjiwandas Parekh  &  Others (2) -a case under the  Requisitioning  and Acquisition of Immovable Property Act, 1952; and in State of Madras  v. D. Namasivaya Mudaliar(3) - a case arising  under the Madras Lignite Acquisition of Land Act, 1953. Article  31(2) was amended with effect from April 27,  1955, by  the Constitution (Fourth Amendment) Act, 1955.  By  sub- cl.  (2A) a definition of acquisition or  requisitioning  of properties  was  supplied and certain other  formal  changes were  also  made, with the important reservation that  "  no such  law  shall be called in question in any court  on  the ground  that  the compensation provided by that law  is  not adequate".   In cases arising under statutes  enacted  after April  27,  1955,  this  Court  held  that  the   expression "compensation"  in Art. 31(2) as amended continued  to  mean "just   equivalent"  as  under  the  unamended  clause:   P. Vajravelu  Mudaliar  v. Special Deputy Collector,  Madras  & Another(4) under the Land Acquisition (Madras Amendment) Act 23 of 1961; Union of India V. The Metal Cor- (1)  [1965] 1 S.C.R. 636. (2) [1968] 1 S.C.R. 463. (3)  [1964] 6 S.C.R. 936. (4) [1965] 1 S.C.R. 614. 595 poration of India Ltd. & Another(1) under the Metal Corpora- tion of India (Acquisition of Under-takings Act 44 of  1955; Lachhman  Dass  and Others v. Municipal  Committee,  Jalala- bad(2)  under s. 20B of the Displaced Persons  (Compensation and Rehabilitation) Act, 1954, as amended by Act 2 of  1960. In Ranojirao Shinde’s case(1) dealing with a case under  the Madhya  Pradesh Abolition of Cash Grants Act 16 of  1963  it was  observed that the compensation referred to in  Art.  31 (2) is a just equivalent of the value of the property taken. But  this Court in State of Gujarat v.  Shantilal  Mangaldas and   Others(1)  observed  that  compensation  payable   for compulsory   acquisition   of  property  is  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  valuation  of lands,  buildings and incorporeal rights has to be  made  on the application of different principles, e.g. capitalization of   net   income  at  appropriate   rates,   reinstatement, determination  of  original value reduced  by  depreciation, break-up  value  of  properties  which  had  outgrown  their utility;  that the rules relating to determination of  value of lands, buildings, machinery and other classes of property differ, and the application of several methods or principles lead to widely divergent amounts, and since compensation  is

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 56 of 108  

not  capable of precise determination by the application  of recognized    rules,    by   qualifying    the    expression "compensation"  by the adjective "just",  the  determination was  made  more  controversial.  It was  observed  that  the Parliament amended the Constitution by the Fourth  Amendment Act  declaring  that adequacy of compensation fixed  by  the Legislature as amended according to the principles specified by   the   Legislature  for  determination   will   not   be justiciable.  It was then observed that "The  right  declared  by  the  Constitute  guarantees  that compensation shall be given before a person is  compulsorily expropriated of his property for a public purpose.  What  is fixed  as compensation by statute, or by the application  of principles  specified for determination of  compensation  is guaranteed  : it does not mean however that something  fixed or  determined  by the application of  specified  principles which  is  illusory  or  can in  no  sense  be  regarded  as compensation  must be upheld by the Courts, for, to  do  so, would  be to grant a charter of arbitrariness, and permit  a device   to  defeat  the  constitutional   guarantee.    But compensation fixed or determined on principles specified  by the Legislature cannot be permitted to be challenged on  the somewhat  indefinite  -plea that it is not a  just  or  fair equi- (1)  [1967] 1 S.C.R. 255. (2)  A.I.R. [1969] S.C. 1126. (3)  [1968] 3 S.C.R. 489. (4)  [1969] 3 S.C.R. 341. 596 valent.   Principles  may be challenged on the  ground  that they  are irrelevant to the determination  of  compensation, but not on the plea that what is awarded as a result of  the application  of  those  principles  is  not  just  or   fair compensation.  A challenge to a statute that the  principles specified  by it do not award a just equivalent will  be  in clear  violation  of  the  constitutional  declaration  that inadequacy of compensation provided is not justiciable." This Court held in Mrs. Bela Banerjee’s case(1) that by  the guarantee  of  the  right  to  compensation  for  compulsory acquisition  under Art. 31(2), before it was amended by  the Constitution (Fourth Amendment) Act, the owner was  entitled to  receive a "just equivalent" or  "full  indemnification". In  P.  Vajravelu Mudaliar’s case(2) this  Court  held  that notwthstanding   the   amendment  of  Art.  31(2)   by   the Constitution  (Fourth  Amendment) Act, and  even  after  the addition  of the words "and no such law shall be  called  in question  in any Court on the ground that  the  compensation provided  by  that  law is  not  adequate",  the  expression "compensation"  occuring  in Art. 31 (2) after  the  Consti- tution  (Fourth  Amendment) Act continued to have  the  same meaning  as it had in S. 299(2) of the Government  of  India Act, 1935, and Art. 31(2) before it was amended, viz.  "just equivalent" or "full indemnifications. There  was apparently no dispute that Art. 31(2) before  and after it was amended guaranteed a right to compensation  for compulsory acquisition of property and that by giving to the owner,   for   compulsory  acquisition  of   his   property, compensation  which  was  illusory,  or  determined  by  the application   of  principles  which  were  irrelevant,   the constitutional  guarantee of compensation was  not  complied with.  There was difference of opinion on one matter between the  decisions  in  P.  Vajravelu  Mudaliar’s  case(1)   and Shantilal  Mangaldas’s case(2).  In the former case  it  was observed  that  the constitutional guarantee  was  satisfied only  if a just equivalent of the property was given to  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 57 of 108  

owner  : in the latter case it was held that  "compensation" being  itself  incapable of any  precise  determination,  no definite connotation could be attached thereto by calling it "just equivalent" or "full indemnification", and under  Acts enacted after the amendment of Art. 31 (2) it is not open to the  Court  to  call  in  question  the  law  providing  for compensation  on the ground that it is  inadequate,  whether the  amount of compensation is fixed by the law or is to  be determined  according to principles specified  therein.   It was  observed  in  the  judgment  in  Shantilal  Mangaldas’s case(3): (1) [1954] S.C.R. 558.            (2) [1965] 1 S.C.R. 614. (3)  [1969] 3 S.C.R. 341. at p. 368. 597 .lm15 "Whatever  may  have  been the  meaning  of  the  expression "compensation"  under the unamended Article 31(2), when  the Parliament  has expressly enacted under the  amended  clause that  "no such law shall be called in question in any  court on the ground that the compensation provided by that law  is not  adequate", it was intended clearly to exclude from  the jurisdiction  of the court an enquiry that what is fixed  or determined by the application of the principles specified as compensation  does not award to the owner a just  equivalent of what he is deprived." In  P.  Vajravelu  Mudaliar’s case(1)  again  the  Court  in dealing  with  the effect of the amendment observed  (at  p. 627) "Therefore, a more reasonable interpretation is that neither the  principles  prescribing the "just equivalent"  nor  the "just  equivalent"  can be questioned by the  court  on  the ground  of  the  inadequacy of  the  compensation  fixed  or arrived at by the working of the principles.  To  illustrate : a law is made to acquire a house; its value at the time of acquisition  has  to  be  fixed; there  are  many  modes  of valuation, namely, estimate by an engineer, value  reflected by  comparable  sales, capitalisation of  rent  and  similar others.  The application of different principles may lead to different results.  The adoption of one principle may give a higher value and the adoption of another principle may  give a  lesser  value.  But nonetheless they  are  principles  on which  and the manner in which compensation  is  determined. The  Court  cannot obviously say that the  law  should  have adopted one principle and not the other, for it relates only to  the question of adequacy.  On the other hand, if  a  law lays down principles which are not relevant to the  property acquired(  or to the value of the property at or  about  the time  it  is  acquired, it may be said  that  they  are  not principles contemplated by Art. 31 (2) of the Constitution." The  Court then applied that principle to the facts  of  the case  and held that the Land Acquisition (Madras  Amendment) Act,  1961,  which  provided  that-(i)  the  owner  of  land acquired for housing shall get only the value of the land at the  date  of  the notification under s. 4(1)  of  the  Land Acquisition  Act,  1894,  or an  amount  equivalent  to  the average market value of the land during the last five  years immediately  preceding such date, whichever was  less;  (ii) the  owner shall get a solatium of only 5% and not  15%  and (iii)  in  valuing  the land acquired any  increase  in  its suitabili- 1.   [1965] 1 S.C.R. 614. 598 ty  or adaptability for any use other than the use to  which the  land was put at the date of the notification  under  s. 4(1)  of the Land Acquisition Act, 1894, shall not be  taken

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 58 of 108  

into  consideration,  did not impair the  right  to  receive compensation.  The Court observed at p. 631 : "In awarding compensation if the potential value of the land is excluded, it cannot be said that the compensation awarded is  the just equivalent of what the owner has been  deprived of.   But such an exclusion only pertains to the  method  of ascertaining  the  compensation.  One of the  elements  that should  properly  be  taken  into  account  in  fixing   the compensation is omitted : it results in the adequacy of  the compensation,  .  .  .  ... We,  therefore,  hold  that  the Amending   Act   does  not  offend  Art.  31  (2)   of   the Constitution." The  compensation provided by the Madras Act,  according  to the  principles specified, was not the full market value  at the  date  of  acquisition.   It did  not  amount  to  "full indemnification"  of the owner : the Court still  held  that the  law  did not offend the guarantee under Art.  31(2)  as amended,  because the objection was only as to the  adequacy of  compensation.   In Shantilal  Mangaldas’s  case(1),  the Court  held  that the Constitution (Fourth  Amendment)  Act, Art.  31(2) guarantees a right to receive  compensation  for loss  of  property compulsorily acquired,  but  compensation does  not  mean  a  just equivalent  of  the  property.   If compensation  is  provided  by  law  to  be  paid  and   the compensation  is not illusory or is not determinable by  the application of irrelevant principles, the law is not open to challenge   on  the  ground  that  compensation   fixed   or determined to be paid is inadequate. Both the lines of thought which converge in the ultimate re- sult,  support the view that the principle specified by  the law for determination of compensation is beyond the pale  of challenge,  if  it  is  relevant  to  the  determination  of compensation and is a recognized principle applicable in the determination  of  compensation  for  property  compulsorily acquired and the principle is appropriate in determining the value  of the class of property sought to be -acquired.   On the  application  of  the view  expressed  in  P.  Vajravelu Mudaliar’s  case(1)  or in Shantilal Mangal’s  case("’)  the Act,  in  our judgment, is liable to be struck  down  as  it fails  to  provide to the  expropriated  banks  compensation determined  according to relevant principles.  Section 4  of the Act transfers the undertaking of every named bank to and vests  it  in  the corresponding  new  bank.   Section  6(1) provides for payment of compensation for acquisition of  the undertaking, and the compensa- (1) [1959] 3 S.C.R. 341. (2) [1965] 1 S.C.R. 614. 599 tion  is to be determined in accordance with the  principles specified  in  the  Second  Schedule.   Section  6(2)   then provides that though separate valuations are made in respect of the several matters specified in Sch.  II of the_Act, the amount  of  compensation  shall be deemed  to  be  a  single compensation.  Compensation being the equivalent in terms of money  of the property compulsorily acquired, the  principle for  determination of compensation is intended to  award  to the  expropriated owner the value of the property  acquired. The  science  of valuation of  property  recognizes  several principles  or methods for determining the value to be  paid as  compensation  to the owner for loss of  his  property  : there are different methods applicable to different  classes of property in the determination of the value to be paid  as recompense  for loss of his property.  A method  appropriate to  the determination of value of one class of property  may be wholly inappropriate in determining the -value of another

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 59 of 108  

class  of property.  If an appropriate method  or  principle for determination of compensation is applied, the fact  that by  the  application  of another, principle  which  is  also appropriate,  a different value is reached, the  Court  will not be justified in entertaining the contention that out  of the two appropriate methods, one more generous to the  owner should have been applied by the Legislature. We are unable to hold that a principle specified by the Par- liament  for determining compensation of the property to  be acquired  is  conclusive.   If that view  be  accepted,  the Parliament will be invested with a charter of  arbitrariness and  by  abuse of legislative  process,  the  constitutional guarantee  of  the  right to compensation  may  be  severely impaired.   The principle specified must be  appropriate  to the  determination of compensation for the particular  class of  property sought to be acquired.  If  several  principles are appropriate and one is selected for determination of the value  of  the property to be acquired,  selection  of  that principle  to the exclusion of other principles is not  open to  challenge, for the selection must be left to the  wisdom of the Parliament. The broad object underlying the principle of valuation is to award to the owner, the equivalent of his property with  its existing advantages and its potentialities.  Where there  is an established market for the property acquired, the problem of valuation presents little difficulty.  Where there is  no established  market  for  the property, the  object  of  the principle of valuation must be to pay to the owner for  what he has lost, including the benefit of advantages present  as well  as future, without taking into account the urgency  of acquisition,  the disinclination of the owner to  part  with ’the property, and the benefit which the acquirer is  likely to  obtain by the acquisition.  Under the  Land  Acquisition Acts  compensation paid is the value to the  owner  together with all 600 its potentialities and its special adaptability if the  land is peculiarly suitable for a particular use, if it gives  an enhanced value at the date of acquisition. The  important methods of determination of compensation  are -(i)  market  value  determined  from  sales  of  comparable properties,  proximate in time to the date  of  acquisition, similarly  situate,  and  possessing  the  same  or  similar advantages and subject to the same or similar disadvantages. Market value is the price the property may fetch in the open market if sold by a willing seller unaffected by the special needs of a particular purchase; (ii) capitalization of  the, net  annual  profit out of the property at a rate  equal  in normal  cases  to  the return  from  gilt-edged  securities. Ordinarily  value  of  the property  may  be  determined  by capitalizing  the net annual value obtainable in the  market at  the date of the notice of acquisition; (iii)  where  the property  is a house, expenditure likely to be incurred  for constructing   a   similar  house,  and   reduced   by   the depreciation   for  the  number  of  years  since   it   was constructed;  (iv) principle of reinstatement, where  it  is satisfactorily established that reinstatement in some  other place  is bona fide intended, there being no general  market for  the  property for the purpose for which it  is  devoted (the  purpose  being  a  public  purpose)  and  would   have continued  to  be devoted, but for  compulsory  acquisition. Here   compensation  will  be  assessed  on  the  basis   of reasonable cost of reinstatement; (v) when the property  has outgrown  its  utility  and it is  reasonably  incapable  of economic  use,  it may be valued as land plus  the  break-up

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 60 of 108  

value of the structure.  But the fact that the acquirer does not  intend to use the property for which it is used at  the time of acquisition and desires to demolish it or use it for other  purpose  is irrelevant; and (vi) the property  to  be acquired has ordinarily to be valued as a unit.  Normally an aggregate  of the value of different components will not  be the value of the unit. These  are,  however, not the only methods.  The  method  of determining  the value of property by the application of  an appropriate multiplier to the net annual income or profit is a satisfactory method of valuation of lands with buildings,’ only  if the land is fully developed, i.e., it has been  put to   full   use   legally   permissible   and   economically justifiable,  and  the  income out of the  property  is  the normal  commercial and not a controlled return, or a  return depreciated  on  account of special circumstances.   It  the property  is  not  fully developed, or  the  return  is  not commercial the- method may yield a misleading result. The  expression "property" in Art. 31(2) as in Entry  42  of List  II  is wide enough to include an undertaking,  and  an undertaking  subject  to  obligations  may  be  compulsorily acquired under 601 a  law  made in exercise of power under Entry 42  List  III. The  language of the amended clause (2) of Art. 31  compared with the language of the clause before it was amended by the Constitution  (Fourth  Amendment)  Act leaves  no  room  for doubt.   Before  it was amended, the guarantee  covered  the acquisition of "property movable or immovable including, any interest  in,  or in any company owning  any  commercial  or industrial  undertaking".   In the amended clause  only  the word "property" is used, deleting the expressions which  did not  add  to its connotation.  But when  an  undertaking  is acquired  as  a  unit the principles  for  determination  of compensation  must be relevant and also appropriate  to  the acquisition  of the entire undertaking.  In determining  the appropriate  rate of the net profits the return  from  gilt- edged   securities  may,  unless  it  is   otherwise   found unsuitable, be adopted.      Compensation  to  be determined under the  Act  is  for acquisition  of  the  undertaking, but the  Act  instead  of providing  forvaluing  the  entire  undertaking  as  a  unit provides  for  determining  the value of some  only  of  the components, which constitute the undertaking, and reduced by the  liabilities.   It also provides  different  methods  of determining compensation in respect of each, such component. This method for determination of compensation is prima facie not  a method relevant to the determination of  compensation for acquisition of the undertaking.  Aggregate of the  value of  components is not necessarily the value of the  entirety of a unit of property acquired, especially when the property is,  a going concern, with an organized business.   On  that ground alone, acquisition of the undertaking is liable to be declared   invalid,  for  it  impairs   the   constitutional guarantee  for  payment of compensation for  acquisition  of property by law.  Even if it be, assumed that the  aggregate value of the different components will be equal to the value of the undertaking of the named bank as a going concern  the principles  specified, in our judgment, do, not give a  true recompense  to the banks for the loss of  the  under-taking. Schedule 11 by cl. (1) provides               "The  compensation  . . . in  respect  of  the               acquisition  of the undertaking thereof  shall               be  an  amount equal to the sum total  of  the               value of the assets of the existing bank as on

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 61 of 108  

             the  commencement of this Act,  calculated  in               accordance with the provisions of Part 1, less               the sum-total of the liabilities computed  and               obligations of the existing bank calculated in               accordance with the provisions of Part IT." For  the  purpose of Part 1 "assets" mean the total  of  the heads(a) to (h) and the expression "liabilities" is  defined as  meaning  the  total amount of  all  outside  liabilities existing at the commence- 602 ment  of  the  Act  and  contingent  liabilities  which  the corresponding  new  bank may reasonably be  expected  to  be required  to  meet out of its own  resources.   Compensation payable  to the named banks is accordingly the aggregate  of some  of the components of the undertaking, reduced  by  the aggregate  of liabilities determined in the manner  provided in  the Schedule.  It appears clear that in determining  the compensation  for undertaking-(i) certain important  classes of  assets are omitted from the heads (a) to (h);  (ii)  the method specified for valuation of lands and buildings is not relevant  to  determination of compensation, and  the  Value determined  thereby in certain circumstances is illusory  as compensation;  and (iii) the principle for determination  of the aggregate value of liabilities is also irrelevant.     The  undertaking  of a banking company taken over  as  a going concern would ordinarily include the goodwill and  the value  of  the unexpired period of long-term leases  in  the prevailing  conditions in urban areas.  But goodwill of  the banks is not one of the items in the assets in the Schedule, and in cl. (f) though provision is made for including a part of  the  premium  paid in respect  of  leasehold  properties proportionate  to  the  unexpired period, no  value  of  the leasehold interest for the unexpired period is given.     Goodwill  of a business is an intangible asset :  it  is the whole advantage of the reputation and connections formed with  the customers together with the  circumstances  making the  connection durable.  It is that component of the  total value  of  the  undertaking which  is  attributable  to  the ability  of  the concern lo earn profits over  a  course  of years  or  in  excess  of  normal  amounts  because  of  its reputation, location and other features : Trego v.  Hunt(’). Goodwill  of  an undertaking therefore is the value  of  the attraction   to  customers  arising  from  the   name,   and reputation   for   skill,  integrity,   efficient   business management, or efficient service.     Business  of  banking  thrives  on  its  reputation  for probity  of  its  ,dealings, efficiency of  the  service  it provides,  courtesy and promptness of the staff, and  above- all the confidence it inspires among the customers for  the) safety  of  the funds entrusted.  The Reserve  Bank,  it  is true,  exercises  stringent control  over  the  transactions which  banks carry on in India.  Existence of  these  powers and  exercise thereof may and do ensure to a certain  extent the  safety  of the funds entrusted to the Banks.   But  the business  which  a  bank attracts  still  depends  upon  the confidence which the depositor reposes in the management.  A bank  is  not  like a grocer’s shop : a  customer  does  not extend his patronage to a (1) L.R. [1896] A.C. 7. 603 bank  merely  because it has a branch easily  accessible  to him.   Outside  the  public  sector,  there  are  50  Indian -scheduled banks, 13 foreign banks, beside 16  non-scheduled banks.   The deposits in the banks not taken over under  the Act range between Rs. 400 crores and a few lakhs of  rupees.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 62 of 108  

