1970 (2) TMI 130 - SC - Companies Law

Court Invalidates Banking Companies Act 1969, Citing Discrimination and Compensation Violation

RUSTOM CAVASJEE COOPER Versus UOI.

The Court declared the Banking Companies (Acquisition and Transfer of Undertakings) Act 22 of 1969 invalid, citing hostile discrimination against named ... The Banking Companies (Acquisition and Transfer of Undertakings) Act 22 of 1969 is invalid and the action taken or deemed to be, taken in exercise of the powers under the Act is declared unauthorised. Issues Involved:1. Validity of the Ordinance under Article 123 of the Constitution.2. Legislative competence of the Parliament to enact the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969.3. Infringement of fundamental rights under Articles 14, 19(1)(f) & (g), and 31(2) of the Constitution.4. Violation of the guarantee of freedom of trade under Article 301.5. Validity of the retrospective operation given to the Act.Detailed Analysis:I. Validity of the Ordinance under Article 123 of the ConstitutionThe petitioner challenged the competence of the President to promulgate the Ordinance under Article 123, arguing that the condition precedent to the exercise of this power did not exist. The Attorney-General contended that the satisfaction of the President is subjective and the Union is not obligated to disclose or justify the circumstances necessitating immediate action. The Court did not express an opinion on the extent of its jurisdiction to examine the President's satisfaction due to the invalidity of the Act for other reasons.II. Legislative Competence of the Parliament to Enact the ActThe petitioner argued that the Parliament overstepped its legislative competence by enacting the Act, which allegedly encroached upon the State List. The Court held that the Parliament has exclusive legislative power under Entries 43, 44, and 45 of List I and Entry 42 of List III. The Court found no evidence that the named banks were carrying on non-banking business distinct from banking business. The Court concluded that the acquisition of the undertakings of the named banks did not trespass upon the State List, and the Act was within the legislative competence of the Parliament.III. Infringement of Fundamental RightsThe petitioner claimed that the Act impaired his fundamental rights under Articles 14, 19(1)(f) & (g), and 31(2). The Court opined that the rights under Articles 19(1)(f) and 31(2) are not mutually exclusive and must be reconciled. The Court held that the Act imposed unreasonable restrictions on the named banks by preventing them from carrying on banking business and practically prohibiting them from carrying on non-banking business. The Act was found to violate the guarantee of compensation under Article 31(2) as it failed to provide compensation determined according to relevant principles.IV. Violation of the Guarantee of Freedom of Trade under Article 301The petitioner argued that the Act violated the guarantee of freedom of trade under Article 301. The Court did not deem it necessary to decide this issue due to the finding that the Act impaired the guarantee under Article 31(2).V. Validity of the Retrospective Operation Given to the ActThe petitioner contended that the retrospective operation of the Act was invalid. The Court did not consider this argument due to the invalidity of the Act on other grounds.Conclusion:The Court declared the Banking Companies (Acquisition and Transfer of Undertakings) Act 22 of 1969 invalid. The Act was found to make hostile discrimination against the named banks and violate the guarantee of compensation under Article 31(2). Sections 4, 5, 6, and Schedule II of the Act were deemed void, leading to the invalidation of the entire Act. Petitions Nos. 300 and 298 of 1969 were allowed, and Petition No. 222 of 1969 was dismissed. There was no order as to costs in these petitions.