Rustom Cavasjee Cooper & Ors. [RC Cooper] v. Union of India 

The case of Rustom Cavasjee Cooper & Ors. v. Union of India (1970) is a landmark judgement delivered by the Supreme Court of India, dealing with the constitutional validity of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969. 

This Act was passed to nationalise fourteen commercial banks in India, and the petitioners, led by Rustom Cavasjee Cooper, challenged the Act and its enabling Ordinance. The petitioners contended that the Act violated fundamental rights guaranteed under the Indian Constitution, specifically Articles 14, 19(1)(f), 19(1)(g), and 31. 

The judgement delivered by a bench of eleven judges holds significant importance in the interpretation of the right to property and the power of the State to acquire property for public purposes.

Facts of RC Cooper v. Union of India 

The Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969, was promulgated by the Acting President of India on 19 July 1969, under the power conferred by Article 123 of the Constitution. The Ordinance transferred the undertakings of fourteen major commercial banks, each holding deposits of at least fifty crore rupees, to the corresponding new banks established by the government. 

The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969, was subsequently passed by Parliament to replace the Ordinance. The Act became effective on the same day as the Ordinance and vested the undertakings, including assets, rights, and liabilities of the named banks, in the new government-owned banks.

The petitioners, including Rustom Cavasjee Cooper, who was a shareholder and director of one of the affected banks, filed writ petitions under Article 32 of the Constitution, challenging the constitutionality of the Act and the Ordinance. The primary contentions of the petitioners revolved around the violation of their fundamental rights, particularly the right to property (Article 19(1)(f) and Article 31) and the right to carry on business (Article 19(1)(g)).

Issues for Determination

The Supreme Court in RC Cooper v. Union of India framed several issues for determination in the case:

1. Whether the writ petitions filed by the petitioners were maintainable.
2. Whether the Ordinance was invalid due to the non-existence of the conditions required under Article 123 for the exercise of the President’s power.
3. Whether the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969, was within the legislative competence of Parliament.
4. Whether Articles 19(1)(f) and 31(2) of the Constitution are mutually exclusive or whether a law providing for the acquisition of property for public purposes could be tested for its validity on the ground that it imposed unreasonable limitations on the right to property.
5. Whether the provisions of the Act, which transferred the undertaking of the named banks and prohibited them from carrying on banking and non-banking business, impaired the freedoms guaranteed by Articles 19(1)(f) and 19(1)(g).
6. Whether the provisions of the Act violated the guarantee of equal protection under Article 14.
7. Whether the Act violated the guarantee of compensation under Article 31(2) of the Constitution.

Petitioners’ Contentions

The petitioners, led by Rustom Cavasjee Cooper, raised several arguments:

Maintainability of the Petition

The petitioners argued that as shareholders, directors, and depositors in the affected banks, their fundamental rights were violated by the nationalisation. They contended that since they had a direct interest in the property, their writ petitions were maintainable under Article 32 of the Constitution.

Validity of the Ordinance

The petitioners argued that the Ordinance was invalid because the conditions required for its promulgation under Article 123 were not met. They contended that there was no immediate necessity or urgency to justify the exercise of the President’s power.

Legislative Competence

The petitioners contended that the Act exceeded Parliament’s competence because it encroached upon the State List under the Seventh Schedule of the Constitution. Specifically, they argued that the Act dealt with the acquisition of property that was not related to banking, which was beyond Parliament’s legislative authority.

Violation of Fundamental Rights

The petitioners argued that the Act violated their rights under Articles 14, 19(1)(f), and 19(1)(g) by depriving them of their property and livelihood without adequate compensation. They also claimed that the Act imposed unreasonable restrictions on their right to carry on business.

Guarantee of Compensation

The petitioners contended that the compensation provided under the Act was not just, fair, or adequate as required by Article 31(2) of the Constitution. The compensation was to be paid in government securities over ten years, which they argued was not an acceptable form of compensation.

Respondent’s Contentions

The Union of India, represented by the Attorney General, opposed the petitioners’ claims and put forward the following contentions:

Maintainability of the Petition

The Union argued that the petitioners, as shareholders or directors of the affected banks, did not have a direct proprietary interest in the assets of the banks. They contended that the company, as a legal entity, was the proper party to challenge the acquisition, not the individual shareholders or directors.

Ordinance under Article 123

The Union argued that the President’s satisfaction regarding the need for immediate action was subjective and non-justiciable. They further contended that the President’s power under Article 123 was within the bounds of the Constitution, and there was no need for the Court to question the exercise of this power.

Legislative Competence

The Union argued that Parliament had the authority to legislate on banking under Entry 45 of List I (Seventh Schedule), and the power to legislate on property acquisition under Entry 42 of List III. The Union also contended that the acquisition of a banking company’s undertaking, including its assets and liabilities, was within Parliament’s competence.

Compensation

The Union argued that the compensation provisions were within the legislative competence of Parliament and that adequacy of compensation could not be judicially reviewed. The compensation provided under the Act was consistent with the principles established by the Banking Regulation Act, 1949.

Article 14 and Equal Protection 

The Union contended that the classification of banks based on deposit sise was rational and had a legitimate basis. They argued that the fourteen banks chosen for nationalisation were selected based on their significant role in the economy, and the differentiation was not discriminatory.

Majority Judgement in RC Cooper v. Union of India

The majority opinion in Rustom Cavasjee Cooper & Ors. v. Union of India, delivered by Justice J.C. Shah, ruled as follows:

1. Maintainability: The writ petitions were maintainable. The Court found that the petitioners, as shareholders and directors, had a direct interest in the property affected by the nationalisation. The Court recognised that the acquisition of property without compensation impacted the individual rights of the petitioners, thereby giving them standing to challenge the Act.
   
2. Ordinance under Article 123: The Court held that the exercise of the President’s power under Article 123 to promulgate the Ordinance was valid. However, the Court focused on the constitutional validity of the Act and found it unconstitutional on the grounds that the compensation provisions were not adequate.
   
3. Legislative Competence: The Court upheld Parliament’s competence to legislate for the acquisition of banking companies under Entry 45 of List I and Entry 42 of List III of the Seventh Schedule. The Court held that the acquisition of the banking companies’ undertakings, including assets, liabilities, and rights, was within Parliament’s authority.
   
4. Compensation under Article 31(2): The Court held that the compensation provisions were inadequate and arbitrary. The compensation to be paid in government securities maturing over ten years was not just or fair. The Court ruled that the Act violated Article 31(2) because it failed to provide immediate and adequate compensation for the property acquired.
   
5. Article 14 and Discrimination: The Court found that the Act violated Article 14 of the Constitution because it discriminated against the fourteen nationalised banks by prohibiting them from carrying on banking business, while other banks were allowed to do so. The Court held that the classification of banks based on deposit size lacked a rational nexus to the objective of the Act.
   
6. Severability: The Court held that the provisions relating to the acquisition of the banks’ undertakings (Sections 4–6 and Schedule II) were inseverable from the rest of the Act. Since these provisions were unconstitutional, the entire Act was declared void.

Conclusion

Rustom Cavasjee Cooper & Ors. v. Union of India remains a landmark case for its interpretation of fundamental rights, particularly the right to property and the power of the State to acquire property for public purposes. The judgement reaffirmed the principle that the right to property cannot be taken away without just compensation, and that any restriction on fundamental rights must be reasonable and proportionate.