Deposits attracted by the major private commercial banks are attributable  largely  to  the  personal  goodwill  of   the management.   The  regulatory  provisions  of  the   Banking Companies  Act  and  the  control  which  the  Reserve  Bank exercises over the banks may to a certain extent reduce  the chance  of the resources of the banks being misused,  but  a banking company for its business still largely depends  upon the  reputation of its management.  We are unable  to  agree with  the contention raised in the Union’s affidavit that  a banking  establishment has no goodwill, not are we  able  to accept  the  plea raised by the  Attorney-General  that  the value of the goodwill of a bank is insignificant and it  may be ignored in valuing the undertaking as a going concern.    Under cl. (f) of Sch.  II provision is made for valuing a proportionate  part  of the premium paid in respect  of  all leasehold  properties  to  the  unexpired  duration  of  the leases,  but  there  is no provision  made  for  payment  of compensation for the unexpired period of the leases.  Having regard  to the present-day conditions it is clear that  with rent  control  on  leases operating in  various  States  the unexpired period of lease has also a substantial value.     The  value determined by excluding important  components of  the undertaking, such as the goodwill and value  of  the unexpired  period of leases, will not, in our  judgment,  be compensation for the undertaking.     The  other  defects in the method of valuation,  it  was claimed  by  Mr. Palkhivala, are the  inclusion  of  certain assets  such as cash, choses in action and  similar  assets, which  under  the law are not regarded as capable  of  being acquired  as  property.  This inclusion,  it  is  contended, vitiates  the scheme of acquisition.  Under cl. (a) of  Part 1-Assets-the  amount  of cash in hand and with  the  Reserve Bank and the State Bank of India (including foreign currency notes  which  shall  be  converted at  the  market  rate  of exchange) are liable to be included.  Cash in hand is not an item  which is capable of being compulsorily  acquired,  not because it is not property, but because taking over the cash and providing for acquisition thereof, compensation  payable at  some future date amounts to levying a "forced  loan"  in the  guise of acquisition.  This Court in State of Bihar  v. Maharajadhiraja Sir Kameshwar Singh of Darbhanga and Ors.(1) held  that  cash  and choses in action are  not  capable  of compulsory acquisition.  That (1) [1952] S.C.R. 889. 604 view was repeated by this Court in Bombay Dyeing &  Manufac- turing  Cc,.   Ltd.  v. State  of  Bombay(’)  and  Ranojirao Shinde’s case(’) We do not propose to express our opinion on the question whether in adopting the method of determination of  compensation, by aggregating the value of  assets  which constitute the undertaking, the rule that cash and choses in action  are  incapable  of  compulsory  acquisition  may  be applied.     Under item (e) the value of any land or buildings is one of the assets.  The first Explanation provides that for  the purpose of this clause (cl. (e) ) "value" shall be deemed to be the market value of the land or buildings, but where such market  value exceeds the "ascertained value" determined  in the  manner specified in Explanation 2, the value  shall  be deemed to mean such " ascertained value".  The value of  the land  and  buildings is therefore the market  value  or  the "ascertained value" whichever is less.  Under Explanation 2, cl.  (1) "ascertained value" in respect of  buildings  which are  wholly occupied on the date of the commencement of  the Act  is  twelve times the amount of the annual rent  or  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 63 of 108  

rent for which the building may reasonably be expected to be let  from  year to year reduced by certain  specific  items. This  provision,  in  our  judgment, does  not  Jay  down  a relevant  principle  of value of buildings.   In  the  first place, making a provision for payment of capitalised  annual rental  at.......... twelve times the amount of rent  cannot reasonably  be  regarded as payment of  compensation  having regard  to  the conditions prevailing in the  money  market. Capitalization  of annual rent which is generally  based  on controlled  rent under some State Acts at rates pegged  down to  the  rates prevailing in 1940 and on  the  footing  that investment  in  buildings yields 8-1/3% return  furnishes  a wholly   misleading   result   which   cannot   be    called compensation.   Value  of immovable property  has  spiralled during  the  last few years and the rental which  is  mostly controlled  does  not bear any reasonable  relation  to  the economic  return from property.  If the building  is  partly occupied  by  the Bank itself and partly by  a  tenant,  the ascertained  value  will be twelve times the  annual  rental received, and the rent for which the remaining part occupied by  the Bank may reasonably be expected to be let  out.   By the  Act  the  corresponding  new  banks  take  over  vacant possession of the lands and buildings belonging to the named banks.   There  is in the  present  conditions  considerable value  attached to vacant business premises in urban  areas. True compensation for vacant premises can be ascertained  by finding  out the market value of comparable premises  at  or about the time of the vesting of the undertaking and not  by capitalising   the  rental-actual  or   estimated.    Vacant premises, have a considerably larger value than (1) [1958] S.C.R. 1122. (2) [1968] 3 S.C.R. 489. 605 business  premises which are occupied by tenants.   The  Act instead’ of taking into account the value of the premises as vacant premises adopted a method which cannot be regarded is relevant.   Prima  facie, this would not give  any  reliable basis  for  determining the compensation for  the  land  and buildings..     Again in determining the compensation under cl. (e), the annual rent is reduced by several outgoings and the  balance is capitalized.  The first item of deduction is one-sixth of the  amount thereof on account of maintenance  and  repairs. Whether  the building is old or new, whether it requires  or does not require maintenance or repairs 16-2/3% of the total amount of rent is liable to be deducted towards  maintenance and  repairs.   The vice of items (v) & (vi) of cl.  (1)  of Explanation  2  is  that they provide for  deduction,  of  a capital  charge out of the annual rental which according  to no rational system of valuing property by capitalization  of the  rental method is admissible.  Under item (v) where  the building  is subject to a mortgage or other capital  charge, the amount of interest on such mortgage or charge, and under item (vi) where the building has been acquired, constructed, repaired,  renewed or re-constructed with borrowed  capital, the  amount  of any interest payable on  such  capital,  are liable to be deducted from the annual rental for determining the  ascertained value.  These encumbrances are also  liable to  be  deducted  under the head  "liabilities".   A  simple illustration  may  suffice to pinpoint the inequity  of  the method.   In  respect of a building owned by a bank  of  the value  of  Rs. 10 lakhs and mortgaged for say  Rs.  7,50,000 interest  at  the rate of 8% (which may be regarded  as  the current  commercial rate) would amount to Rs.  60,000.   The estimated  annual rental which would ordinarily  not  exceed

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 64 of 108  

Rs.  60,000  has under cl. (e) to be reduced  in  the  first instance  by other outgoing.  The assets would show a  minus figure as value of the building, and on the liabilities side the  entire amount of mortgage liability would  be  debited. The  method provided by the Act permits the annual  interest on  the  amount  of the encumbrance to  be  deducted  before capitalization,  and the capitalized value is again  reduced by the amount of the encumbrance.  In effect, a single  debt is, in determining the compensation debited twice, first, in computing  the value of assets, and again, in computing  the liabilities.      We  are  unable to accept the argument  raised  by  the AttorneyGeneral that under the head "liabilities" in Part II only those mortgages or capital charges in respect of  which the  amount has fallen due are liable to be included on  the liabilities  side.  Under the head "liabilities"  the  total amount   of   all  outside  liabilities  existing   at   the commencement  of  the Act, and  all  contingent  liabilities which the corresponding new bank may reasonably be expected 606 to be required to meet out of its own resources on or  after the  date  of  commencement  of the  Act  will  have  to  be included.  When even contingent liabilities are included  in the total amount of all outside liabilities, a mortgage debt or capital charge must be taken into account in  determining the  liabilities  by  which the aggregate of  the  value  of assets is to be reduced, even if the period of the  mortgage or  capital charge has not expired.  The liability  under  a mortgage  or  capital  charge  exists  whether  the   period stipulated  under  the  deed creating  the  encumbrance  has expired or not.       Under  cl. (2) of Explanation 2, it. is provided  that buildings which are partly occupied, the valuation shall  be made  on  the  basis  of  the  "plinth  area"  occupied  and multiplying  it by the proportion which that area  bears  to the  total  plinth area of the buildings.  The  use  of  the expression  "plinth area" appears to be  unfortunate.   What was  intended  is "floor area".  If the  expression  "plinth area"  is understood to mean "floor area", no fault  may  be found  with the principle underlying cl. (2) of  Explanation 2.       Under  cl. (3) of Explanation 2, where there  is  open land which has no building erected thereon, or which is  not appurtenant  to any building, the value is to be  determined "with reference to the prices at which sales or purchases of similar or comparable lands have been made during the period of  three  years  immediately  preceding  the  date  of  the commencement  of"  the Act.  Whereas the value of  the  open land  is to be the market value, the value of the land  with buildings  to be taken into account is the value  determined by  the  method of capitalization of annual rent  or  market value whichever is less.  The Explanation does not take into account whether the construction on the land fully  develops the land, and the rental is economic.      We  are,  therefore,  unable  to  hold  that  item  (e) specifies   a  relevant  principle  for   determination   of compensation  for lands and buildings.  It is  not  disputed that the major Banks occupy their own buildings in important towns, and investments in buildings constitute a part of the assets  of the Bank which cannot be treated  as  negligible. By providing a method of valuation of buildings which is not relevant  the  amount  determined  cannot  be  regarded   as compensation. We  have already referred to item (f) under which a  propor- tionate part of the premium paid is liable to be included in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 65 of 108  

the assets but not the value for the unexpired period of the leases.   Item (h) provides for the inclusion of the  market or realizable value, as may be appropriate, of other  assets appearing on 607 the   books  of  the  bank,  no  value  being  allowed   for capitalized  expenses,  such  as  share-selling  commission, organizational  expenses and brokerage, losses incurred  and similar other items.     Mr.  Palkhivala urged that certain assets which  do  not appear in the books of account still have substantial value, and  they  are omitted from consideration in  computing  the aggregate  of the value of assets.  Counsel said that  every bank  is permitted to have secret reserve and  those  secret reserves  may  not  appear in the books of  account  of  the banks.  We are unable to accept that contention.  A  banking company  is entitled to withhold from the balance-sheet  its secret reserve, but there must be some account in respect of those  secret reserves.  The expression "books of the  Bank" may  not be equated with the balancesheets or the  books  of account only.      The   expression   "liabilities"   existing   at    the commencement of the Act includes "all debts due or to become due."  Under the head "liabilities"  contingent  liabilities which the corresponding new bank may reasonably be  expected to be required to meet out of its own resources on or  after the date of commencement of the Act are to be debited.   The clause   is  badly  drafted.   The  present  value  of   the contingent  liabilities at the date of the  acquisition  and not  the  total contingent liabilities may on  any  rational system of accounting be debited against the aggregate  value of the assets.  For instance, if a banking company is liable to  pay to its emlpoyees gratuity, the present value of  the liability  to  pay gratuity at the date of  the  acquisition made  on acturial calculation may alone be debited, and  not the total face-value of the liability.      The   Attorney-General  contended  that  even  if   the goodwill  of a banking company is of substantial value,  and inclusion of the goodwill is not provided for, or the  value of  buildings  and lands is not the market  value,  or  that there   is  a  departure  from  recognized  principles   for determination  of compensation, the deficiencies in the  Act result merely in inadequate compensation within the  meaning of  Art.  31(2) of the Constitution and the Act  cannot  on, that  account  be challenged as invalid.  We are  unable  to agree  with that contention.  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 value determined is not compensation.      The   Attorney-General  also  contended  ’that  if   in consequence  of the adoption of the method of valuation,  an amount determined 608 as  compensation  is  not  illusory,  the  Courts  have   no jurisdiction to question the validity of the law, unless the law  is  expropriatory, for, in the  ultimate  analysis  the grievance  relates  to  the adequacy  of  compensation.   He contended  that  the  exclusion of one of  the  elements  in fixing the compensation, or application of a principle which is not a recognized principle, results in inadequate  price, and is not open to challenge, and relied in support upon the observations made in P. Vajravelu Mudaliar’s case(’), (at p.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 66 of 108  

631),  which  we have already quoted in another  context  in relation  to  the  challenge to the  validity  of  the  Land Acquisition (Madras Amendment) Act, 1961, which excluded  in determining  compensation, the potential value of the  land. The Court held that exclusion of potential value amounted to giving inadequate compensation and was not a fraud on power. The principle of that case has no application when valuation of  a  undertaking is sought, to be made by breaking  it  up into  several  heads  of assets, and  important  -heads  are excluded and others valued by the application of  irrelevant principles,  or  principles  of which  the  only  claim  for acceptance  is their novelty.  The  Constitution  guarantees that  the expropriated owner must be given the value of  his property,   i.e.,  what  may  be  regarded   reasonably   as compensation  for  loss  of  the  property  and  that   such compensation  should not be illusory and not reached by  the application   of  irrelevant  principles.   In   our   view, determination of compensation to be paid fox the acquisition of an undertaking as a unit after awarding compensation  for some items which go to make up the undertaking and  omitting important items amounts to adopting an irrelevant  principle in  the determination of the value of the  undertaking,  and does not furnish compensation to the expropriated owner.      The Attorney-General contended that the total value  of the undertaking of the named banks even calculated according to the method provided in Sch.  II exceeded the total market value of the shares, and on that account there is no  ground for  holding that the law providing for compensation  denies to   the  shareholders  the  guarantee  of  the   right   to compensation under Art. 31(2).  But there is no evidence  on this part of the case.      Compensation may be provided under a statute, otherwise than in the form of money : it may be given as equivalent of money, i.e. a bond.  But in judging whether the law provides for   compensation,   the  money  value  at  the   date   of expropriation  of  what is given as  compensation,  must  be considered.   If  the  rate of interest  compared  with  the ruling  commercial rate is low, it will reduce  the  present value  of the bond.  The Constitution guarantees a right  to compensation-an equivalent of the property (1) [1965] 1 S.C.R 614. 609 expropriated  and  the  right  to  compensation  cannot   be converted  into a loan on terms which do not fairly  compare with  the  prevailing commercial terms.  If the  statute  in providing  for compensation devises a scheme for payment  of compensation  by  giving it in the form of  bonds,  and  the present  value of what is determined to be given is  thereby substantially reduced, the statute impairs the guarantee  of compensation. A  scheme for payment of compensation may take  many  forms. If   the   present  value  of  what  is   given   reasonably approximates to what is determined as compensation according to  the principles provided by the statute, no fault may  be found.   But  if the law seeks to convert  the  compensation determined  into a forced loan, or to give  compensation  in the form of a bond of which the market value at the date  of expropriation does not approximate the amount determined  as compensation, the Court must consider whether what is  given is in truth compensation which is inadequate, or that it  is not compensation at all.  Since we are of the view that  the scheme  in Sch. 11 of the Act suffers from the vice that  it does  not  award compensation according  to  any  recognized principles, we need not dilate upon this matter further.  We need  only observe that by giving to the expropriated  owner

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 67 of 108  

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  is  not necessarily complied with.  If the market value of the bonds is   not   approximately  equal  to  the   face-value,   the expropriated owner may raise a grievance that the  guarantee under Art. 31(2) is impaired.     We  are  of  the view that by  the  method  adopted  for valuation of the undertaking, important items of assets have been  excluded, and principles some of which are  irrelevant and some not recognised are adopted.  What is determined  by the adoption of the method adopted in Sch. 11 does not award to   the  named  banks  compensation  for  loss   of   their undertaking.  The ultimate result substantially impairs  the guarantee  of compensation, and on that account the  Act  is liable to be struck down.     IV.  Infringement of the guarantee of freedom of  trade, commerce and   intercourse under Art. 301--     in  the  view we have taken the provisions  relating  to determination  and  payment of compensation  for  compulsory acquisition of the undertaking of the named banks impair the guarantee  under Art. 31(2) of the Constitution, we  do  not deem it necessary to decide whether Act 22 of 1969  violates the guarantee of freedom of trade, commerce and  intercourse in  respect  of  the (1) agency business;  (2)  business  of guarantee and indemnity carried on by the- named banks. L 8 SupCI/70 610 V.   Validity of the retrospective operation given to Act 22 of 1969 by s. 1(2) and S. 27-    The  argument raised by Mr. Palkhivala that, even if  the Act is    within  the competence of the Parliament and  does not impair the fundamental rights under Arts. 14, 19(1)(f) & (g),  and 31(2) in their prospective operation, S. 1(2)  and S.  27(2), (3) & (4) which give, retrospective operation  as from   July  19,  1969,  are  invalid,  need  not  also   be considered.    Nor does the argument about the validity of sub-ss. (1) & (2) of S. II and S. 26 of the Act survive for consideration.               Accordingly we hold that-               (a)   the  Act  is  within   the   legislative               competence of the Parliament; but               (b)  it makes hostile  discrimination  against               the named banks in that it prohibits the named               banks  from  carrying  on  banking   business,               whereas  other  Banks-Indian  and  Foreign-are               permitted  to carry on banking  business,  and               even new Banks may be formed which may  engage               in banking business;               (c)  it in reality restricts the  named  banks               from  carrying on business other than  banking               as   defined  in  s.  5(b)  of   the   Banking               Regulation Act, 1949; and               (d)  that  the Act violates the  guarantee  of               compensation  under  Art.  31(2)  in  that  it               provides for giving certain amounts determined               according to principles which are not relevant               in  the determination of compensation  of  the               undertaking  of  the named banks  and  by  the               method prescribed the amounts so declared can-               not be regarded as compensation.     Section  4 of the Act is a kingpin in the  mechanism  of the Act.  Section 4, 5 and 6 read with Sch.  II provide  for the statutory transfer and vesting of the undertaking of the named banks in the corresponding new banks and prescribe the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 68 of 108  

method of determining compensation for expropriation of  the undertaking.  Those provisions are, in our judgment, void as they  impair  the fundamental guarantee  under  Art.  31(2). Sections  4, 5 & 6 and Sch.  II are not severable from  -the rest of the Act.  The Act must, in its entirety, be declared void.     Petitions  Nos.  300  and  298  of  1969  are  therefore allowed,  and  it  is declared that  the  Banking  Companies (Acquisition and Transfer of Undertakings) Act 22 of 1969 is invalid and the action 611 taken or deemed to be taken in exercise of the powers  under the Act is declared unauthorised.  Petition No. 222 of  1969 is  dismissed.  There will be no order as to costs in  these three petitions.     Ray, J.There are 89 commercial banks operating in India. Of these 89 banks 73 are Scheduled and 16 are  non-Scheduled banks.   The 73 Scheduled banks comprise State Banks with  7 subsidiaries aggregating 8, 15 foreign banks, 14 banks which -are   the   subject  matter  of   the   Banking   Companies (Acquisition  and Transfer of Undertakings) Ordinance No.  8 of 1969 (hereinafter referred to for the sake of brevity  as the  1969 Ordinance) and the Banking Companies  (Acquisition and   Transfer   of  Undertakings)  Act  No.  22   of   1969 (hereinafter referred to for the sake of brevity as the 1969 Act)  and 36 banks which are outside the scope of  the  1969 Act.   The  State Banks have 27 per cent  of  the  aggregate deposit  of  all  commercial banks and 32 per  cent  of  the credit  of all commercial banks.   The State Bank and its  7 subsidiaries have Rs. 1239 crores including current  account in the total deposit and the total credit of the State  Bank and  its subsidiaries is Rs. 1186 crores.  The 14  Scheduled Banks each of which has over Rs. 500 crores of deposit which are  the subject matter of the 1969 Ordinance and  the  1969 Act (hereinafter referred to for the, sake of brevity as the 14 banks) and have Rs. 2632 crores of deposit and the credit amounts to Rs. 1829 crores.  In other words, these 14  banks have 56 per cent of the total deposit and little over 50 per cent of the total credit of the commercial banks.    The36 scheduled  banks which are ’outside the 1969  Ordinance  and the  1969 Act have Rs. 296 crores of deposit, viz., 6.3  per centof  the  aggregate deposit and the credit  is  Rs.  197 crores, or in other words, 4.5 per cent of the total  credit of  the commercial banks.  The 15 foreign banks have 10  per cent  of the credit and 10 per cent of the  deposit.   These foreign banks have Rs. 478 crores of deposit and the  credit is  Rs. 385 crores.  The 16 nonscheduled banks have  Rs.  28 crores  of  deposit and the credit is about Rs.  16  crores. The  non-scheduled  banks have less than 1 per cent  of  the total credit and of the deposit.  The aggregate deposits  of the State Bank of India and its 7 subsidiaries and of the 14 banks  is  82.8  per cent (26.5 % + 56.3 % )  of  the  total deposits of 89 commercial banks and the aggregate credit  of the  said  banks is 83.4 per cent (32.8% + 50.6%  )  of  the total credit of the 89 commercial banks.     Of  the  89 commercial banks the State Banks  have  2454 branches, namely, 30 per cent of the branch offices.  The 15 foreign  banks have 138 branch offices  including  branches. The 36 scheduled banks which are outside the 1969  Ordinance and  the 1969 Act have 1324 offices.  The  16  non-scheduled banks have 216 612 offices.   The  14 banks have 4130 offices  which  represent about little over 50 per cent of the offices.  The aggregate of  the  number  of  offices of the State  Bank  and  its  7

