Banking acquisition law failed constitutional scrutiny for discrimination, excessive restrictions and invalid valuation-based compensation.

A shareholder, depositor and director whose own legal interests were directly affected had standing to challenge the banking law. Parliament was treated as competent to enact a measure referable in substance to banking and acquisition of an undertaking as a going concern, so the enactment did not trench upon the State List. The provisions nevertheless failed constitutional scrutiny because the selection of fourteen named banks was discriminatory, the restrictions on their business were unduly destructive, and the compensation scheme used irrelevant valuation principles by excluding major elements such as goodwill and leasehold value. The core acquisition and compensation provisions were therefore unconstitutional as applied to the named banks.

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Issues: (i) Whether the petitioner had locus standi to challenge the impugned banking legislation; (ii) whether Parliament had legislative competence to enact the acquisition measure and whether the measure trenched upon the State List; (iii) whether the impugned provisions violated Articles 14, 19(1)(f), 19(1)(g) and 31(2) of the Constitution by hostile discrimination, unreasonable restriction and failure to provide constitutionally valid compensation.

Issue (i): Whether the petitioner had locus standi to challenge the impugned banking legislation.

Analysis: The petitioner was a shareholder, depositor and director of affected banks. State action that impairs the rights of the company may also impair the rights of shareholders and other persons whose own legal interests are directly affected. The Court rejected the narrow objection that only the company could sue and held that the petitioner's own rights were sufficiently affected to maintain the challenge.

Conclusion: The objection to maintainability failed and the petitioner was entitled to pursue the challenge.

Issue (ii): Whether Parliament had legislative competence to enact the acquisition measure and whether the measure trenched upon the State List.

Analysis: The measure was referable in substance to banking and acquisition of property. The expression "banking" in Entry 45 of List I was treated broadly so as to include the legitimate business of a banking company as recognised by the banking law. The expression "property" in Entry 42 of List III was held wide enough to include an undertaking as a going concern, together with its assets, rights, liabilities and obligations. On that approach, the law was within Union competence and did not transgress the State List.

Conclusion: The enactment was within legislative competence and was not invalid for want of power or for trenching upon the State List.

Issue (iii): Whether the impugned provisions violated Articles 14, 19(1)(f), 19(1)(g) and 31(2) of the Constitution by hostile discrimination, unreasonable restriction and failure to provide constitutionally valid compensation.

Analysis: The selection of fourteen named banks for acquisition, while other Indian and foreign banks were left free to continue banking business, was found to be discriminatory and unsupported by any adequate constitutional justification. The restrictions imposed on the named banks to carry on non-banking business were also treated as practically destructive of any meaningful business freedom. As regards compensation, the Court held that the Act did not adopt relevant principles for valuing the undertaking as a going concern: important components such as goodwill and the value of unexpired leasehold interests were excluded, some assets and liabilities were treated on an irrational basis, and the resulting scheme did not furnish a true recompense for the property taken. The Court also held that the constitutional guarantee of compensation was not satisfied by a scheme built on irrelevant principles merely because a figure was computed under the statute.

Conclusion: The impugned provisions violated Articles 14, 19(1)(g) and 31(2), and the challenged compensation scheme was constitutionally invalid.

Final Conclusion: The core acquisition and compensation provisions could not stand, and the banking legislation was struck down in its entirety as unconstitutional insofar as it operated against the named banks.

Ratio Decidendi: A law acquiring an undertaking as a going concern must be supported by constitutionally relevant and non-arbitrary principles of valuation, must not discriminate irrationally between similarly placed entities, and must be judged by its direct operation on the rights affected rather than by its declared object alone.

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