Rustom Cavasjee Cooper v Union of India

• On 19 July 1969 the President promulgated the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance 8 of 1969, replaced by Act 22 of 1969, transferring the undertakings of 14 named commercial banks to new corresponding banks. The petitioner held shares in, and current and fixed deposit accounts with, four of these banks, and was a director of the Central Bank of India. He challenged the Ordinance and the Act under Articles 14, 19 and 31.

1. Whether the Act violated Articles 14, 19(1)(f) and (g) and 31(2), and whether a shareholder could maintain the petitions.

• An eleven-Judge Bench, by majority (Ray J dissenting), declared the Act void. Prohibiting only the named banks from carrying on banking business, while other banks, including foreign banks, could continue, was hostile discrimination under Article 14. The compensation provisions did not give compensation determined on relevant principles as required by Article 31(2), since they omitted important items such as goodwill and adopted irrelevant methods of valuation. The petitions by a shareholder were maintainable where his rights were impaired.

A law nationalising banks must satisfy Article 14 and, under Article 31(2) as it then stood, provide compensation determined on relevant principles. Barring only the named banks from banking while other banks continued was hostile discrimination, and omitting items such as goodwill and using irrelevant methods of valuation made the compensation provisions invalid.