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 69 of 108  

subsidiaries and the 14 banks is 6584 being 79.8 per cent of the  total  number of branch offices of  the  89  commercial banks.     On  19  July, 1969 Ordinance No. 8 of  1969  called  the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance. 1969 was promulgated by the Vice-President acting as  President.   It  was an Ordinance  to  provide  for  the acquisition  and  transfer of the  undertakings  of  certain banking  companies  in order to serve better  the  needs  of development  of  the  economy in  conformity  with  national policy and objectives and for matters connected therewith or incidental  thereto.   The Ordinance came into force  on  19 July, 1969.  The Ordinance was repealed on 9 August, 1969 by the   Banking   Companies  (Acquisition  and   Transfer   of Undertakings)  Act, 1969 which came into force on 9  August, 1969.   The  object of the Act was similar to  that  of  the Ordinance.  There are some differences between the Ordinance and  the Act but it is not necessary for the purpose of  the present matter to refer to the same.      Broadly  stated,  as  a  result of  the  1969  Act  the undertaking  of every existing bank was transferred  to  and vested in the corresponding new batik on the commencement of the  Act.   The  existing  banks mean  the  14  banks.   The corresponding  new  banks mean the banks  mentioned  in  the First  Schedule  to  the 1969 Act in  which  is  vested  the undertakings  of the existing banks.  Section 5 of the  1969 Act   deals  with  the  effect  of  vesting.    First,   the undertaking  shall be deemed to include all assets,  rights, powers, authorities and privileges and all property, movable or immovable, cash balances, reserve funds, investments  and all other rights and interests arising out of such  property as  were immediately before the commencement of the  Act  in the; ownership, possession, power or control of the existing banks  in  relation to the under’taking, whether  within  or without India, and all books of accounts, registers, records and all other documents of whatever nature relating thereto. Secondly,  the undertaking shall also be deemed  to  include all    borrowings,   liabilities    (including    contingent liabilities)   and   obligations  of  whatever   kind   then subsisting   of  the  existing  bank  in  relation  to   the undertaking.   Thirdly,  if  according to the  laws  of  any country  outside  India, the provisions of the 1969  Act  by themselves  are not effective to transfer or vest any  asset or  liability situated in that country which forms  part  of the  undertaking  of  an  existing  bank  to,  or  in,   the corresponding new bank, the affairs of the existing bank  in relation  to such asset or liability shall, on and from  the commencement  of  this  Act, stand entrusted  to  the  chief executive officer for the time 613 being of the corresponding new bank who will take all  steps as  required  by  the laws of the foreign  country  for  the purpose  of affecting such transfer or  vesting.   Fourthly, all contracts, deeds, bonds, agreements, powers of attorney, grants  of  legal representation and  other  instruments  of whatever  nature,  subsisting or having  effect  immediately before  the  commencement of the 1969 Act and to  which  the existing  bank  is a party -and which are in favour  of  the existing  bank shall be of as full force and effect  against or  in  favour  of the corresponding new  bank  and  may  be enforced or acted upon as fully and effectually as if in the place  ,of the existing bank the corresponding new bank  had been a party thereto or as if they had been issued in favour of   the  corresponding  new  bank.   Fifthly,   there   are provisions that suits, appeals, or other proceedings pending

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 70 of 108  

by or against the existing bank be continued, prosecuted and enforced by or against the corresponding new bank.     Section  6  of  the 1969 Act  provides  for  payment  of compensation and the second Schedule to the Act sets out the principles  of  determination of compensation  by  excluding liabilities from assets.  Section 11 of the Act enacts  that the   corresponding  new  bank  shall  be  guided  by   such directions  in regard to matters of policy involving  public interest  as the Central Government may, after  consultation with  the  Governor of the Reserve Bank, give,  and  if  any question  arises whether a direction relates to a matter  of policy  involving public interest, it shall be  referred  to the  Central  Government  and the decision  of  the  Central Government thereon shall be final.  Section 12 provides  for appointment of an Advisory Board to advise the custodian  of the  corresponding  new bank.  The custodian  is  the  chief executive  officer  of  the  corresponding  new  bank.   The Chairman  of  the existing bank holding  office  before  the commencement   of  the-Act  becomes  a  custodian   of   the corresponding  new  bank.  The custodian is to  hold  office during  the pleasure of the Central Government.  Section  13 of the Act provides power of the Central Government to  make scheme.   Section 15 is an important provision in  the  Act. Under  that  section  a  Chairman,  managing  or  whole-time director  of an existing bank shall, on the commencement  of the  Act, be deemed to have vacated office and  every  other director  of  Such  bank shall,  until  directors  are  duly elected by such existing bank, be deemed to continue to hold such office.  ’The said Board may transact all or any of the various  kinds  of business mentioned in  section  15.   The other provision in section 15 is that the existing bank  may carry on any business other than banking.     The  Act  of 1969 by reason of section 1(2)  thereof  is deemed to have come into force on 19 July, 1969.  Section 27 of  the  Act contains four sub-sections  providing  for  the repeal of the 614 Ordinance  and  enacting  first,  that  notwithstanding  the repeal  of the Ordinance, anything done or any action  taken including  any order made, notification issued or  direction given, under the said Ordinance shall be deemed to have been done,  taken,  made, issued or given, as the  case  may  be, under  the corresponding provisions of this  Act;  secondly, that no action or thing done under the said Ordinance shall, if it is inconsistent with the provisions of this Act, be of any  force  or effect and thirdly  notwithstanding  anything contained  in the Ordinance no right, privilege,  obligation or liability shall be deemed to have been acquired,  accrued or incurred thereunder.     The petitioner Rustom Cavasjee Cooper is a  share-holder of  the Central Bank of India Ltd. and of 3  other  existing banks and has current and fixed deposit accounts with  these banks  and is also a director of the Central Bank of  India. The  petitioner  has  challenged the validity  of  the  1969 Ordinance  and  the  1969 Act and  has  contended  that  his fundamental  rights under Articles 14, 19 and 31  have  been infringed by these measures.      Mr.  Palkhivala, counsel for the petitioner,  contended that the Act of 1969 was effective only from 9 August, 1.969 and could not have any effect on or from 19 July, 1969 until 9 August, 1969 because there could not be any  retrospective effect given to any piece of legislation which affected  the fundamental  right  to  property.   It  was  said  that  the validation would be effective as from the date when the  law was  actually  passed  and any  retrospective  effect  would

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 71 of 108  

offend Article 31(2) of the Constitution.  It was said  that acquisition  under Article 31(2) could only be by  authority of  law and authority of law could only mean a law in  force at  the date of the taking.  It was emphasised that the  law must  be in existence at the material time and there was  no difference  between  a law under Article 20(1)  and  law  in relation   to  Article  31(1)  or  Article  31(2)   of   the Constitution.      The  Attorney General on the other hand contended  that the validity of any law either prospective or  retrospective affecting all or any of the fundamental rights under Article 19 has to be judged by the requirement laid down in  Article 19  and  the  validity  of  a  law  either  prospective   or retrospective  acquiring  property has to be judged  by  the requirements laid down in Article 31(2).      This Court dealt with retrospective legislations in the cases  of  M/s.  West Ramnad Electric  Distribution  Company Ltd.  v.  State of Madras(1) and State of Mysore  v.  Achiah Chetty  (2).  In  the case of  M/s.   West  Ramnad  Electric Distribution Company Ltd.(’) this Court held that there  was difference between the provisions (1) [1963] 2 S.C.R. 747. (2) A.1.R. [1969] S.C. 477. 615 contained  in  Article  20(1)  and  Article  31(2)  of   the Constitution.   Article 20(1) refers to law in force at  the time  of  the commission of the act- charged as  an  offence whereas  Article  31(2) does not contain any  such  word  of limitation  as to law being in force at the time but  speaks only of authority of a law.  This vital distinction  between Article  20(1)  and  Article  31(2) is to  be  kept  in  the forefront  in appreciating the soundness of the  proposition that retrospective legislation as to acquisition of property does not violate Article 31(2).      In the case of M/s.  West Ramnad Electric  Distribution Company(1)  the  1954  Madras  Act  incorporated  the   main provisions  of the earlier Madras Act of 1949 in  validating actions taken under the earlier 1949 Act.  The 1949 Act  had been challenged in earlier proceedings when this Court  held the  1949  Act to be ultra vires.  Section 24  of  the  1954 Madras  Act  was  intended to  validate  a  notification  of acquisition  of  undertaking issued on  21  September,  1951 under the, 1949 Act by providing that orders made, decisions or  directions given, notifications, issued, if  they  would have  been validly made under the 1949 Act were declared  to have been validly made except the extent to which the  order was  repugnant to the provisions of the later 1954 Act.   In the Madras case it was contended that the notification under the  1949  Act  in the year 1951 was not  supported  by  any authority or any pre-existing law because there was no valid law.  That contention was repelled by Gajendragadkar, J. who spoke  for  the  Court,  "If the  Act  is  retrospective  in operation and section 24 has been enacted for the purpose of retrospectively   validating   actions   taken   under   the provisions  of the earlier Act, it must follow by  the  very retrospective  operation of the relevant provisions that  at the  time when the impugned notification was  issued,  these provisions were in existence.  That is the plain and obvious effect  of  the  retrospective  operation  of  the  statute. Therefore  in  considering whether Article  31(1)  has  been complied  with  or  not,  we must  assume  that  before  the notification was issued, the relevant provisions of the  Act were  in existence and so, Article 3 1 (1) must be  held  to have been complied with in that sense".      Article  20(1)  cannot  by  its  own  terms  have   any

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 72 of 108  

retrospective  operation whereas Article 31(2) can and  that is  a vital distinction between the two Articles.   That  is why there cannot be a retrospective legislation with  regard to  creation  of an offence.  If people at the time  of  the commission  of an act did not know that it was  an’  offence retrospective creation of a new offence in regard to such an act would put people to new peril which was not in existence at  the time of the commission of the act.  Counsel for  the petitioner   contended  that  retrospective  validation   of acquisition  fell  within the mischief of  the  decision  of Punjab Province v. Dau- (1) [1963] 2 S.C.R. 747. 616 lat  Singh & Others(’) where the Judicial Committee  dealing with  section 5 of the Punjab Alienation Act which  provided for   the  avoidance  of  benami  transactions  as   therein specified which were entered into either before or after the commencement of the Act of 1938 held that the same was ultra vires the Provincial Legislature because it would operate as a   prohibition  to  affect  the  past  transactions.    The retrospective  element however was severed in that  case  by the deletion of the words "either before or" in the  section and  the  rest  of  the  provisions  were  left  to  operate prospectively  and  validly.  The ratio of the  decision  is that past transactions which had been closed and title which had  been acquired were sought to be reopened or  set  aside and the same could not be within the legislative  competence of  section 298 of the Government of India Act,  1935  which conferred  power  to  prohibit  the  sale  or  mortgage   of transactions.   The  words ’prohibit sale  or  mortgage’  in section  298  of  the Government of  India  Act,  1935  were construed  to mean prospective or future prohibition as  the words  used  plainly  refer to  things  or  transactions  in future.      The  decisions  of  this Court  in  M/s.   West  Ramnad Electric  Distribution  Company (2) and State of  Mysore  v. Achiah  Chetty(3) are ample authorities for the  proposition that  there  can  be  retrospective  legislation   affecting acquisition of property and such retrospective operation and validation  of actions with regard to acquisition  does  not offend  Article  31 (2) of the Constitution.   In  State  of Mysore  and Anr. v. D. Achiah Chetty  etc.(’)  Hidayatullah, C.J. considered the Bangalore Acquisition of Lands Act, 1962 which  consisted of two sections whereof the second  was  in relation  to validation of certain acquisition of lands  and orders connected therewith.  In short that section  provided that  all acquisition, proceedings, notifications or  orders were  validly made, held or issued with the result that  the Act validated all past actions notwithstanding any breach of City of Bangalore Improvement Act, 1945.  Hidayatullah, C.J. said   "What   the  legislation  has  done,   is   to   make retrospectively  a single law for the acquisition  of  these properties.   The  legislature could  always  have  repealed retrospectively   the   Improvement   Act   rendering    all acquisitions to be -governed by the Mysore Land  Acquisition Act  alone.   This power of the legislature is  not  denied. The  resulting  position  after the Validating  Act  is  not different.   By the non-obstante clause the Improvement  Act is  put  out  of  the way and  by  the  operative  part  the proceedings  for  acquisition are wholly brought  under  the Mysore Land Acquisition Act to be continued only under  that Act.  The (1) 73 1. A. 59. (3) [1969] 3 S.C.R. 55 (2) [1963] 2 S.C.R. 747.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 73 of 108  

617 Validating  Act  removes altogether from  consideration  any implication  arising from Chapter III or section 52  of  the Improvement Act in much the same way as if that Act had been passed".   The  correct legal position on the  authority  of these  decisions of this Court is that a  legislation  which has   retrospective   effect   affecting   acquisition    or requisition  of  property  is not  unconstitutional  and  is valid.  The Act of 1969 which is retrospective in  operation does  not  violate  Article  31(2)  because  it  speaks   of authority  of  a  law without any  words  of  limitation  or restriction as to law being in force at the time.     Counsel  for  the  petitioner next  contended  that  the expression "authority of a law" in Article 31(2) would  have the  same  meaning as the expression "authority of  law"  in Article  31(1) and therefore a law acquiring property  would have  to satisfy the tests required in Article  19(1)(f)  of the Constitution.  Both Article 31(2) and 19(1)(f) relate to property.  Both appear in Part III of the Constitution under fundamental  rights.   The Attorney General  contended  that Article  31(2) and 31(2A) constituted a self contained  code relating  to  acquisition and requisition of  property,  and once  a  property had been acquired by a law  in  compliance with  the requirements of Article 31(2) there would  not  be any  right left under Article 19(1)(f) and the  validity  of such  a  law of acquisition of property for  public  purpose could  not be examined again by the requirements of  Article 19(5) which is a relaxation of Article 19(1)(f).     The two requirements of a law relating to acquisition or requisition  of  property under Article 31(2) are  :  first, that the acquisition or requisition of property can’ be made only  for a public purpose, and secondly, it can only be  by authority of a law which provides for compensation.  Article 31(2A) further enacts that where a law does not provide  for the transfer of the ownership or right to possession of  any property  to  the  State  or  to  a  corporation  owned   or controlled  by the State, it shall not be deemed to  provide for   the  compulsory  acquisition  or   requisitioning   of property.     The  question  for interpretation of Article 22  of  the Constitution  in  the  light  of  Article  19  came  up  for consideration  in  the  case of A. K. Gopalan  v.  State  of Madras(’), Kania, C.J., Patanjali Sastri, Mahajan, Mukherjea and  Das, JJ. expressed the opinion that Article 19  of  the Constitution  had  no  application to a  law  which  related directly to preventive detention even though as a result  of an  order  of  detention, the rights  referred  to  in  sub- ,clauses (a) to (e) and (g) in general and sub-clause (d) in particular, of clause (1) of Article 19 might be  restricted or abridged. (1) [1950] S.C.R. 88. 618 Fazl  Ali,  J. however expressed a  contrary  opinion.   The consensus of opinion in Gopalan’s case(’) was that so far as substantive   law   was  concerned,  Article   22   of   the Constitution  gave a clear authority to the  legislature  to take   away  fundamental  rights  relating  to  arrest   and detention  which  were secured by the first two  clauses  of that Article.  Mukherjea, J. said about preventive detention in  relation to right of freedom under Article  19.   ’,’Any legislation on the subject would only have to conform to the requirements  of  clauses (4) to (7) and  provided  that  is done,  there is nothing in the language employed nor in  the context  in  which it appears which affords any  ground  for suggestion that such law must be reasonable in its character

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 74 of 108  

and that it would be reviewable by the Court on that ground. Both  Articles  19  and 22 occur in the  same  Part  of  the Constitution  and  both  of them support  to  lay  down  the fundamental rights which the Constitution guarantees.  It is well settled that the Constitution must be interpreted in  a broad and liberal manner giving effect to all its parts  and the presumption would be that no conflict or repugnance  was intended by its framers".     I shall now deal with some decisions of this Court as to whether  a law acquiring property under Article  31(2)  will have  to comply with Article 19 (1) (f ) or in  other  words whether  such  law  of acquisition of  property  for  public purpose must also according to Article 19(5) be a reasonable restriction  on the right to hold property in the  interests of the general public.  There are decisions of this Court to the effect that acquisition of property under Article  31(2) as  it  stood prior to amendment in 1955 is an  instance  of deprivation  of property mentioned in Article 31(1) and  the two  clauses of Article 31 are to be read together with  the result that Article 19(1)(f) has no application where a  law amounts  to  acquisition or requisition of  property  for  a public purpose under Article 31(2).  When Article 31(2)  was amended by the Constitution Fourth Amendment Act, 1955,  the decisions  of this Court on that Article held  that  Article 19(1)(f)  applies  only to a deprivation of  property  under Article  31(1) but not to a law of acquisition  of  property for  public purpose under Article 31(2).  I shall now  refer to these decisions.     In  the  case of State of West Bengal  v.  Subodh  Gopal Bose(’) the majority view of this Court was that clauses (1) and (2) of Article 31 as these stood before the Constitution Fourth  Amendment  Act, 1955 are not mutually  exclusive  in scope and content but are to be read together and understood as dealing with the same subject, namely, the protection  of the  right to property by means of limitations on the  power of the State and the deprivation contemplated in clause  (1) was held to be no other than the (1) [1950] S C.R. 88. (2) [1954] S.C.R. 587. 619 acquisition or taking possession of the property referred to in clause (2).     The view in Gopalan’s case(’) was again applied by  this Court in State of Bombay v. Banji Munji and Anr. (2) also  a pre-Amendment case-where it was contended that Article 31(2) did  not  exclude  the  operation  of  Article  19(1)(f)  in relation  to Bombay Land Acquisition Act, 1940.  In  dealing with the contention as to whether the Bombay Act was hit  by Article 19(1)(f) on the --round of unreasonable  restriction having  been  imposed  on the right  of  the  respondent  to acquire, hold and dispose of property Bose, J. said at  page 780 of the Report "It is enough to say that Article 19(1)(f) read  with clause (5) postulates the existence  of  property which can be enjoyed and over which rights can be  exercised because  otherwise the reasonable restrictions  contemplated by  clause (5) could not be brought into play.  If there  is no  property which can be acquired, held or disposed of,  no restriction  can be placed on the exercise of the, right  to acquire,   hold  or  dispose  of  it,  and  as  clause   (5) contemplates  the placing of reasonable restrictions on  the exercise  of  those  rights  it  must  follow  that  Article postulates the existence of property over which these rights can be exercised".  Bose, J. thereafter said that when every form of enjoyment of and interest in property is taken  away leaving  the  mere  husk of title Article  19(1)(f)  is  not

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 75 of 108  

attracted.      The principle laid down in Bhanji Munji’s case (2)  was considered  in the case of Kavalappara  Kottarathil  Kochuni and Ors. v. The State of Madras and Ors.(3). In that case  a question  arose whether the Madras Marumakkathayam  (Removal of  Doubts)  Act,  1955  infringed  the  provisions  of  the Constitution.   The Act was passed after the  Privy  Council had declared the properties in possession of the Sthanee  to be;  Sthanam properties in which the members of  the  tarwad had  no  interest.   The  Madras  Act,  1955  declared  that "notwithstanding  any  decision of Court, any  stanam  under certain conditions mentioned in the sections shall be deemed to   be  and  shall  be  deemed  always  to  have   been   a Marumakkathayam  tarwad and the properties  appertaining  to such  a  sthanam shall be deemed to be and shall  be  deemed always  to  have been properties belonging to  the  tarwad". Subba Rao, J. speaking for the majority view on the question as  to  whether Article 3 1 (1) had to be  read  along  with Article  19(1)(f) said "that Legislation in a welfare  State could   be  achieved  only  within  the  framework  of   the Constitution and that is why reasonable restrictions in  the interest  of  the general public on the  fundamental  rights were recognised in Article 19".  In that context this Court (1) [1950] S.C.R. 88. (3) [1960] 3 S.C.R. 887. (2) [1955] 1 S.C.R. 777. 620 held  that  a law made depriving a citizen of  his  property shall  be  void, unless the law so made  complied  with  the provisions of cl. (5) On Article 19 of the Constitution.  At page  916  of  the  Report  Subba  Rao,  J.  said  that  the observations  in Gopalan’s case(’) would have no bearing  on Article  31(1)  of  the Constitution  after  clause  (2)  of Article  31  had  been  amended and  clause  (2A)  had  been inserted   in  that  Article  by  the  Constitution   Fourth Amendment Act, 1955.  Before the Constitution Fourth  Amend- ment Act this Court held that clauses (1) and (2) of Article 31  were  not mutually exclusive- in scope and  content  but were  to  be  read  together,  namely,  that  the  words  "- acquisition or taking possession" referred to in clause  (2) of Article 31 prior to the Amendment in 1955 were to be read as an instance of deprivation of property within the meaning of Article 31 (1) and therefore the same was not subject  to Article  19.   This is how the decision  in  Bhanji  Munji’s case(2) was explained by Subba Rao, J. in Kochuni’s  case(3) with  the observation that "the decision in  Bhanji  Munji’s case(’)  no  longer holds the held  after  the  Constitution Fourth  Amendment  Act, 1955".  It may be stated  here  that Kochuni’s case(’) was decided after the amendment of Article 31  and  that was emphasised by Subba Rao, J.  to  establish that  Article  3  1 ( 1 ) which dealt  with  deprivation  of property  other than by way of acquisition by the State  was to be a valid law or in compliance with limitations  imposed in Article 19(1) (f) and (5).     The  question whether Article 19(1) (f) is to  be,  read alongwith  Article 31 (1) again raised its head in the  case of Smt.  Sitabati Devi’ and Anr. v. State of West Bengal and Anr.(4) Kochuni’s case(’)was decided on 4 May, 1960 and Smt. Sitabati’s case(’) was decided on 1 December, 1961 though it was  reported much later in the Supreme Court  Reports.   In Smt.  Sitabati’s case(’) the question for consideration  was the  validity  of  the West  Bengal  Land  (Requisition  and Acquisition)  Act, 1948.  The Act provided  for  requisition and also for acquisition of land by the State Government for maintaining  supplies and services essential to the life  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 76 of 108  

the community and for other purposes mentioned therein.  The Act also provided for payment of compensation in respect  of requisition  and acquisition.  In Smt.  Sitabati’s  case(\’) it was contended that the Act offended Article 19(1) (f ) of the Constitution as it put unreasonable restrictions on  the right  to hold property.  The High Court held that  the  Act providing for acquisition of property by the State could not be  attacked for the reason that it -offended Article  19(1) (f)  on  the authority of the decision in  Bhanji  Munji  v. State  of Bombay(’).  The High Court further held that  the- decision in Kochuni’s case (3) did not hold that Article  31 (2) (1)  [1950] S.C.R. 88. (3)  [1960] 3 S.C.R. 887. (2)  [1955] 1 S. C.R. 777. (4)  [1967] 2 S.C.R. 949. 621 of  the  Constitution did not exclude the  applicability  of Article  19(1)(f).  Sarkar, J. speaking for the  Court  said that the High Court was right on both these points.  Sarkar, J. pointed out that Kochuni’s case(’) dealt with Article  31 (1)  and it was not a case of acquisition or requisition  of property  by  the State but was concerned with  the  law  by which  deprivation  of property was brought about  in  other ways  and  there Article 19 of the Constitution  had  to  be complied with.  In Smt.  Sitabati’s case(’) it was said that the  observation  in Kochuni’s case(’) that  Bhanji  Munji’s case(’) "no longer holds the field" was to be understood  as meaning  that it no longer governed the case of  deprivation of property by means other than requisition and  acquisition by  the State.  To my mind it appears that the view of  this Court  in Kochuni’s case(’) and Smt.  Sitabati’s case(’)  is that  Article 31(2) after the Constitution Fourth  Amendment Act. 1955 relates entirely to acquisition or requisition  of property by the State and is totally distinct from the scope and  content of Article 31(1) with the result  that  Article 19(1)(f)  will  not  enter  the  arena  of  acquisition’  or requisition of property by the State.     This Court in the recent decision of State of Gujarat v. Shantilal  Mangaldas  and  others(3)  again  considered  the applicability of Article 19(1)(f) in relation to acquisition or  requisition  of property under the authority  of  a  law mentioned in Article 31(2).  The Bombay Town Planning Act of 1955  was  challenged  as unreasonable and  a  violation  of Article 19(1)(f) and (5).  Shah, J. speaking for. the  Court considered Article 31(2) as it stood after the  Constitution Fourth Amendment Act, 1955 and said "clause (1) operates  as a  protection  against  deprivation  of  property  save   by authority  of  law which it is beyond question,  must  be  a valid law, i.e. it must be within the legislative competence of  the  State legislature and must not infringe  any  other fundamental  right.   Clause (2)  Guarantees  that  property shall  not  be acquired or requisitioned  [except  in  cases provided  by clause (5)] save by authority of law  providing for  compulsory  acquisition  or  requisition  and   further providing  for compensation for the property so acquired  or requisitioned and either fixes the amount of compensation or specifies  the principles on which, and the manner in  which the compensation is to be determined or given".   Thereafter Shah,  J.  speaking  for the Court  said  in  repelling  the contention   advanced   that  the   impugned   statute   was unreasonable.   "This Court however held in  Smt.   Sitabati Devi  v.  State  of West Bengal (1) that a  law  made  under clause  (2) of Article 31 is not liable to be challenged  on the  ground that it imposes unreasonable  restrictions  upon

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 77 of 108  

the (1)   [1960] 3 S.C.R. 887. (3)  [1955] 1 S.C.R. 777. (2)  [1967] 2 S.C.R. 949. (4)  [1969] 3 S.C.R. 341. 622 right  to hold or dispose of property within the meaning  of Article  19(1) (f) of the Constitution.  In  Smt.   Sitabati Devi’s   case(’)  an  owner  of  land  whose  property   was requisitioned  under the West Bengal Land  (Requisition  and Acquisition) Act, 1948 questioned the validity of the Act by a  writ petition filed in the High Court of Calcutta on  the plea that it offended Article 19(1)(f) of the  Constitution. This  Court  unanimously held that the validity of  the  Act relating to acquisition and requisition cannot be questioned on  the ground that it offended Article 19(1)(f) and  cannot be decided by the criterion under Article 19(5)".     In  my  opinion  Article  19(1)(f)  does  not  have  any application to acquisition or  requisition of property for a public  purpose under authority of a law which provides  for compensation  as  mentioned  in  Article  31(2)  for   these reasons.   First, the provisions of the Constitution are  to be interpreted in a harmonious manner.  No provision of  the Constitution    is    superfluous   or    redundant.    (See Gopalan’scase(2) at page 252 per Mukherjea,J.). It cannot be suggested that acquisition of property for public purpose is not  of the same content as acquisition for public  interest or  in the interest of the public.  It will be  pedantry  to say  that  acquisition  for public purpose  is  not  in  the interest of the public.  Secondly, the contention on  behalf of  the petitioner that Article.31(2) will have to  be  read along with Article 19(1)(f) for the purpose of deciding  the piece  of  legislation  on the anvil  of  reasonableness  of restrictions in the interest of the general public will mean that  acquisition or requisition for a public purpose  under Article  31  (2) is embraced within Article  19  (5).   That would   be  not  only  depriving  the  provisions   of   the Constitution of harmony but also making Article 31(2) otiose and  a  dead  letter.  By harmonising  is  meant  that  each provision  is rendered free to ,operate with full vigour  in its own legitimate field.  If acquisition or requisition  of property for a public purpose has to satisfy again the  test of  reasonable  restriction in the interest of  the  general public then harmony is repelled and Article 31(2) becomes  a mere repetition and meaningless.  It could not be said  that when  Article 31(2) was specifically enacted to deal with  a case of acquisition or requisition of property for a  public purpose the framers of the Constitution were not aware  that it  was a form of public deprivation of property.   That  is why  it  is  important to  notice  the  distinction  between deprivation  of  property under Article 3 1 (1)  which  will relate  to all kinds of deprivation of property  other  than acquisition  or requisition by the State and  Article  31(2) which  deals  only with such acquisition or  requisition  of property.   Thirdly,  Article  31(2) and 31(2A)  is  a  self contained  code because (a) it provides for  acquisition  or requisition with authority (1) [1967] 2 S.C.R. 949. (2) [1950] S.C.R. 88. 623 of a law, (b) the acquisition or requisition is to be for  a public purpose, (c) the law should provide for  compensation by  fixing  the  amount of compensation  or  specifying  the principles   on  which,  and  the  manner  in   which,   the compensation is to be determined and given and (d)  finally,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 78 of 108  

it  enacts  that  adequacy  of compensation  is  not  to  be questioned.   In the case of acquisition or  requisition  of property  for  public purpose with the authority  of  a  law providing  for compensation there is nothing more  to  guide and govern the law for acquisition or requisition than those crucial words occurring in clause (2).  Finally, the  amend- ment of Article 31 indicates in bold relief the separate and distinctive field of law for acquisition and requisition  by the State of property for public purpose.     Mahajan,  J. in the case of State of Bihar  v.  Maharaja Darbhanga(1)  spoke of public purpose in the  background  of Article  39  which  speaks  of  the  Directive   Principles. Article 39 enacts that the State shall in particular  direct its  policy towards securing that the ownership and  control of   the  material  resources  of  the  community   are   so distributed  as  best to subserve common good and  that  the operation  of  the economic system does not  result  in  the concentration of wealth and means of production to the  com- mon  detriment.  In the Darbhanga case(’) land which was  in the hands of few individuals was to be made available to the public.  The purpose behind the Bihar Land Reform Act was to bring  general benefit to the community.  Mahajan,  J.  said that "legislature is the best judge of what is good for  the community, by whose suffrage it comes into existence and  it is  not  possible for this Court to say that  there  was  no purpose behind the acquisition contemplated by the  impugned statute.   The purpose of the statute is in accordance  with the letter of the Constitution of India, It is fallacious to contend that the object of the Act is to ruin 5 1/2  million people  in  Bihar........  It is difficult to  hold  in  the present  day  conditions  of the  world  that  the  measures adopted  for the welfare of the community and sought  to  be achieved by process of legislation so far as to carry on the policy of nationalization of land can fall on the ground  of public  purpose.   The  phrase "public purpose"  has  to  be construed  according  to the spirit of the  times  in  which particular  legislation is enacted and so  constructed,  the acquisition of the estates has to be held to have been  made for public purpose".  The meaning of the phrase ’public pur- pose’  is  predominantly a purpose for the  welfare  of  the general public.  These 14 banks are acquired for the purpose of  developing  the  national economy.  It  is  intended  to confer  benefit on weaker sections and sectors.  It  is  not that  the legislation win have; the effect of  denuding  the depositors in the 14 banks of their deposits.  The (1) [1952] S.C.R. 889. 624 deposits will all be there.  The object of the Act according to  the legislation is to use the deposits in  wider  public interest.   What  was  true  of  public  purpose  when   the Constitution  was  ushered in the mid-century is  a  greater truth  after  two decades.  One cannot be guided  either  by passion  for property on the one hand or  prejudice  against deprivation  on the other.  Public purpose steers  clear  of both passion and prejudice.    In  regard  to property rights the  State  generally  has power to take away property and justify such deprivation  on the ground of reasonable restriction in the interest of  the general  public, but in case of deprivation of  property  by acquisition  or requisition the Constitution  has  conferred power  when  the law passed provides  compensation  for  the property  acquired by the State.  Therefore the  acquisition or   requisition  for  public  purpose  is   a   restriction recognised by the Constitution in regard to property rights. In Kochuni’s case(’) this Court approved the observation  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 79 of 108  

Harries,  C.J. in the case of Iswari Prosad v. N. R.Sen  (2) that  the  phrase ’in the interest of  the  general  public’ means nothing more than ’in the public interest’.  A  public purpose  is a purpose affecting the interest of the  general public   and  therefore  the  Welfare  State  is  given   of guarantee,  giving  of indemnity and  underwriting  and  (4) busiprinciple  as to what the legitimate business of a  bank is.     Counsel  for  the  petitioner contended  that  the  word ’banking’  would have the same meaning as the definition  of ’banking’   occurring  in  section  5(b)  of   the   Banking Regulation Act of 1949 hereinafter referred to for the  sake of  brevity as the 1949 Act.  This contention was  amplified to exclude four types of business from the banking  business and therefore, the Act of 1969 was said to be not within the legislative competence of banking under Entry 45 in List  1. These  four  types of business are : (1)  the  receiving  of scrips or other valuables on deposit or for safe custody and providing  of safe deposit vaults, (2) agency business,  (3) business of. guarantee, giving of indemnity and underwriting and  (4)  business  of acting  as  executors  and  trustees. ’Banking’ was defined for the first time in the 1949 Act  as meaning  the  acceptance  for  the  purpose  of  lending  or investments  of deposits of money from the public  repayable on demand or otherwise and withdrawable by cheque, draft  or otherwise.   In England there is no statutory definition  of banking but the Courts have evolved a meaning and  principle as to what the legitimate business of a bank is.     In  the case of Tennant, v. The Union Bank of  Canada(’) question’  arose as to whether warehouse receipts  taken  in security (1) [1960] 3 S.C.R. 887. (3) [1894] A.C. 51. (2) A.T.R  1952 Cal. 273. 625 by a bank in the course of business of banking, are  matters coming within the class of subjects described in section 91, sub-section.  15 of the British North America  Act,  namely, ’banking,  incorporation  of Banks, and the issue  of  paper money’.    Lord   Watson  said  that  the   word   ’banking’ comprehends  an expression which is, wide enough to  embrace every transaction coming within the legitimate business of a banker.   In Palmer’s Company Precedents, 17th Ed. page  317 form No. 98 will be found the usual memorandum of object  of a  bank.  These objects comprise business of banking in  all branches including the receiving. of money and valuables  on deposit  or for safe custody, or otherwise,  the  collecting and  transmitting money and securities and  transacting  all kinds  of  agency business commonly transacted  by  bankers. The  other objects in the form are to undertake and  execute any  trusts the undertaking whereof may seem desirable,  and also  to  undertake the office of  executor,  administrator, receiver,  treasurer, registrar or auditor.  In  Banbury  v. Bank  of  Montreal(’)  the House  of  Lords  considered  the authority  of the bank to give advice as to investments  and Lord Finday, L.C. said that "the limits of banker’s business cannot  be  laid  down as a matter of law.   The  nature  of business  is  a  question of fact, on  which  the  jury  are entitled  to have-regard to thier own knowledge of  business and it is in this context that the present case must be con- sidered.  It cannot be treated as if it was a matter of Pure law".      In  India, the Negotiable Instruments Act, 1881,  Stamp Act,  1889 and Bankers Book Evidence Act, 1891 refer to  the expression  banking  without a definition.   In  the  Indian

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 80 of 108  

Companies  Act. 1913 for the first time in  1936  provisions were  introduced to govern banking companies.  Entry  38  in List  1 of the Government of India Act, 1935 used the  words "banking that is to say the conduct of banking business of a Corporation  carried  on only in that State".   It  must  be observed that Entry 45 in List 1 of the 7th Schedule to  the Constitution  is only ’banking’ and it does not contain  any qualifying  words like the conduct of business occurring  in Entry  38 of the Government of India Act, 1935.  The  Indian Companies Act, 1913 in section 277 however defined  ‘banking company’  but  not ’banking’ by reference to  the  principal business   and  other  businesses  usually   undertaken   by reputable bankers.  Section 277G of the Indian Companies Act prescribes  that  the  memorandum must  be  limited  to  the activities  mentioned in section 277F.  Section 277M of  the Indian  Companies Act, 1913 contained provisions similar  to section  19  of  the Act of 1949,  namely,  that  a  banking company  could not form any subsidiary contained  provisions similar  to  section 19 of the Act of 1949,  ,the  following purposes, namely, the undertaking and executing of (1) [1918] A.C. 624. 3Sup Cl/70-10 626 trusts, the undertaking of the administration of estates  as executors,  trustees  or otherwise, the  providing  of  safe deposit  vaults or, with the previous permission in  writing of  the Reserve Bank carrying on such other purposes as  are incidental to the business of banking.  It will appear  from the  Select  Committee  Report which was  prepared  for  the introduction  of the Indian Companies Amendment Act in  1936 that  the list of business mentioned in section  277F  which included   the   principal  business  and   other   business undertaken  by reputable bankers was inserted to escape  the danger  ,of  hampering a company in the performance  of  any form of business undertaken by reputable bankers.      It  is  in  this  background  that  the  1949   Banking Regulation Act was enacted.  ’Banking’ is defined in section 5(b)  of  the  1949 Act as meaning the  acceptance  for  the purpose  of lending or investment of deposits of money  from the   public   repayable  on  demand   .or   otherwise   and withdrawable by cheque, draft order or otherwise.  Section 6 of the 1949 Act contains two sub-sections.  In  .sub-section (1)  it  is  enacted that in addition  to  the  business  of banking, a banking company may engage in one or more of  the forms  of businesses mentioned therein.  In sub-section  (1) there are clauses marked (a) to (o).  In sub-section (2)  of section  6  of the 1949 Act it is encated  that  no  banking company  shall  engage  in any  business  other  than  those referred to in sub-section (1).  Clause (a) of section  6(1) enumerates  the various forms of business, inter  alia,  the borrowing,  raising  or taking up of money, the  lending  or advancing  of  money either upon or  without  security,  the drawing,  making,  accepting, discounting,  buying,  selling collecting  and  dealing  in bills  of  exchange,  hoondees, promissory notes, coupons, drafts, bills of lading,  railway receipts,  warrants, debentures, certificates,  scripts  and other  instruments  and securities whether  transferable  or negotiable  or not, the granting and issuing of  letters  of credit, traveller’s cheques and circular notes, the  buying, selling and dealing in bullion and specie, the receiving  of all  kinds of bonds, scrips or valuables on deposit  or  for safe  custody  or otherwise, the providing of  safe  deposit vaults,  the  collecting  and  transmitting  of  money   and securities.   Clause (b) speaks of acting as agents for  any Goverment or local authority or any other person or persons;

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 81 of 108  

the  carrying  on  of agency  business  of  any  description including  the clearing and forwarding of goods,  giving  of receipts and discharges and otherwise acting as an  attorney on behalf of the customers, but excluding the business of  a company.   Clause  (h) speaks of undertaking  and  executing trusts.  Clause (i) speaks of undertaking the administration of  estates  as executor, trustee or  otherwise.   It  will, therefore,  appear that under section 6(1) of the  1949  Act the  four  types  of business disputed by  counsel  for  the petitioner 627 not to be within the businesses of a bank are recognised  by the  statute  as letigimate forms of business of  a  banking company.      Keeping  valuables for safe custody, the  providing  of safe  deposit  vaults occur in clause (a)  of  section  6(1) along with various types of business like borrowing, raising or taking up of money, or lending or advancing of money.  It will appear from clause (n) of section 6(1) of the 1949  Act that  in  addition  to the forms of  business  mentioned  in clauses  (a) to (in) a banking company may engage in  "doing all such other things as are incidental or conducive to  the promotion  or advancement of the business of  the  company". The  words  ’other  things’ appearing in  clause  (n)  after enumeration of the various types of business in clauses  (a) to  (m)  point  to  one  inescapable  conclusion  that   the businesses  mentioned  in  clauses  (a)  to  (in)  are   all incidental  or conducive to the promotion or advancement  of the business of the company.  Therefore these businesses are not  only legitimate businesses of the banks but these  also come  within  the normal business activities  of  commercial banks of repute.  Entry 45 in List 1 of the 7th Schedule  of the Constitution, namely, ’banking’ will therefore have  the wide  meaning  to  include all legitimate  businesses  of  a banking  company referred to in section 5(b) as well  as  in section  6(1) of the 1949 Act.  The contention on behalf  of the  petitioner  that the four disputed businesses  are  not banking businesses is not supportable either on logic or  on principle  when businesses mentioned in the  sub-clauses  of section 6(1) of the 1949 Act are recognised to be legitimate business  activities  of a banking company  by  statute  and practice and usage fully supports that view.     Clause (o) of section 6 (1) of the 1949 Act contemplates that  .the Central Government might by notification  specify any  other  form of business and  therefore  the  Government could ask a banking company to engage’ in a form of business which  is  not a usual type of business done  by  a  banking company.  In the first place, it would not be reasonable  to think that the Government would ask a bank to do business of that  type.   Secondly, even if a bank were asked to  do  so that  would  not. rob the other permissible  and  legitimate forms  of business mentioned in section 6(1) of the  Act  of their true character.  Section 6(2) of the 1949 Act provides that no banking company shall engage in any form of business other  titan  those  referred to in  sub-section  (1).   The restriction  contained in sub-section (2)  establishes  that the  various types of business mentioned in sub-section  (1) are  normal recognised legitimate businesses and  a  banking company  is  therefore not entitled to  participate  in  any other form of business. 628     In  the case of Commonwealth of Australia and others  v. Bank  of  New  South  Wales  and  others(’),  the   Judicial Committee  in  hearing  the appeal from the  High  Court  of Australia  considered  the meaning and content  of  banking.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 82 of 108  

The  question  for  consideration  was  the  effect  of  the Australian  Banking  Act, 1947 and section 46  thereof.   At page  303  of the Report the Judicial  Committee  said  "the business of banking, Consisting of the creation and transfer of credit, the making of loans, the purchase and disposal of investments  and other kindred activities is a part  of  the trade, commerce and intercourse of a modern society and.  in so  far  as  it  is  carried  on  by  means  of  inter-State transactions,  is  within  the ambit of  section  92".   The business  of a bank will therefore consist not only  of  the hard  core of banking business defined in the 1949  Act  but also  of  the diverse kinds of lawful  business  which  have grown  to be inextricably bound up in the form of  chain  or string  transactions.   The words  ’banker’  ’banking’  have different shades of meaning at different periods of  history and  their meaning may not be uniform today in countries  of different   habits   of  life  and  different   degrees   of civilisation.  See Bank of Chettinad v. T. C. of  Colombo(2) and United Dominions Trust Ltd. v. Kirkwood(3).      At this stage reference may be made to various statutes starting  from Act 6 of 1839 Bank of Bengal’s Third  Charter and  ending with the State Bank of India Act, 1955  to  show the meaning and content of the word ’banking’.  The Bank  of Bengal’s Third Charter of 1839 empowered the Bank of  Bengal in  clauses  25 to 33 to do business  as  mentioned  therein which included receiving deposits of goods and safe  keeping of  the  same.  Thereafter the Bank of  Bengal  Charter  was repealed  by Act 4 of 1862 which by clause 27 empowered  the bank to transact pecuniary business of agency on commission. The  Presidency  Banks  Act,  1876  by  section  36  thereof empowered  the Presidency Banks. inter alia, to do  business of  receiving  of deposits, agency business,  acceptance  of valuables,  jewels.  Section 37 of the Act of  1876  forbade the  bank to do any business or loan or advance on  mortgage or  in  other  manner upon the  security  of  any  immovable property,  or the documents of title relating thereto.   The Imperial Bank of India Act, 1920 in Schedule 1 as  mentioned in  section  8 of the Act authorised the bank  to  carry  on several  kinds of business including receiving of  deposits, keeping  cash  accounts, the acceptance of  the  charge  and management  of plate, jewels, title deeds or other  valuable goods on terms, transacting Of pecuniary agency business  on commission and the entering into Of contracts of  indemnity, suretyship or guarantee with specific (1) [1950] A.C. 235. (2) [1948] A.C. 378 P.C. (3) [1966] 1 Q. B. 783. 629 security or otherwise, the administration of estates for any purpose  whether as an executor, trustee or  otherwise,  and the  acting,  as agent on commission in the  transaction  of various kinds of business mentioned therein.     The  Indian Companies Act, 1913 did not  define  banking company or banking business though various sections, namely, 4,  133,  136, 138 and 145 and Schedule Form G  referred  to banking  companies.  The Indian Companies Amendment  Act  in 1936 for the first time defined a banking company in section 277F as a company which carried on the principal business of accepting  of  deposits  on current  account  or  otherwise, notwithstanding  that it engaged in any one or more  of  the businesses as mentioned in clauses (1) to (17) thereof.   It may be stated here that clauses (1) to (17) in section  277F of the Indian Companies Act, 1913 are similar to the various forms  of  business mentioned in section 6(1)  of  the  1949 Banking Regulation Act.  In 1942, the Indian Companies  Act,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 83 of 108  

1913  was amended by Act 21 of 1942 and it will appear  from the  statement  of  objects  and  reasons  there  that   the definition  of  banking  companies in section  277F  of  the Indian  Companies  Act  created  difficulties  in   deciding whether  a company was a banking company or not.  The  chief difficulty  arose  out  of the use of  the  term  ’principal business’  in  section 277F.  With the  object  of  removing these  difficulties  a proposal was made  that  any  company which used as part of its name the word ’bank’, ’banker’  or ’banking’   shall  be  deemed  to  be  a   banking   company irrespective  of whether the business of accepting  deposits of  money  on  current  account  or  otherwise  subject   to withdrawal  by  cheque,  draft or order  was  its  principal business  or not.  In that context Ordinance No. 4  of  1946 was promulgated under section 72 of the Govt. of India  Act, 1935 empowering the Reserve Bank to cause inspection of  any banking  company  and to do various other things by  way  of prohibiting  a  banking  company  from  receiving  deposits. Thereafter   came  the  Banking  Companies  Restriction   of Branches Act, 1946.  There a banking company was defined  as a banking company defined in section 277F of the Indian Com- panies  Act,  1913.  There was restriction  on  opening  and removal  of branches and the Reserve Bank was  permitted  to cause  inspection,  of banks.  It is in  this  context  that Ordinance No. 25 of 1948 was promulgated conferring power on the  Reserve Bank to control advances given by  the  banking companies.   In  1948  a confidential note  on  the  banking companies  Bill was prepared.  The necessity of  legislation was felt because there were insufficient paid up capital and reserve  and insufficient liquidity of  funds,  unrestricted loans  to directors.  In that confidential note it was  said that it was difficult to evolve any satisfactory  definition of 630 banking and difficulties arose because of the  incorporation of  the, words ’Principal business’ in relation to banks  in section 277F of the Indian Companies Act, 1913.     In this background the Banking Regulation Act, 1949  was enacted.   I  have  already referred to  the  provisions  of sections  5  and  6  of the  1949  Act  and  the  businesses mentioned  in  section 6(1) and the  definition  of  banking business  in section 5(b).  A most noticeable  feature  with regard  to all these types of business of a banking  company is  that- a banking company engages not only in the  banking business but other businesses mentioned in section 6 of  the 1949 Act with depositors’ money.  The entire business is one integrated whole.  The provisions contained in section 6 (1) of the 1949 Act are the statutory restatement of the gradual evolution over a century of the various kinds of business of banking companies which are similar to those to be found  in the  State  Bank of India Act, 1955 hereinafter  called  the State  Bank  Act.  The business with regard’ to  deposit  of valuables and safe deposit vaults is to be found in  section 3(viii)  of  the  State Bank Act,  the  agency  business  is mentioned  in  section 33(xii) of the State Bank  Act.   The business  of guarantee, underwriting and indemnity is  found in  section  33(xi)(xii)(a) of the State Bank  Act  and  the business  of  trusteeship and executorship  is  specifically found  in  the  Banking  Regulation Act,  1949  and  in  the previous Acts referred to hereinbefore.     It  was suggested by counsel for the petitioner that  by banking  business is meant only the hard core of banking  as defined in section 5(b) of the 1949 Act.  It is  unthinkable that  the business of banks is only confined to that  aspect and  not  to  the various forms  of  business  mentioned  in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 84 of 108  

section  6(1)  of  the 1949  Act.   Receiving  valuables  on deposit  or for safe custody and providing for safe  deposit vaults which are contemplated in clause (a) of section  6(1) of  the 1949 Act cannot be dissociated from other  forms  of unchallenged  business  of a bank mentioned in  that  clause because  any such severance would be illogical  particularly when  deposit for safe custody and safe deposit  vaults  are mentioned in the long catalogue of businesses in clause (a). The  agency  business which is mentioned in  clause  (b)  of section  6(1) is one of the recognised forms of business  of commercial banks with regard to mercantile transactions  and payment  or  collection  of price.  Agency is  after  all  a comprehensive   word   to  describe  the   relationship   of appointment of the bank as the constituent’s representative. The  forms of agency transactions may be varied.- It may  be acting  as  collecting  agent  or  disbursing  agent  or  as depository  of  parties.  The categories of  agency  can  be multiplied  in  terms  of transactions.   That  is  why  the business  of agency mentioned in clause (b) is first in  the general form of acting as an agent for 631 any  Government or local authority, secondly carrying on  of agency  business of any description including  the  clearing and  forwarding of goods and thirdly acting as  attorney  on behalf  of the customers.  The business of guarantee  is  in the   modern   commercial  word   practically   indissolubly connected  with a bank and forms a part of the  business  of the bank.  It is almost commonplace for Courts to insist  on bank  guarantee in regard to furnishing of security.   There may  be so many instances of guarantee.  As to the  business of trusteeship and executorship it may be said that this  is the  wish of the settler who happens to be a constituent  of the bank appointing the bank as executor or trustee  because of the utmost faith and confidence that the constituent  has in  the  solvency  and stability of the  bank  and  also  to preserve  the  continuity  of the trustee  or  the  executor irrespective  of any change by reason of death or any  other incapacity.   It  is  needless  to  state  that  these  four disputed  forms of business all spring out of  the  relation between  the  bank on the one hand and the customer  on  the other and the bank earns commission on these transactions or charges  fees  for the services  rendered.   Although  trust accounts  may  be  kept in a  separate  account  all  moneys arising out of the trust money go to the general pool of the bank  and the bank utilises the money and very  often  trust moneys  may be kept in fixed deposit with the  trustee  bank and  expenses  on account of the trust are met  out  of  the general   funds   of   the  trustee   bank.    Payments   to beneficiaries  are  made  by  crediting  the  beneficiaries’ accounts   in  the  trustee  bank  and  if  they   are   not constituents other modes of payment through other banks  are adopted.   The position of the banks as executor is  similar to  that of a trustee.  Whatever moneys the bank  may  spent are  recouped by the bank out of the accounts of  the  trust estate.      After  the  definition  of  banking  company  had  been introduced  for  the  first  time  in  1936  in  the  Indian Companies  Act,  1913 it appeared that the  banks  were  not being  managed  proprely  and the definition  of  a  banking company   gave  rise  to  administrative   difficulties   in determining whether a company was as banking company or not. A  number  of  banking and loan  companies  particularly  in Bengal  claimed that they were not banking companies  within the  scope  of the definition given in section 277F  of  the companies Act and in some cases their contention was  upheld

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 85 of 108  

by  the  Court.  The failure of the  Travancore  National  & Quilon  Bank Ltd. in 1938 and the subsequent banking  crisis in  South India posed a big question as to the  desirability of  better  legislation.  An attempt was made  to  prescribe certain  minimum  capital, the amount of  capital  depending upon the area of them operation of the bank.  The banks were also asked to maintain a percentage of their assets in  cash or approved securities, Thereafter 632 the  Indian Companies (Amendment) Act was passed in 1942  by which  a proviso I was added to section 277F. to the  effect that  ;any ,company which used as part of its name the  word ’bank’,  ’banker’  or  ’banking’ shall be  deemed  to  be  a banking company notwithstanding the fact that the acceptance of  deposits  on current account subject  to  withdrawal  by cheque is not the principal business of the company.  In the mid-forties  it became desirable that steps should be  taken to   safeguard  the  banking  structure   against   possible repercussion  in the post war period and it  was  considered necessary  that comprehensive banking legislation should  be introduced.     There are various provisions in the 1949 Act to indicate that  a  banking  company  cannot carry  on  business  of  a managing agent ,or Secretary and treasurer of a company  and that  it  cannot  acquire, construct,  maintain,  alter  any building  or works other than those necessary or  convenient for  the purpose of the company.  A banking  company  cannot acquire  or  undertake  the  whole or  any  portion  of  any business unless such business is of one of these  enumerated in  section  6(1) of the 1949 Act.  A bank  cannot  deal  in buying or selling or bartering of goods except in connection with  certain  purposes related to some  of  the  businesses enumerated in the aforesaid section 6(1).  These  provisions also establish that businesses mentioned in section 6 of the 1949  Act are incidental and conducive to banking  business. A bank cannot employ any person whose remuneration is in the form  of  a  commission or a share in  the  profits  of  the banking  company or whose remuneration is in the opinion  of the  Reserve  Bank  excessive.  One of  the  most  important provisions in section 35 of 1949 Act, which states that  the Reserve Bank at any time may and on being directed so to  do by the Central Government cause an inspection to be made  by one  or more of its officers of the books of account and  to report  to the Central Government on any inspection and  the Central  Government  thereafter if it is  of  opinion  after considering  the  report  that the affairs  of  the  banking company  are  being  conducted  to  the  detriment  of   the interests  of  its  depositors,  may  prohibit  the  banking ,company from receiving fresh deposits or direct the Reserve Bank  to  apply under section 38 of the winding  up  of  the banking  company.  Another important provision in  the  1949 Act  is  found  in section 27  which  provides  for  monthly returns in the prescribed form and manner showing assets and liabilities.   The power of the Reserve Bank under  sections 27  and  35 of the 1949 Act relates to the  affairs  of  the banking  company  which  comprehend  the  various  forms  of business  of  the bank mentioned in sectiotn 6 of  the  1949 Act.   Then  again section 29 of the 1949  Act  contemplates accounts relating to accounts of all business transacted  by the  bank.  Section -35-A of the 1949 Act confers  power  on the Reserve Bank to give 633 directions  with  regard to the affairs of  a  bank.   These provisions  indicate  beyond any measure of doubt  that  all forms of business mentioned in section 6(1) of the 1949  Act

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 86 of 108  

are  lawful, legitimate businesses of a bank as  these  have grown  along with increase of trade and commerce.  The  word ’banking’  has  never had any static meaning  and  the  only meaning  will  be the common understanding of  men  and  the established  practice in relation to banking.  That  is  why all  these  disputed  forms  of  business  come  within  the legitimate business of a bank.      The  next  question is the  legislative  competence  in regard  to  the  Act of 1969.  Counsol  for  the  petitioner contended that the Act was for nationalisation of banks  and there was no legislative entry regarding nationalisation and therefore  that was incompetent.  There is no merit in  that contention.   The  Act is for acquisition of  property;  the undertaking   of  a  banking  company  is   acquired.    The legislative competence is under Entry 42 in List III of  the 7th  Schedule and also under Entry 45 in List 1 of  the  7th Schedule.    Entry  42  in  List  III  is  acquisition   and requisitioning   of  property.   Entry  45  in  List  1   is ’banking’.  The Act of 1969 is valid under these entries.  A question arose whether the Act. of 1969 pertains to Entry 43 in  List  1 which deals with incorporation,  regulation  and winding  up of trading corporations including banks.  It  is not  necessary  to  deal  with  that  entry  because  of  my conclusion  as to enrties No. 42 in List III and No.  45  in List 1. Counsel for the petitioner contended that the Act of 1969  trenched upon Entry 26 in List 11, namely,  trade  and commerce  within  the  State.  I am unable  to  accept  that contention  for the obvious reason that the  legislation  is for  acquisition of undertakings of banking companies.   The pith and substance of the legislation is to be found out and meaning  is  to  be  given  to  the  entries  ’banking’  and acquisition of property.  In the case of United Provinces v. Mst.   Atiqa  Begum and others(1) Gwyer, C.J. said  that  it would  be practically impossible to define each item in  the provincial  legislation  as to make it  exclusive  of  every other  item in that list and Parliament seems to  have  been content to take a number of comprehensive categories and  to describe each of them by a word of broad and general import. The  doctrine of pith and substance used in  Union  Colliery Company   of  British  Columbia  when  the  legislation   is referable to one or more entries the Courts try to find  out what  the pith and substance of the legislation is.  In  the present case the Act is beyond any doubt one for acquisition of  property  and  is  also in  relation  to  banking.   The legislation (1) [1940] F.C.R. 110. (2) [1899] A. C. 580. 634 is  valid  with reference to the entries, namely,  Entry  42 (Requisition) in List 111, Entry 45 (Banking) in List 1.     Counsel for the petitioner contended that undertaking of banking  companies  could  not  be  the  subject  matter  of acquisition  and  acquisition  of  all  properties  in   the undertaking  must satisfy public purpose as contemplated  in Article  31(2).  This contention was amplified to mean  that undertaking  was not property capable of being acquired  and some assets like cash money could not be the subject  matter of  acquisition.   The Attorney General on  the  other  hand contended  first  that undertaking is  property  within  the meaning  of  Article  31(2), secondly,  undertaking  in  its normal meaning refers to a going concern and thirdly it is a complete unit as distinct from the ingredients composing  it and  therefore it could not be said that acquisition of  the undertaking   was  an  infraction  of   any   constitutional provision.    The   term  ,undertaking’  is   explained   in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 87 of 108  

Halsbury’s  Laws of England, 3rd Ed. Vol. 6 paragraph 75  at page 43 to mean not the various ingredients which go to make up  an  undertaking but the completed work  from  which  the earnings  arise.   As an illustration reference is  made  to mortgage of the undertaking of a company.     In  Gardner v. London Chatham and Dover  Railway  Co.(’) the  undertaking of a railway company which was pledged  was held to be a railway which was to be made and maintained, by which  tolls and profits were to be earned, which was to  be worked and managed by a company, according to certain  rules of  management, and under a certain responsibility.   In  an undertaking  there  will  be money for the  working  of  the undertaking and money will be earned thereby.  Again in  Re: Panama,  New Zealand and Australian Royal Mail  Company  the undertaking  of  a steamship company was explained  to  have reference not only to all the property of the company  which existed at the date of the debenture but which might  become the,  property  of  the company and further  that  the  word ’undertaking’  referred  to the application of  funds  which came  into the hands of the company in the usual  course  of business.   Undertaking will therefore relate to the  entire business although there may be separate ingredients or items of work or assets in the undertaking.  The undertaking is  a going  concern  and it cannot be broken up  into  pieces  to create a security over the undertaking. (See Re : Portsmouth (Kingston,  Fratton and Southsea) Tramway Co.(’) and  H.  H. Vivian and Company Ltd. (3). (1) (1867-8) Vol.II, Chancery Appeals 201. (2) (1892) 2 Ch. 362. (3) [1900] 2 Ch. 654. 635    The  word  ’undertaking’ is used in various  statutes  of ourcountry,   viz  ;  the  Indian  Electricity  Act,   1910, (sections   6,  7,  7A),  Indian  Companies  Act   (Sections 125(4)(f),  293  and  394),  Banking  Regulation  Act,  1949 (section  14A),  Cotton Textiles Companies  (Management.  of Undertaking,  Liquidation  and  Reconstruction)  Act,   1967 (sections  4  (1), 5 (1) (2).  By the word  ’undertaking  is meant  the entire Organisation.  These provisions,  indicate that the company whether it has a plant or whether it has an Organisation is considered as one whole unit and the  entire business  of the going concern is embraced within  the  word ’undertaking’.   In  the case of sale of an  undertaking  as happened   in  Doughty  v.  Lomagunda  Reefs,  Ltd.(’)   the purchaser  was  required  to pay all debts  due  by  and  to perform  outstanding  contracts  comprised  in  the   entire undertaking.   The word ’undertaking’ is used in the  Indian Electricity Act, the Air Corporation Act, 1953, the Imperial Bank of India Act, 1920 (sections 3, 4, 6 and 7), the  State Bank  of India Act, 1955 [Section 6(1)(g)], the  State  Bank Subsidiaries  Banks Act, 1959 [Section 10(1)],  the  Banking Regulation  Act, 1949 [section 36AE(1)] and there have  been legislative  provisions  for acquisition of  some  of  these undertakings.     Under  section 5 of the Act of 1969 the  undertaking  of each  existing bank shall be deemed to include  all  assets, rights, powers, authorities and privileges and all property, movable   and  immovable,  cash  balances,  reserve   funds, investments  and all other rights and interests arising  out of such property as were immediately before the commencement of  this Act in the ownership, possession, power or  control of  the existing bank in relation to the undertaking.   This Court accepted the meaning of property given by Rich, J.  in the  Minister for State for the Army v. Dalziel(2) to  be  a bundle of rights which the owner has over or in respect of a

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 88 of 108  

thing,  tangible or intangible, or the word  ’property’  may mean the thing itself over or in respect of which the  owner may  exercise those rights.  In the case  of  Commissioner,, Hindu  Religious  Endowments,  Madras  v.  Sri   Lakshmindra Thirtha Swamiar of Sri Shirur Mutt("), this Court again gave wide  meaning to the word ’property’ and Mukherjea, J.  said that  there is no reason why the word ’property’ as used  in Article  19(1)(f) of the Constitution should not be given  a liberal  and wide connotation and would not be  extended  to those  well  recognised  types of interest  which  have  the insignia  or characteristics of proprietary Tight.   In  the case  of J. K. Trust, Bombay M. The Commissioner  of  Income Tax  Excess  Profits Tax, Bombay (4 ) this  Court  held  the managing agency business to be a property.  The  undertaking of   a  bank  will  therefore  be  the   entire   integrated Organisation   consisting  of  all  property,   movable   or immovable (1) (1902) 2Ch.d.837.            (2) 68 C.L.R. 261. (3) [1954] S.C.R. 1005.          (4) [1958] S.C.R. 65. 636 and the totality of undertaking is one concept which is  not divisible  into components or ingredients.  That is  why  in relation  to  a company the word ’undertaking’  is  used  in various statutes in order to reach every corner of property, right, title and interest therein.  The decision in State of Madhya Pradesh v. Ranojirao Shinde & Anr.(1) is an authority for  the  proposition that money cannot  be  acquired  under Article  31(2).   The  impugned Act  in  Ranojirao  Shinde’s case(’)  abolished  cash grants which the  respondents  were entitled  to receive from the Government of Madhya  Pradesh, but provided for the payment of certain compensation to  the grantees.  Ranojirao Shinde’s(1) case did not deal with  the case  of an undertaking and has therefore no application  to the  present  case.  The undertaking is an  amalgam  of  all ingredients  of  property  and  is  not  capable  of   being dismembered.   That  would destroy the  essence  and  innate character of the undertaking.  In reality the undertaking is a  complete  and  complex  weft and  the  various  types  of business and assets are threads which cannot be taken  apart from the weft.  I am, therefore, of opinion that undertaking of  a  banking corn any is property which  can  be  ,validly acquired under Article 31(2) of the Constitution.     The  next question for consideration is whether  Article 19(6)  of  the Constitution is attracted.  Counsel  for  the petitioner  contended that as a result of  the  Constitution First Amendment Act. 1951 Article 19(6) was clarified to the effect   that   the  word   ’restrictions’   would   include prohibition  or  exclusion which was dealt with  the  second limb of Article 19(6).  It may be stated here that prior  to the amendment of Article 19(6) the second limb spoke only of law prescribing qualifications for practising any profession or  carrying  on any occupation, trade or  business.   As  a result of the amendment of the second limb of Article  19(6) consisted   of  two  sub-articles  the  first   sub-,article relating  to  qualifications for  practising  profession  or carrying on any occupation, trade or business and the second sub-article  relating to carrying on by the State of  trade, business  industry to the exclusion ’complete or partial  of citizens or otherwise.  The second sub-article was really an enlargement  of clause (6) of Article 19 as a result of  the amendment.    The  main  contention  of  counsel  for   -the petitioner  was that the second limb of Article 19(6)  after the expression ’in particular’ must also satisfy the test of reasonable  restriction  contained  in  the  first  limb  of Article  19(6)  and  emphasis was placed  on  the  word  ’in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 89 of 108  

particular’ to show that it -indicated that the second  limb was only an instance of the first limb of the Article.   The Constitution First Amendment Act -of 1951 was enacted really to enable the State to carry on busi- (1) [1968] 3 S.C.R. 489. 637 ness  to the exclusion, complete or partial of  citizens  or otherwise  as  will  appear from the  amendment  of  Article 19(6).    In the case of Akadasi Padhan v. State of Orissa(’)  this Court considered the Orissa Kendu Leaves (Control of  Trade) Act, 1961 by which the State acquired monopoly in the  trade of  Kendu  leaves and put restrict-ions on  the  fundamental rights of the petitioner.  In that case, Gajendragadkar,  J. speaking  for  the  Court referred to the  decision  of  the Allahabad  High Court in Motilal v. Government of  State  of Uttar  pradesh (2)  where a monopoly of transport sought  to be  created  by the U.P. Government in favour of  the  State operated  Bus Service known as the’Government Roadways’  was struck  down  as unconstitutional because  such  a  monopoly totally  deprived the citizens of their rights and  that  is why Article 19(6) came to be amended.  The necessity of  the amendment  of  Article 19(6) was explained in  the  case  of Akadasi  Padhan(1).   The view expressed by this  Court  in, that  case is that the two sub-articles of the  second  limb deal  with  two different forms of legislation.   The  first sub-article  deals with restrictions on the exercise of  the right  to practise any profession or to carry on any  trade, occupation  or business.  The second sub-article deals  with carrying on by the State of any trade, business or  industry to  the  exclusion,  complete  or  partial  of  citizens  or otherwise.  The effect of the amendment was stated by Gajen- dragadkar, J. to be that a State monopoly in respect of  any trade  or business must be presumed to be reasonable and  in the interest of the general public so far Article  19(1‘)(g) is  concerned’.  The words ’in particular’ in that  case  in Article  19(6)  were  held  to  indicate  that  restrictions imposed  on  the  fundamental  rights  guaranteed  by   Art. 19(1)(g) which are reasonable and which are in the  interest of  the  general  public are saved by Article  19(6)  as  it originally  stood and the validity of the. laws  covered  by the amendment would no longer be left to be tried in courts.     Counsel for the petitioner relied on the decision of the House of  Lords in the case of Earl Fitzwilliam’s  Wentworth Estates  Co.v.Minister of Housing and Local  Government  and another(3) in support of the proposition that the words  ’in particular’  in Article 19(6) were used to place the  accent on  reasonable  restrictions in that clause  as  the  saving feature of a law affecting Article 19(1)(g).  Section  43(1) of  the  Town  and  Country Planning  Act,  1947  which  was considered was as follows :" (1)  The  Central Land Board may,with the  approval  of  the Minister, by agreement acquire land for any (1) [1963] Supp. 2 S.C.R. 691. (3) (1952] A. C. 362. (2) I.L.R. [1951] 1 All. 269. 638               purpose  connected  with  the  performance  of               their functions under the following provisions               of this Act, and in particular may so  acquire               any  land for the purpose of disposing  of  it               for development for which permission has  been               granted  under Part III of this Act  on  terms               inclusive  of any development  charge  payable               under  those  provisions in  respect  of  that

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 90 of 108  

             development".     It  was  held that the sub-section  conferred  a  single power  on the Central Land Board and not two  powers,  viz., that the boards have. power to acquire land for the  purpose connected  with the ,performance of their functions and  the words in the second limb ,of the section were no more than a particular  instance of that which the legislature  regarded as  part of the Board’s functions.  The purpose referred  to in  the second part of the sub-section there  introduced  by the words ’in particular’ was held to be a purpose connected with  the performance of the function within the meaning  of the first part of the sub-section.  The language of the sub- section  in the case before the House of Lords  is  entirely different from the language in Article 19(6).  Article 19(6) in  the two limbs and in the two sub-articles of the  second limb  deals  with separate matters and in  any  event  State monopoly in respect of -trade or business is not open to  be reviewed  in Courts on the ,-round of reasonableness.   This Court  in  the case of Municipal Committee  of  Amritsar  v. State of Punjab(’) held that so far as monopoly business  by the State was concerned under Article 19(6) it was not  open to challenge.     The  four businesses which were disputed by counsel  for the  petitioner  to be within the business of  banking  were contended  to  be  not  only  acquisition  of  property   in violation  of  Article  19  (1)  (f)  but  also  not  to  be reasonable restriction in the interest of the general public under  Article 19(5) or under Article 19(6).   Emphasis  was placed on section 15(2) of the Act of 1969 to contend  ,that after  the acquisition of the undertaking of the  bank  the, pro.Vision  permitting the banks to carry on business  other than banking would be empty and really amount to prohibition of   carrying  ,on  of  the  business  because  the   assets pertaining  to the four disputed businesses with  which  the business  could be carried on had been taken away.   I  have already   expressed  my  opinion  that  the  four   disputed businesses  are  the  legitimate  businesses  of  a  banking company as mentioned in section 6(1) of the 1949 Act and are ,comprised  in  the undertaking of the banking  and  Article 10(1)   (f)  not  attracted  in  case  of   acquisition   or requisition of property dealt ’With by Article 31(2). 1 have also held that Article 19(6) confers (1) [1969] 3 S.C.R. 447 639 power  on  the  State to have  a  valid  monopoly  business. Section  15(2) of the 1969 Act allows the existing banks  to carry  on  business other than banking.  If as a  result  of acquisition,  the  bank will complain of lack  of  immediate resources  to  carry on these businesses  the  Act  provides compensation  and  the existing bank will  devise  ways  and means for carrying on the businesses.  Constitutionality  of the  Act  cannot  be  impeached on the  ground  of  lack  of immediate  resources to carry on business.  In  the  present case,  the acquisition is not unconstitutional and the  bank is  free to carry on all businesses other than banking.   It cannot  be  suggested  that.  after  compensation  has  been provided for the State will have to provide moneys to enable the existing bank to carry on these businesses.  That  would be   asking   for  something  beyond  the  limits   of   the Constitution.   If  the  entire  undertaking  of  a  banking company is taken by way of acquisition the assets cannot  be separated to distinguish those belonging to banking business from  others  belonging to  "non-banking  business"  because assets   are  not  in  fact  divided  on  any  such   basis. Furthermore   that  would  be  striking  at  the   root   of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 91 of 108  

acquisition of the entire undertaking.  It would be  strange to  hold  in the teeth of express provisions in the  Act  of 1969  permitting the banks to carry on business  other  than banking  that the same will amount to a prohibition  on  the bank  to carry on those businesses.  I find it difficult  to comprehend  the contention of the petitioner that a  permis- sive  provision  allowing  the  banks  to  carry  on   these businesses other than banking becomes unreasonable.  If that provision  was not-there the businesses could be carried  on and the argument would not be available at all.  The express making of the provision obviously for greater safety  cannot change the position.  The petitioner’s contention on Article 19(6) therefore fails.     Counsel for the petitioner contended that section 11  of the 1969 Act suffered from the vice of excessive  delegation and there were no guidelines for reaching the objectives set out  in  the  Preamble  of  the  Act  and  the  decision  of Government  regarding policy involving public  interest  was made final and therefore it was unconstitutional.   Sect-ion 11 of the Act of 1969 is in two subsections.  The first sub- section  enacts  that corresponding new bank shall,  in  the discharge of its functions, be guided by such directions  in regard to matters of policy involving public interest as the Central Government may, after consultation with the Governor of  the Reserve Bank, give.  The second  sub-section  enacts that if any question arises whether a direction relates to a matter  of  policy involving public interest,  it  shall  be referred  to the Central Government and the decision of  the Central Government thereon shall be final.  Section 25(1)(c) of  the Act of 1969 provides that the  words  ’corresponding new bank constituted under 640 section 3 of the 1969 Act "or any other banking  institution notified by the Central Government" shall be substituted for the words " or any other banking institution notified by the Central  Government  in this behalf", in section 51  of  the 1949  Act.  Sections 7, 17(15A) of the Reserve( Bank Act  of 1934  contain  similar  powers on the part  of  the  Central Government to give directions to the Reserve Bank in  regard to  management  and  exercise of  powers  and  functions  in performance  of  duties  entrusted to  the  bank  under  the Reserve  Bank  Act.  A statute of this  nature  whereby  the controlling  interest of the business of banks  is  acquired renders it not only necessary but also desirable that policy involving -public interest should be left to the Government.     The  Act of 1969 contains enough guidance.   First,  the Government  may  give directions only in  regard  to  policy involving public interest; secondly, directions can only  be given  by the Central Government and no one  else;  thirdly, these directions can only be given by the Central Government after  consultation with the Governor of the  Reserve  Bank; fourthly,  directions given by the Government are in  regard to  matters involving public interest which means that  this is  objective and subject to judicial scrutiny and both  the Central Government and the Governor of Reserve Bank are high authorities.     As a result of section 25(1) (c) of the Act of 1969,  14 banks  will  be subject to the provisions of  the  1949  Act enumerated  in sections 15, 17, 19, 20, 21, 23, 24, 25,  26, 27,  28,  29, 31, 34, 35, 35A, 36 and  48.   These  sections principally   deal  with  restrictions  as  to  payment   of dividend, prohibition of floating charge on assets, creation of   reserve  fund,  restrictions  on  subsidiary   company, restrictions  on  loans and advances, power of  the  Reserve Bank to control -advances by banking companies, restrictions

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 92 of 108  

on  the  opening of new places of business,  maintenance  of percentage   of  assets,  return  of   unclaimed   deposits, furnishing  of returns to the Reserve Bank,  publication  of information by the Reserve Bank, submission of accounts  and balance sheet to the Reserve Bank, inspection by the Reserve Bank,  power  of the Reserve Bank to  give  directions  with regard  to  management,  and  imposition  of  penalties  for contravention of the provisions of the Act.     There  are  other statutes which provide powers  of  the Central  Government  to  give directions.   I  have  already referred to the Reserve Bank of India Act, 1934.  There  are similar  statutes  conferring, powers on the  Government  to give  directions,  namely, State Bank of  India  Act,  1955, State  Financial  Corporation Act, 1951,  University  Grants Commission  Act,  1956  Life Insurance  Act,  1956,  Deposit Insurance   Act,  1961,  National  Cooperative   Development Corporation Act, .1962, Agricultural Refinance 641 Corporation   Act,  1963  and  State   Agricultural   Credit Corporations  Act, 1968.  There are English  statutes  which contain   similar  provisions  of  exercise  of   power   or directions by the Government in regard to the affairs of the undertakings covered by the statutes.’ These are the Bank of England  Act, 1946, Cotton (Centralised Buying)  Act,  1947, Coal Industry Nationalisation Act, 1946, Civil Aviation Act, 1946,  Electricity Act, 1947, Gas Act, 1948, Iron and  Steel Act, 1949 and Air Corporations Act, 1949.  It is  explicable that  where the Government acquires undertakings  of  indus- tries,  the matters of policy involving public  interest  or national  interest  should  be left to  be  decided  by  the Government.   There  is  nothing  unconstitutional  in  such provisions.     The  Preamble to the Act of 1969 states that the  object of the Act is "to serve better the needs of the  development of  the  economy  in conformity  with  national  policy  and objectives."   National   policy  and  objectives   are   in accordance  with the Directive Principles in Part IV of  the Constitution.   It  is stated by the  respondents  in  their affidavits  that there are needs of the development  of  the economy  in  conformity with the  Directive  Principles  and these are to be achieved by a mobilisation of the savings of the  community and employing the large resources of  the  14 banks  to  develop national economy in  several  spheres  of activity  by  a  more  equitable  distribution  of  economic resources, particularly, where there are large credit  gaps. In  the case of Harishankar Bagla and Anr. v. The  State  of Madhya  Pradesh(’),  Mahajan, C.J. at pages  388-89  of  the report  said  "The Preamble and the body,  of  the  sections sufficiently formulate the legislative policy and the  ambit and  character of the Act is such that the details  of  that policy  can  only  be worked out by  delegating  them  to  a subordinate authority within the framework of that  policy". It  is manifest that in working the Act of  1969  directions from  the  Central  Government are necessary  to  deal  with policy  and  other matters to serve the  needs  of  national economy.       Counsel  on  behalf of the petitioner  next  contended that  acquisition  of the 14 banks and  the  prohibition  of banking business by the existing banks violated Article  301 and was not saved by Article 302 because it is not  required in  the public interest, As to the four disputed  businesses which the existing banks can under the Act carry on, it  was said  that  the  same  was an  infraction  of  Article  301. Article 305 to my mind directly applies to a law relating to bank and all businesses necessarily incidental to it carried

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 93 of 108  

on  by the State to the complete or partial exclusion of  14 banks.  Article 302 can have no application in such a  case. An individual cannot complain of violation of Article 301. (1) [1955] 1 S.C.R. 380. L8 Sup. CI(NP)/70-11 642    Article  305  applied in the present case  and  therefore neither Article 301 nor Article 302 will apply.  Article 302 is  an enabling provision and it has to be read in  relation to  Article 301.  Acquisition of property by  itself  cannot viol-ate  Article 301 which relates to free trade,  commerce throughout  India.   The object of acquisition is  that  the State shall carry on business to the exclusion, complete  or partial, of the 14 banks.     Counsel  for the-petitioner contended that the 1969  Act violated  the  provisions of Article 14 on these  grounds  : First,  the  Act discriminated against 14 banks  as  against other Indian scheduled banks, secondly, the selection of  14 banks  has  no reasonable connection to the objects  of  the Act; thirdly, banks which may be described to be inefficient and  which are liable to, be acquired under section 36AE  of the  1949  Act are not acquired whereas 14  banks  who  have carried  on  their  affairs with  efficiency  are  acquired; fourthly under section 15 (2) (d) (e) of the 1969 Act the 14 banks  cannot do any banking business whereas  other  Indian scheduled  banks  or any other new banking  company  can  do banking business.     In other to appreciate these contentions it is necessary to  remember the background of growth of Indian  banks.   At the beginning I referred to the position that State Bank  of India  and its several subsidiaries and the 14 banks  occupy today in contrast with foreign banks and other scheduled  or non-scheduled  Indian banks.  These 14 banks are not in  the same class as other scheduled banks.  The classification  is on the basis of the 14 banks having deposit of Rs. 50 crores and  over.  The object of the Act is to control the  deposit resources  for developing national economy and as  such  the selection  of  14  banks  having  regard  to  their   larger resources,  their  greater coverage, their  managerial  -and personnel    resources    and   the    administrative    and organisational   factors  involved  in  expansion  is   both intelligible and related to the object of the Act.  There is no  evidence  to show that the 14 banks are  more  efficient than  the  others as counsel for the  petitioner  contended. Section 15 (2) (d) (e) of the 1969 Act states that these  14 banks  after  acquisition are not to carry  on  any  banking business for the obvious reason that these 14 banks are  not in the same class as the other Indian banks.  Besides, it is also reasonable that the 14 banks should not be permitted to carry  on banking business as the corresponding  new  banks. Therefore  the  classification of -the’ 14 banks is  also  a rational and intelligible classification for the purposes of the Act.  The object of the 1969 Act was to meet credit gaps and to have a wider distribution of economic resources among the  weaker  sections of the economy,  namely,  agriculture, small scale industry and retail trade. 643     The  Act of 1969 is for development of national  economy with the aid of banks.  There are needs of various  sectors. The  legislature is the best judge of what  should  subserve public   interest.   The  relative  need  is  a  matter   of legislative  judgment.   The legislature found 14  banks  to have  special features, namely, large resources  and  credit structure  and good administration.  The  categorisation  of Rs. 50 crores and over vis-a-vis other banks with less  than

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 94 of 108  

Rs.  50 crores is not only intelligible but is also a  sound classification.   From the point of view of resources  these 14  banks are better suited than others and therefore  speed and  efficiency  which are necessary  for  implementing  the objectives of the Act can be ensured by such classification.     In  the case of Shri Ram Krishna Dalmia v. Shri  Justice S.  R.  Tendolkar & Others(’), it was said  that  the  Court would  take into consideration the history of the times  and could also assume the state of facts existing at the time of legislation.   A  presumption  also  arises  in  regard   to constitutionality  of -a piece of legislation.  In the  case of P. V. Sivarajan v. The Union of India & Anr. (2) the Coir Industry  Act was considered in relation to registration  of dealers  for export.  The Act provided minimum  quantity  of export  preceding 12 months the commencement of the  Act  as one   of  the  qualifying  terms  for  registration.    This quantitative test was held good.  The legislative policy  as to the necessity is a matter of legislative judgment and the Court will not examine the propriety of it.  The legislation need  not be all embracing and it is for the legislature  to determine  what  categories will be embraced.   In  Dalmia’s case(’)  it  was said that the two tests  of  classification were first that there should be an intelligible  differentia which  distinguished persons or things grouped  from  others left  out and secondly the differentia must have a  rational relation to the object sought to be achieved by the statute. There  has to. be a line of demarcation somewhere and it  is reasonable  that  these  14 banks which are in  a  class  by themselves  because of their special features in  regard  to deposit,  credit,  administration,  Organisation  should  be prohibited from carrying on banking business.  These special circumstances  are  the reasons  for  classification.   This distinction  between  the  14 banks  and  others  reasonably justified  different treatment.  An absolute symmetry or  an accurate  classification is not possible to be  achieved  in the   task  of  acquisition  of  undertakings   Of   banking companies.   It cannot, therefore, be said that companies  - whose deposits were in the range of Rs. 45 to Rs. 50  crores should have been taken.     In  Kathi  Raning Rawat v. State of  Saurashtra(3)  this Court  said that the necessity for judicial enquiries  would arise when there (1) [1959] S.C.R. 279. (3) [1952] S.C.R  435. (2) [1959] 1 Supp.  S.C.R. 779. 644 was  an  abuse of power and the differences  would  have  no relation  to  the  object.   In the case  of  The  Board  of Trustees  Ayurvedic  and Unani Tibia College, Delhi  v.  The State of Delhi and Anr. (1) the Court supported  legislation on a reasonable ground that the case of Tibia College(’) had exceptional  features  which were not found in  others.   In Dalmia’s  case(.’)  the legislature was said to be  free  to recognise  the degrees of harm -and to confine its  restric- tion  to  those cases where the need was deemed  to  be  the greatest.   It is in this sense that usefulness  to  society was  found to form a basis of classification in the case  of Mohd.  Hanif Quareshi v. State of Bihar(’).  In the case  of Harnam  Singh  and  Ors. v.  Regional  Transport  Authority, Calcutta  and Ors.(4) Mahajan, J. said that  in  considering Article  14  the Court should not adopt  an  attitude  which might well choke all beneficial legislation and  legislation which   was   based  on  a   rational   classification   was permissible.  It will not be sound to suggest that there are other banks which can be acquired and these 14 banks  should

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 95 of 108  

be  spared.  There is always possibility of discerning  some kind  of inequality and therefore grouping has to  be  made. where  the legislature finds that public need is  great  and these  14  banks will be able to supply that  need  for  the development of national economy classification is reasonable and  not  arbitrary and is based on  practical  grounds  and consideration  supported by the large resources of over  Rs. 50   crores   of   each  of  these  14   banks   and   their -administration and management.  I am, therefore, of opinion that  the  acquisition of the undertakings does  not  offend Article  14  because of intelligible differentia  and  their rational relation to the object to be achieved by the Act of 1969  and  it follows that these banks cannot  therefore  be allowed  to  carry on banking business to nullify  the  very object of the Act.     Counsel  for  the petitioner contended that the  Act  of 1.969  infringed  Article 31(2) because there  was  no  just compensation.   It was said that compensation in Article  31 (2) meant just compensation and it the 1969 Act did not -aim at just compensation, it would be unconstitutional.  It  was contended that cash could not be taken and further that  the four  disputed  businesses could not be  acquired.   I  have already  expressed my view that the Act required the  entire undertaking  of  the  banks, and,  therefore,  there  is  no question  of taking of cash.  I have also expressed my  view that  the  four  disputed  businesses  are  all  within  the business of bank, and, therefore, the Act is valid.      It was said by counsel for the petitioner that the word compensation in Article 31(2) was given the meaning of  just equivalent in earlier decisions of this Court and since  the word (1)   [1962] Supp.  1 S.C.R. 156. (3)  [1959] S.C.R. 628. (2)  [1959] S.C.R. 279. (4)   [1954] S.C.R. 371. 645 compensation’  was  retained in Article 3 1  (2)  after  the Constitution Fourth Amendment Act, 1955 there was no  change in the meaning of the expression ’compensation’ and it would have  the same meaning of just equivalent.  In view  of  the fact  that after the Constitution Fourth Amendment  Act  the question  of adequacy of compensation is not justiciable  it was  said  by  counsel  for the  petitioner  that  the  only question for Courts is whether the law aimed at just equiva- lent.  Counsel for the petitioner relied on the decision  of this   Court  in  Vajravelu  Mudaliar  v.   Special   Deputy Collector, Madras& Anr. (1) and submitted that the  decision in Shantilal Mangaldas v. State of Gujarat (2 ) was a  wrong interpretation of Article 3 1 (2).      The Attorney General on the other hand contended  first that after the Constitution Fourth Amendment Act Article 3 1 (2)  enacted that no law shall be called in question on  the ground  that  the compensation provided by that law  is  not adequate  and therefore compensation in that  Article  could not  mean  just equivalent.  It was also said  that  Article 31(2)  refers to a law which provides for  compensation  and not  to a law which aims at just equivalent.   Secondly,  it was said that the whole, of Article 31(2) had to be read and the meaning of the word ’compensation’ in the first limb was to be understood by reference to the second limb and if  the petitioner’s arguments were accepted the Constitution  would read that unless law provided for a just equivalent it shall be  called  in  question.  It was, therefore,  said  by  the Attorney-General that if just equivalent was to be aimed  at the  second limb of Article 31(2), namely,  that  inadequacy

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 96 of 108  

would   not   be  questioned  would  become   redunant   and meaningless.   If  the  law enjoined that there  was  to  be compensation  and  either  principle  for  determination  of compensation or -amount of compensation was fixed the  Court could not go into the question of adequacy or reasonableness of  compensation  and the Court could not also go  into  the question of result of -application propriety of principle or reasonableness of the compensation.     In  Vajravelu Mudaliar’s case(1) this Court referred  to the  decision of Bela Banerjee’s case(3) where it  was  held that compensation in Article 31(2) meant just equivalent  or full  indemnification.  In Vajravelu Mudaliar’s  case(’)  it was  contended  that the Land Acquisition  Madras  Amendment Act,  1961 had provided for acquisition of land for  housing schemes and laid down principles for compensation  different from those prescribed in the Land Acquisition Act, 1894  and thereby Article 31-(2) was infringed because the Act did not provide  for payment of compensation within the  meaning  of Article  31 (2).  Subba Rao, J. speaking for the Court  said that if the term ’compensation’ had received judicial (1)   [1965] 1 S.C.R. 614. (2)   [1969] 3 S.C.R. 341. (3)  [1954] S.C.R. 558. 646 interpretation it must be assumed that the term was used  in the sense in which it had been judicially interpreted unless a  contrary intention appeared.  That is how  reference  was made  to  the  decision of this  Court  in  Bela  Banerjee’s case(’)   to  emphasise  that  a  law  for  requisition   or acquisition should provide for a just equivalent of what the owner  has been deprived of.  Subba Rao, J. then dealt  with the clause excluding the jurisdiction of the Court where the word  ’compensation’ was used and said at page 627.  of  the Report  "The  argument that the  word  "compensation"  means ’just equivalent’ for the property acquired, and, therefore, the Court can ascertain whether it is just equivalent or not makes  the amendment of the Constitution nugatory.  It  will be  arguing  in  a circle.   Therefore,  a  more  reasonable interpretation  is that neither the  principles  prescribing the  "just  equivalent"  nor the "just  equivalent"  can  be questioned  by  the  Court on the ground  of  inadequacy  of compensation  fixed  or  arrived at by the  working  of  the principles".      This Court then said that when value of a house at  the time  of acquisition had to be fixed there could be  several methods of valuation, namely, estimate by engineer or  value reflected by comparable sales or capitalisation of rent  and similar  others  with the result that the  adoption  of  one principle   might  give  a  higher  value  but  they   would nevertheless  be  principles  of the  manner  in  which  the compensation  has to be determined -and the Court could  not say  that the Act should have adopted one principle and  not the  other  because  it  would relate  to  the  question  of adequacy.  In that case it was said that if a law lays  down principles  for  determining  compensation  which  are   not relevant  to  the property acquired or to the value  of  the property  at  or about the time it is acquired it  might  be said  that these are not principles contemplated by  Article 31  (2).  This was illustrated by saying that if a law  says that  though  a house is acquired it would be valued  as  an agricultural land or though it is acquired in 1950 its value in  1930 should be given and though 100 acres  are  acquired only  50 acres will be paid for, these would not  enter  the question or area of adequacy of compensation.  Another  rule which was laid down in Vajravelu Mudaliar’s case(’) is  that

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 97 of 108  

the  law may prescribe compensation which is  illusory.   To illustrate, a property worth a lakh of rupees might be  paid for  at the sum of Rs. 100 and the question in that  context would  not  relate to the adequacy of  compensation  because there was no compensation at all.     Two broad propositions which were laid down in Vajravelu Mudaliar’s  case (2 ) are these.  First, if  principles  are not relevant to the property acquired or not relevant to the value  of the property at or about the time it is  acquired, these are not relevant principles. (1) [1954] S.C.R. 558. (2) [1965] 1 S.C.R. 614. 647 The  second  proposition  is  that if  a  law  prescribes  a compensation  which is illusory the Court could question  it on the ground that it is not compensation at all.    In  the  case of Shantilal Mangaldas(1) the  Bombay  Town Planning  Act of 1950 which was repealed by the Bombay  Town Planning Act of 1955 came up for consideration.  There was a challenge  to  the  Bombay  Act of 1955  on  the  ground  of infringement of Article 31(2) of the Constitution.   Section 53  of the Bombay Act contemplated transfer of ownership  by law  from  private owners to the local  authority.   It  was -argued that under section 53 of the Bombay Act when a  plot was  reconstituted and out of that plot a smaller  area  was given  to the owner and the remaining area was utilised  for public  purpose  the area so utilised vested  in  the  local authority for a public purpose, but the Act did not  provide for  giving compensation which was a just equivalent of  the land expropriated at the date of extinction of interest  and therefore Article 31(2) was infringed.  It was also  -argued that  when  the  final  scheme was framed  in  lieu  of  the ownership of the original plot and compensation in money was determined  in  respect of the land appropriated  to  public purpose  such  a scheme for  compensation  violated  Article 31(2)  because  compensation  for the entire  land  was  not provided  and secondly payment of compensation in money  was not  provided in respect of the land appropriated to  public use.      Shah,  J.  speaking  for  the  Court  in  the  case  of Shantilal Mangaldas(1) said that the decision of this  Court in  the cases of Bela Banerjee(2) and Subodh  Gopal  Bose(3) "raised  more problems than they solved", because the  Court did not indicate the meaning of just equivalent and "it  was easier to state what was not just equivalent than to  define what  a just equivalent was".  In this state of law  Article 31  was amended by Constitution Fourth Amendment Act,  1955. Shah,  J. said first that adequacy of compensation fixed  by the legislature or awarded according to principles specified by  the  legislature is not justiciable and secondly  if  ’I ’the amount of compensation is fixed it cannot be challenged apart  from  a plea of abuse of  legislative  power  because otherwise  it  would  be  a challenge  to  the  adequacy  of compensation.   In  Shantilal Mangaldas’s case(’)  Shah,  J. also  said  that  the compensation fixed  or  determined  on principles specified by the legislature cannot be challenged on the indefinite plea that it is not a just or fair equiva- lent.  Shah, J. further said that principles of compensation could not be challenged on the plea that what was awarded as a result (1)   [1969] 3 S.C.R. 341. (2)   [1954] S.C.R. 558. (3)  [1954] S.C.R. 587. 648 of the application of those principles was not just or  fair

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 98 of 108  

compensation.     If the quantum of compensation fixed by the  legislature is  not  liable to be challenged before the  Court  on-  the ground  that  it  is not a just  equivalent  the  principles specified for determination of compensation will also not be open  to  challenge  on  the  plea  that  the   compensation determined  by the application of these principles is not  a just  equivalent.   The right declared by  the  Constitution guarantees  compensation  before a  person  is  compulsorily expropriated of the property for public purpose.  Principles may  be challenged on the ground that they are not  relevant to  the property acquired or the time of acquisition of  the property  but  not on the plea that the principles  are  not relevant  to the determination of a fair or just  equivalent of the property acquired.  A challenge to the statute that a principle  specified by it does not provide or award a  just equivalent  will be a clear violation of the  constitutional declaration that inadequacy of compensation provided for  is not justiciable.     Shah,  J. referred to the decision of this Court in  the case  of  Union of India v. The Metal Corporation  of  India Ltd.  &  Anr.  (1)  and  expressed  disagreement  with   the following  view  "pressed in the Metal  Corporation  case(’) "the law to justify itself has to provide a payment of  just equivalent to the land acquired or lay down principles which will  lead to that result.  If the principles laid down  are relevant  to  the--  fixation of compensation  and  are  not arbitrary  the adequacy of the resultant product  cannot  be questioned  in  the  court  of law.   The  validity  of  the principles  judged by the above tests falls within  judicial scrutiny  and  if they stand the test the  adequacy  of  the product falls outside justification".  In Metal  Corporation case(’) compensation was to be equated to the cost price  in the  case of unused machinery in good condition and  written down  value  as understood in income-tax law was to  be  the value  of  the  used  machinery and both  were  said  to  be irrelevant  to the fixation of the value of machinery as  on the  date of acquisition.  Shah, J. speaking for  the  Court expressed  inability to agree with the part of the  judgment and  then said "the Parliament has specified the  principles for determining compensation of undertaking of the  company. The  principles  expressly related to the  determination  of compensation payable in respect of unused machinery in  good condition  and  used  machinery.  The  principles  were  not irrelevant to the determination of compensation and the com- pensation  was  not illusory".  If what is  specified  is  a principle for determination of compensation the challenge to that principle on the ground that a ’just equivalent is  not reached is barred by the plain words of Article 31(2) of the Constitution. (1) [1967] 1 S.C.R. 255. 649     These two decisions have one feature in common,  namely, that  if compensation is illusory the Court will be able  to go into it.  By the word ’illusory’ is meant something which is  obvious, patent and shocking.  If for a  property  worth Rs.  1 lakh compensation is fixed at Rs. 100 that  would  be illusory.   One  need not be astute to find out as  to  what would be -at sight illusory.  Furthermore, illusoriness must be  in  respect of the whole property and  there  cannot  be illusoriness as to part in regard to the amount fixed or the result of application of principles laid down.     When   principles  are  laid  down  in  a  statute   for determination of compensation all that the Court will see is whether  those principles are relevant for determination  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 99 of 108  

compensation.   The relevancy is to compensation and not  to adequacy.   I  am  unable to hold  that  when  the  relevant principle set out is ascertained value the petitioner  could yet  contend that market value should be the principle.   It would  really  be  going into adequacy  of  compensation  by preferring  the  merits of the principle, to  those  of  the other  for  the  oblique  purpose of  arriving  at  what  is suggested  to  be  just  equivalent.   To  my  mind  it   is unthinkable  that  the legislature  after  the  Constitution Fourth  Amendment Act intended that the word  ’compensation’ would mean just equivalent when the legislature put a bar on challenge   to   the   adequacy   of   compensation.    Just compensation  cannot  be inadequate and  anything  which  is impeached  as  unjust or unfair is  impinging  on  adequacy. Therefore.  just  equivalent  cannot  be  the  criterion  in finding   out  whether  the  principles  are   relevant   to compensation  or  whether  compensation  is  illusory.    In Vajravelu  Mudaliar’s case(1) the Court  noticed  continuous rise in land price but accepted an average price of 5  years as a principle.  An average price over 5 years in the  teeth of  a  continued  rise  in  price  would  not  aim  at  just equivalent  according to the petitioner’s contention  there. Again potential value of land which was excluded in the  Act in Vajravelu Mudaliar’s case(’) was said there to pertain to the  method of ascertaining compensation and  its  exclusion resulting  in inadequacy of compensation.  I am,  therefore, of  opinion that if the amount fixed is not  obviously  -and shockingly  illusory  or  the  principles  are  relevant  to determination  of compensation, namely, they are  principles in relation to property acquired or are principles  relevant to  the  time  of  acquisition  of  property  there  is   no infraction of Article 31(2) and the owner cannot impeach  it on   the  ground  of  ’just  equivalent’  of  the   property -acquired.      Counsel  on  behalf of the  petitioner  contended  that section 6 of the 1969 Act was an infraction of Article 31(2) on  these grounds.  First, no time limit was mentioned  with regard to payment of compensation in section 6(1); secondly, section 6(6) was (1) [1965] 1 S.C.R. 614. 650 an  unreasonable  restriction; thirdly,  the  four  disputed businesses are not subject matter of acquisition for  public purpose;  fourthly, debentures cannot be subject  matter  of acquisition; fifthly, currency notes, cash, coins cannot  be subject matter of acquisition.  It was said that  securities and  cash  which  are maintained under  section  42  of  the Reserve Bank Act, 1934 and section 24 of the 1949 Act can be taken   but  reserves  and  investments  and   shareholders’ accumulated  past  profits  cannot  be  subject  matter   of acquisition and finally undertaking is not property and each asset is to be paid for.     Section  6  (1)  of  the Act  provides  for  payment  of compensation  if  it  can  be  fixed  by  agreement  and  if agreement  cannot be reached there shall be reference  to  a tribunal.   There  is  no  question  of  time  within  which agreement is to be reached or determination is to be made by a tribunal.     Section 6(6) relates to interim payment of "one half  of the  amount of paid up share capital" and any existing  bank may apply to the Central Government for such payment  before the  expiry  of  3 months or within such  further  time  not exceeding  3  months  as  the  Central  Government  may   by notification specify.  If the bank will apply the Government will  pay  the  money  only if the bank  agrees  to  pay  to

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 100 of 108  

shareholders.  Section 6 (6) is a provision for the  benefit of   the   bank   and  the  shareholders.    There   is   no unreasonableness in it.      I  have already held that the four disputed  businesses come  within the legitimate business of banks and  therefore they   are   valid  subject  matter  of   acquisition.    No acquisition or requisition of the undertaking of the banking company is complete or comprehensive without all  businesses which  are incidental -and conducive to the entire  business of the bank.      The  entire  undertaking  is  the  subject  matter   of acquisition   and  compensation  is  to  be  paid  for   the undertaking  and  not  for  each  of  the  ’assets  of   the undertaking.  There is no uniform established principle  for valuing  an  undertaking as a going concern  but  the  usual principle  is assets minus liabilities.  If it be  suggested that  no compensation has ’been provided for any  particular asset  that  will be questioning adequacy  of  -compensation because  compensation  has  been  provided  for  the  entire undertaking’  The compensation provided for the  undertaking cannot  be  called  illusory because  in  the  present  case principles have been laid down.  The Second Schedule of  the Act  of 1969 deals with the principles of  compensation  for the undertaking.  The Second Schedule is in two parts.  Part 1 relates to assets and Part 1 relates to liabilities.   The compensation  to be paid shall be equal to the sum total  of the  value  of  assets calculated  in  accordance  with  the provisions  of  Part  1 less the sum  total  of  liabilities computed and obligations of existing 651 banks  calculated in accordance with the provisions of  Part II. in Part 1 assets are enumerated.     Counsel for the petitioner contended that with regard to assets  either there was no principle or the  principle  was irrelevant  or the compensation was illusory or it  was  not just equivalent.  As to securities, shares, debentures  Part 1  (c)  explanation (iv) was criticised on the  ground  that there was no principle because period was not fixed and  was left   to   be   determined  ’by   some   other   authority. Explanations  (iv) and (v) to Part 1 (c) will  be  operative only  when  market  value  of  shares,  debentures  is   not considered reasonable by reason of its having been  affected by   abnormal  factors  or  when  market  value  of   shares debentures  is not ascertainable.  In the -former  case  the basis of average market value over any reasonable period and in  the  latter case the dividend paid during  5  years  and other  relevant factors will be considered.  In  both  cases principles  have been laid down, namely, how valuation  will be  made  taking  into account  various  factors  and  these principles are relevant to determination of compensation for the property.      Part  1(c) Explanation I was criticised by counsel  for the petitioner to be an instance of value being brought down from ’just equivalent’.  Part 1(c) Explanation I states that value  shall  be  deemed  to be  market  value  of  land  or buildings,   but  where  such  market  value   exceeds   the ascertained  values  determined in the manner  specified  in Explanation  2, it shall be deemed to mean such  ascertained value.  This criticism suggests that compensation should  be just  equivalent meaning thereby that what is given  is  not just  and,  therefore,  indirectly  it  is  challenging  the adequacy.   In  Vajravelu  Mudaliar’s case(’)  there  was  a provision for compensation on the basis of the market  value on  the date of the notification or on the basis of  average market  value during past 5 years ever ever was less.   That

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 101 of 108  

principle  was not held to bad.The owner of the property  is not  entitled to just equivalent.  Explanation I  lays  down the  principle.   Market value is not  the  only  principle. That is why the Constitution has left the laying down of the principles  to  the  legislature.  Ascertained  value  is  a relevant and sound principle based on capitalisation  method which is accepted for valuation of land and properties.     It  was  next said by counsel for  the  petitioner  that Explanation  2(1)  in  Part 1 was  an  irrelevant  principle because  it was -a concept borrowed from Income Tax Act  for calculating income and not capital value.  It was said  that 12  times the annual rent was not a relevant  principle  and was not an absolute rule and compensation might be illusory. It  was also said that Explanation 2(1) would be  irrelevant where 2 plots were side by side, one with building (1) [1965] 1 S.C.R. 614. 652 and the other vacant land because the latter would get  more than the former and in the former standard rent was  applied and  the value of land was ignored and therefore it  was  an irrelevant  principle.   That  will  not  be  illusoriness.- Standard  rent necessarily takes into account value of  land on  which  the building is situated because no rent  can  be thought  of without a building situated on a plot  of  land. Article  31(2) does not enjoin the payment of full  or  just equivalent  or  the  payment of market  value  of  land  and buildings.-  There  should  be  a  relevant  principle   for determining   compensation   for  the   property   acquired. Capitalisation method is not available for land because land is  not generally let out.  If rental method be  applied  to land  the  value  may  be little.  In any  event,  it  is  a principle   relevant  to  determination   of   compensation. Furthermore,  there was no case in the petition  that  there was land with building side by side with vacant land.      Another criticism with regard to Explanation 2 (1)  (i) was  that  amount  required  for repairs  which  was  to  be deducted  in  finding ,out ascertained value should  not  be deducted  against capital value.  I am unable to accept  the contention because this deduction on account of  maintenance and  repairs is essential in the capitalisation method.   It was next said by counsel for the petitioner that Explanation 2(1)  (ii)  which speaks of deduction of  insurance  premium would  reduce the value.  Insurance would also be an  essen- tial deduction in the capitalisation method and it could not be  assumed  that the bank would insure for a  value  higher than  what  was necessary.  Annual rent would also  vary  in different buildings.  Amounts mentioned in Explanations 2(1) (iii) and (iv) were said on behalf of the petitioner not  to be deductible against capital value because annual charge or ground  rent  would be paid from income.   These  relate  to Municipal  tax  and ground rent which are  also  taken  into consideration  in capitalisation method.  Payment of fax  or ground  rent  may  be out of income but  these  have  to  be provided for in ascertaining value of the building under the capitalisation method.     Explanation  2(1)  (vi)  which speaks  of  deduction  of interest  on  borrowed capital with which any  building  was constructed  was  said to be included twice,  namely,  under Explanation 2 ( 1 ) (vi) and also under liabilities in  Part 11.   Explanation 2 in Part 1 which relates to  finding  out ascertained value of building enacts that where building  is wholly  occupied  12 times the annual rent or  the  rent  at which  the  building  may  be  expected  to  let  out   less deductions mentioned therein would be the ascertained value. These  deductions  are made to arrive at the  value  of  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 102 of 108  

building  under  the capitalisation method to find  out  how much  will be paid in the shape of interest on  mortgage  or borrowed capital.  Interest on mortgage or borrowed ,capital will be one of the deductions in calculating outgoings under 653 capitalisation  method.   In Part 11,  the  liabilities  are those existing at the commencement of the Act and contingent liabilities which the corresponding new bank may  reasonably be expected to be required to meet out of its own  resources on  or after the commencement of the Act.  Interest  payable on mortgage or borrowed capital at or after the commencement of  the  Act  will not be taken into  account  as  outgoings deducted under capitalisation method.     Explanation  2(2)  was  criticised by  counsel  for  the petitioner  on  the ground that plinth area related  to  the floor  area and if a floor was not occupied the plinth  area thereof  was  not  taken  into  account.   Explanation  2(1) relates  to  determination of compensation  by  finding  out ascertained  value in the case of building which  is  wholly occupied.  Explanation 2(2) relates to the case of a  build- ing which is partially occupied.  Explanation 2(3) refers to land  on  which  no  building is erected  or  which  is  not appurtenant  to  any  building.   In  the  case  of  partial occupation  Explanation  2(2)  sets  out  the  principle  of compensation  of  partially  occupied  building.   Again  in Explanation  2(3) the criticism on behalf Of the  petitioner that  if  there is a garage or one  storeyed  structure  the principle will not apply is explained on the ground that the expression   ’appurtenant’  means  land  belonging  to   the premises.   If  there is a small garage or  a  one  storeyed building  the land will not be appurtenant to the garage  or building.      Counsel  for  the petitioner contended that  Part  1(h) which  spoke of market or resaleable value of  other  assets did  not  include goodwill, benefit of  contract,  agencies, claims   in  litigation,  and,  therefore,  there   was   no compensation  for  these.   Part  1  (h)  is  ’a   residuary provision,  Whatever  appears in books  would  be  included. Goodwill  does not appear in the books.  Goodwill may  arise when an undertaking is sold as a going concern.  The conten- tion  as  to exclusion of goodwill goes to the  question  of adequacy  and  will not vitiate the principle  of  valuation which  has  been  -laid  down.  Reference  may  be  made  to Schedule  VI of the Companies Act which refers  to  goodwill under Fixed Assets but the Banking Regulation Act, 1949 does not contain goodwill under property and assets.     Goodwill  in  the words of Lord Elden  in  Cruttwell  v. -Lye(’) means "the probability that tile old customers  will resort to the old place".  The term ’goodwill’ is  generally used  to  denote  the benefit arising  from  connection  and reputation.   Whether  or not the, goodwill has  a  saleable value the question of fact is to be determined in each case. Upon sale of a business there may be restriction as to  user of the name of the business sold.  That is another aspect (1) 17 Ves. 335. 654 of sale of goodwill of a business.  The 14 banks carried  on business under licence by reason of section 22 of the Act of 1949.   The concept of sale in such a situation  is  unreal. Furthermore,   the   possibility   of   nationalisation   of undertakings like banks cannot be ruled out.  Possibility of nationalisation will affect the value of ,goodwill.  In  the case of compulsory acquisition it is of grave doubt  whether goodwill  passes to the acquiring authority.  No facts  have been pleaded in the petition to show as to what goodwill the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 103 of 108  

bank has.  Goodwill is not shown in assets.  In the  present case  the  names of the 14 banks and the  corresponding  new banks are not the same and it cannot therefore be said  that any  goodwill  has been transferred.  The 14 banks  will  be able  to  carry  on business ,other than  banking  in  their names.   Again under the Act compensation is being paid  for the  assets  and secret reserves which are provided  for  by depreciating  the  value of assets will also be  taken  into account.   Any  challenge as to  compensation  for  goodwill falls within the area of adequacy.      As  to  Part  II  of  the  Schedule  counsel  for   the petitioner said that liabilities not appearing in the  books would  be  deducted  but in the case of  assets  only  those appearing in the books will be taken into account.   Nothing has ’been shown in the petition that there ,are assets apart from  those  appearing  in  the  books.   It  would  not  be appropriate to speak of liabilities like current income  tax liability,  gratuity, bonus claims as liabilities  appearing in the books.      It  was said on behalf of the petitioner that  interest from  the  date of acquisition was not provided  for.   That would  again  appertain  to the  adequacy  of  compensation. Furthermore,  interest has been provided for  under  section 6(3)  (a)  (b) of the 1969 Act.  It was also  said  that  if there  was a large scale sale of promissory notes  or  stock certificates  the  value would depreciate.   Possibility  of depreciation    does   not   vitiate   the   principle    or constitutionality of a -measure.       The principles which have been set out in the 1969 Act ’are relevant to the determination of compensation.  When it is  said  that principles will have to be  relevant  to  the compensation,  the relevancy will not be as to  adequacy  of compensation  but to the property acquired and the  time  of acquisition.   It may be that adoption of one principle  may confer  lesser sum of money than another but that  will  not be, a ground for saying that the principle is not  relevant. The criticism on behalf of the petitioner that  compensation was illusory is utterly unmeritorious.        The Attorney General contended that even if Article 1 9 (1) (f) -or 19(1) (g) applied the 1969 Act would be upheld as a reasonable -restriction in the interest of the  general public.  It is said that 655 social control scheme is a constitutional way of  fulfilling the Directive Principles of State Policy.  The 14 banks paid a total of 4.35 crores of rupees as dividend in 1968.   This amount is said in the affidavit of the respondent not to  be of  great significance and that the bank should  expand  and attract  more deposits.  The comparative position  of  India along  with other countries is focussed in the  study  group Report   referred  to  in  the  affidavit   in   opposition. Commercial  bank  deposits  and  credit  as  proportion   of national  income  form hardly 14% and  10%  respectively  in India  as  against  84% and 19% in Japan,  56%  and  36%  in U.S.A., 49% and 29% in Canada whereas the average population served in India by banks is as high as 73000 as against 4000 in  U.S.A. and Canada and 15,000 in Japan.  Then it is  said that  more  than 4/5th of the credit goes  to  industry  and commerce, retail has about 2% and agriculture less than  1%. Small  borrowers it is said have no facilities.  It is  said that  institutional  credit  is  virtually  non-existent  in relation  to small borrowers.  The suggestion is that  there is  flow of resources from smaller to larger population  and from  rural to urban centres.  There are many  places  which have  no Banks.  In different States there is uneven  spread

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 104 of 108  

of  banking  offices.  There is greater expansion  in  urban banking. 5 major cities are said to have 46 per cent deposit but 65 per cent credit.  Banks are more developed in  States which  are economically and socially ’advanced but  even  in such developed States banks are sparsely located.      India  is a predominantly agricultural country and  one half  of  national income, viz. 53.2% is  from  agriculture. Out of 5,64,000 villages only 5000 are served by banks.  Net even  1  % have bank facilities.   Credit  requirements  for agriculture are of great importance.  Agriculturists have 34 per  cent credit from Co-operatives, 5 per cent  from  banks and the rest from money lenders.  The requirements are  said to be Rs. 2,000 crores for agriculturists.  The small  scale industries  are  said  to  employ one  third  of  the  total industrial population and 40% of the industrial workers  are in  small scale industries.  Banks will have to  meet  their needs.   Small artisans and retail trade have all  need  for credit.   It  is  said that barely 1.8% of  the  total  bank advances goes to small scale industries.  It is said in  the affidavit  that the policy of the Government is to  take  up direct management of credit resources for massive  expansion of   branches,  vigorous  principles  for  mobilisation   of deposits and wide range programme to fill the credit gaps of agriculture, small scale industries, small artisans,  retail trade and consumer credit.  This policy can be achieved only by  direct  management  by State and not  merely  by  social control.  Almost all the banks are in favour of large  scale industry.  This direct control and expansion of bank  credit is  intended to make available deposit resources and  expand the  same  to serve the country in the  light  of  Directive Principles. 656      These are the various reasons which are rightly said by the  Attorney General to be reasonable restrictions  in  the interest  of  the general public.  I wish to make  it  clear that  in my opinion Articles 19 (1) (f ) and (g) do  not  at all  enter  the  domain  of  Article  3  1  (2)  because   a legislation for acquisition and requisition of property  for public  purpose  is not required to be tested again  on  the touchstone   of   reasonableness   of   restriction.    Such reasonable  restriction is inherent and implicit  in  public purpose.   That is why purpose is dealt with  separately  in Article 31(2).      The validity of the Ordinance of 1969 was challenged by contending  that  the satisfaction of  the  President  under Article 123 was open to challenge in a court of law.  It was said  that the satisfaction of the President  was  objective and  not  subjective.   The power  of  the  President  under Article 123 of the Constitution to promulgate Ordinances  is when both the Houses of Parliament are not in session,  ,and this power is co-extensive with that of the legislature  and the  President  exercises this power when he  is,  satisfied that  circumstances exist which render it necessary for  him to  take  immediate  action.   The  power  of   promulgating Ordinance  is of historical antiquity and it has  undergone, change from. time to ’time.  In the East India Company  Act, 1773 under section 36 the Governor General could  promulgate Ordinance.   The  Indian Councils Act, 1861  by  section  23 thereof  provided  that  the Governor  General  in  case  of emergency may promulgate an Ordinance for the peace and good Government of the territories.  The Government of India Act, 1915 provided in section 72 that the Governor General  could promulgate  Ordinances  for the peace and  good  Government. The Government of India Act, 1935 by sections 42, 43 -and 45 conferred  power  on  the  Governor  General  to  promulgate

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 105 of 108  

Ordinances and sections 88 and 89 conferred a similar  power on the Governor.  Article 123 of the Constitution, is really based on section 42 of the Government of India Act, 1935 and Article  213 which relates to the power of the  Governor  in the States is based on section 88 of the Government of India Act, 1935.      It  has  been  held in several  decisions  like  Bhagat Singh’s  case(’)  and Sibnath Banerjee’s  case(’)  that  the Governor  General  is  the  sole  judge  as  to  whether  an emergency exists or not.  The Federal Court in Lakhi  Narain Singh’s  case(3)  took  a similar  view  that  the  Governor General  was  the sole judge of the state of  emergency  for promulgating Ordinances.      The sole question is whether the power of the President in Article 123 is open to judicial scrutiny.  It was said by counsel for the petitioner that the Court would go into  the question as to (1) 58 1. A. 169. (3) [1949] F. C.R. 693. (2) 72 1. A. 57. 657 whether  the  President  was  satisfied  that  circumstances existed  which  rendered it necessary for the  President  to promulgate  an  Ordinance. Liversidge’s case(1)  was  relied upon  by counsel for the petitioner.  That case  interpreted the words "reasonable cause to believe".  It is obvious that when the words used are "reasonable cause to believe" it  is to  be  found  out whether the cause itself  has  reason  to support  it  and  the  Court  goes  into  the  question   of ascertaining  reasons.  In Liversidge’s case(’) it was  said that  the words "has reasons to believe" meant an  objective belief  whereas the words "if it appears" or "if  satisfied" would be a subjective satisfaction.      The words ’if it appears’ came up for consideration  in two  English cases of Ayr Collieries(2) and the  Carltona(3) and the decision was that it was not within the province "of the Court to enquire into the reasonableness of the policy.      The interpretation of Article 123 is to ’be made  first on  the language of the Article and secondly the context  in which that power is reposed in the President.  When power is conferred  on  the President to  promulgate  Ordinances  the satisfaction  of  the  President  is  subjective  for  these reasons.   The  power  in  Article  123  is  vested  in  the President  who is the executive head and  the  circumstances contemplated in Article 123 are a guide to the President for exercise  of  such  power.  Parliament  is  not  in  session throughout the year and during the gaps between sessions the legislative  power of promulgating Ordinance is  reposed  in the  President  in  cases of  urgency  and  emergency.   The President  is  the  sole  judge whether  he  will  make  the Ordinance.   The  President  under  Article  74(1)  of   the Constitution acts on the advice of Ministers.  Under Article 74(2) the advice of the Ministers is not to be enquired into by  any  Court.   The  Ministers  under  Article  75(3)  are responsible to Parliament.  Under Article 123 the Ordinances are  limited in life and the Ordinance must be  laid  before Parliament  and  the life of the Ordinance  may  be  further shortened.   The  President  under Article 361  (1)  is  not answerable to any Court for acts done in the performance  of his  duties.  The Ministers are under oath of secrecy  under Article  75(4).   Under  Article 75(3)  the  Ministers  -are collectively responsible to the House of the People.   Under Article  78  it shall be the duty of the Prime  Minister  to furnish  information  to  the President.   The  power  under Article  123  relates  to policy and to  an  emergency  when

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 106 of 108  

immediate action is considered necessary and if an objective test   is   applied  the  satisfaction  of   the   President contemplated  in Article 123 will be shorn of the  power  of the President himself and as the President will be acting on the  advice of Ministers it may lead to disclosure of  facts which under (1) [1942] A C.206. (2) [1943] 2 All.  E. R. 546. (3) [1943] 2 All E. R. 560. 8SupCI/70-12 658 Article  75 (4) are not to be disclosed.  For these  reasons it  must be held that the satisfaction of the  President  is subjective.     Counsel  for the petitioner relied on the  decisions  of this  Court in the cases of Barium Chemicals(’)  and  Rohtas Industries(2).   In  both the cases the words  used  in  the Companies  Act,  1956  section 23 7 (b) which  came  up  for consideration before this Court are to the effect that  the, Central  Government  may, if in the opinion of  the  Central Government  there  are circumstances  suggesting,  that  the business  of the company is not properly conducted,  appoint competent persons to investigate the affairs of the company. The opinion which is to be formed by the Central  Government under  the Companies Act in that section is in  relation  to various  facts  and circumstances about the  business  of  a company  and that is why this Court came to  the  conclusion that the existence of circumstances but not the opinion  was open to judicial scrutiny.  This was the view of this  Court in   the   cases   of  Barium   Chemical’s(1)   and   Rohtas Industries(’).      The   decisions  in  Barium  Chemicals(’)  and   Rohtas Industries  Ltd.(’) turned on the interpretation of  section 237 of the Companies Act and executive acts thereunder.  The language  used in that section is ’in the opinion  of’,  The Judicial   Committee  in  the  Hubli   Electricity   case(’) interpreted the words "the Provincial Government may, if  in its  opinion  the  public interest  so  requires,  revoke  a licence  in  any of the following cases" to  mean  that  the relevant matter was the opinion and not the ground on  which the opinion was based.  This Court in the Barium Chemical’s, case(’)  however  found that there were  no  materials  upon which the authority could form the requisite opinion.  That, is the ratio of the decision in Barium Chemicals case(-).     In  order  to  entitle the Central  Government  to  take action under section 237 of the Companies Act, 1956 there is to  be the requisite opinion of the Central  Government  and the circumstances should exist to suggest that the company’s business was being conducted as laid down in sub-clause  (1) or that the persons mentioned in sub-clause (2) were  guilty of  fraud,  misfeasance or misconduct.  The opinion  of  the Central  Government was subjective but it was said that  the condition  precedent  to the formation of such  opinion  was that  there  should be circumstances in  existence  and  the recitals  of  the existence of those circumstances  did  not preclude  the  court from going behind  those  recitals  and determining  whether in fact the circumstances  existed  and whether the Central Government in making the order had taken into consideration any extraneous consideration. (1) [1966] Supp.  S.C.R. 311. (2) [1969] 2 S.C.R. (3) 76 I.A. 57. 659      In the case of Rohtas Industries(’) reference was  made to  English,  Canadian  and  New  Zealand  decisions.    The

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 107 of 108  

Canadian decision related to power of the Liquor  Commission to  cancel  the  liquor licence and it was  held  to  be  an exercise of discretion.  The New Zealand decision related to the power of the Governor General under the Education Act to make  Regulation as "he thinks necessary to secure  the  due administration".   It  was  held that  the  opinion  of  the Governor General as to the necessity for such regulation was not  reasonably tenable.  These decisions do not  deal  with questions  as to whether the satisfaction is  subjective  or objective.  Of the two English decisions one related to  the power of the Commissioner to make regulations providing  for any  matter  for  which  provisions appear  to  them  to  be necessary for the purpose of giving effect to the provisions of  the  Act.   The nature of legislation  was  taxation  of subjects.   It was held that the authority was not the  sole judge of what its powers were, nor of the way in which  that power  was  exercised.   The  words  "reasonable  cause   to believe", ,’reasonable grounds to believe" occurring in  the -case  of  Liversidge(2) were relied on  to  illustrate  the power  of  the,  Court  to,  find  out  as  to  whether  the regulation was intravires in the English case.      The  decision  of  the House of Lords  in  Padfield  v: Minister  of,  Agriculture Fisheries and  Food(’)  on  which counsel  for the petitioner relied turned on  interpretation of  section  19(3) of the Agricultural Marketing  Act  which contemplated  a committee of investigation, if the  Minister so  directed, to consider and report to the Minister on  any report  made  by the consumer’ committee and  any  complaint made to the Minister as to the operation of any scheme which in the opinion of the Minister could not be considered, by a consumers’ committee under one of the sub-sections in  that. section.  The House of Lords held that the Minister had full or  unfettered  discretion but he was bound to  exercise  it lawfully  that. is to say not to misdirect himself  in  law, nor  to  take into account irrelevant  matters-nor  to  omit relevant matters from consideration That was an instance  of a  writ of mandamus directing exercising of’  discretion  to act on the ground that it was a power coupled with. duty.      The  only  way-in which the exercise of  power  by  the President can be challenged is by establishing bad faith  or mala  fide and corrupt motive.  Bad faith will  destroy  any action.  Such bad faith, will be a matter to be  established by  a  party propounding bad faith.  He  should  affirm  the state of facts.  He is not only to allege the same but  also to prove it.  In the present case there is no allegation of Mala fide. (1) [1969] 3 S.C.R. 108. (3) [1968]  1 All E.R. 604. (2) [1942] A. C. 206. 660 It  was said on behalf of the petitioner that the fact  that Parliament would be in session on 21 July, 1969 and that the Ordinance  was  promulgated on Saturday, 19 July,  1969  was indicative   of  the  fact  that  the  Ordinance   was   not promulgated  legitimately  but  in a hasty  manner  and  the President  should have waited.  If the President  has  power when the House is not in session he can exercise that  power when  he  is satisfied that there is an  emergency  to  take immediate  action.   That emergency may take  place  even  a short  time  before Parliament goes into session.   It  will depend   upon  the  circumstances  which  were  before   the President.   The fact that the Ordinance was passed  shortly before  the Parliament session began does not show any  mala fide.   It was said that circumstances were not set  out  in the  affidavit  and  therefore the  Court  was  deprived  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 108 of 108  

examining the same.  The Attorney General rightly  contended that  it  was  not  for  the  Union  to  furnish  facts  and information  which were before President because first  such information  might be a State secret, secondly, it  was  for the  party  who alleged non-existence  of  circumstances  to prove  the  same and thirdly the respondent was  not  called upon to meet any case of mala fide. It  was  said that no reason was shown as to  what  mischief could  have  happened if the Ordinance would not  have  been promulgated  on  the  date in question  but  no  reason  was required to be shown.  The statement of objects and  reasons shows that there was considerable speculation in the country regarding    Government’s   intention   with    regard    to nationalisation’ of banks during few days immediately before the  Ordinance.  In the case of Barium Chemical’s(1) it  was said  by this Court that if circumstances lead to  tentative conclusion,  that the Court would not have drawn  a  similar inference  would be irrelevant.  The reason is obvious  that in matters of policy just as Parliament is the master of its province  similarly  the President is the supreme  and  sole judge  of  his satisfaction on such policy  matters  on  the advice of the Government. The  locus standi of the petitioners was challenged  by  the Attorney  General.  The petitions were heard on  merits.   I have  -dealt  with  all  the  arguments  advanced.   It  is, therefore, not at all necessary to deal with this objection. For the reasons mentioned above, the petitions fail ’and are dismissed.  There will be no order as to costs.                            ORDER In  accordance  with the opinion of the  majority  Petitions Nos. 300 and 298 are allowed, and it is declared that the Banking Companies (Acquisition and Transfer of Undertakings) Act  22 of (1) [1966] Supp.  S.C.R. 311. 661 1969 is invalid and the action taken or deemed to be,  taken in  exercise  of  the  powers  under  the  Act  is  declared unauthorised.  Petition No. 222 is dismissed.  There will be no order as to costs. in these three petitions. K.B.N. 662