Rustom Cawasjee Cooper v. Union of India
Bench: Full Court — 11 Judges (M. Hidayatullah CJ, J.M. Shelat, C.A. Vaidyalingam, G.K. Mitter, K.S. Hegde, A.N. Grover, A.N. Ray, J.C. Shah, I.D. Dua, S.M. Sikri & V. Bhargava JJ)
Parties
Facts of the Case
The Indira Gandhi government nationalised 14 major private banks by ordinance in 1969 through the Banking Companies (Acquisition and Transfer of Undertakings) Act. Rustom Cawasjee Cooper, a shareholder of the nationalised banks, challenged the nationalisation law as unconstitutional — arguing it violated his right to property (Article 31), right to carry on business (Article 19(1)(g)), and was discriminatory (Article 14). The case was decided by an 11-judge bench.
Legal Issues Before the Court
- 1Is the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969 (nationalising 14 banks) constitutionally valid?
- 2Does the nationalisation law discriminate by applying only to banks with deposits over Rs. 50 crore?
- 3Is the compensation offered under the Act equivalent to the 'amount' required under Article 31?
- 4Does nationalisation affect the shareholders' rights under Article 19(1)(f) and (g)?
The Judgment
The Supreme Court struck down the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969 — primarily on the ground that the compensation provisions were illusory and did not represent the true market value of the nationalised banks. The Court also held that the Act was discriminatory in its selection of banks (only those with deposits over Rs. 50 crore) without rational basis. The Court held that Articles 19(1)(f) and 19(1)(g) are not mutually exclusive — a law depriving property and business rights must satisfy both Articles.
Key Principles Laid Down
ARTICLES 19(1)(f) AND 19(1)(g) ARE NOT MUTUALLY EXCLUSIVE: The right to acquire/hold property (19(1)(f)) and the right to carry on business (19(1)(g)) are interconnected — a law that destroys a business by acquiring its property must satisfy both. The court cannot treat them as separate silos.
COMPENSATION MUST BE REAL, NOT ILLUSORY: Article 31 required that the law provide for compensation equivalent to the amount of the property acquired. Illusory, inadequate, or irrelevant compensation methods render an acquisition law unconstitutional. The bank nationalisation Act's compensation formula was struck down as illusory.
DISCRIMINATORY APPLICATION IS UNCONSTITUTIONAL: Selecting only banks with deposits over Rs. 50 crore — while leaving smaller banks unaffected — without rational justification violates Article 14. The classification must have a rational nexus to the object of the law.
LEGISLATION CAN BE CHALLENGED BY SHAREHOLDERS: A shareholder's rights are affected by nationalisation of the company — shareholders have locus standi to challenge the nationalisation law as affecting their Article 19(1)(f)/(g) rights.
HISTORICAL CONTEXT — LED TO CONSTITUTIONAL AMENDMENTS: Following the Cooper decision, the Indira Gandhi government enacted the 25th Constitutional Amendment (1971) removing the requirement of 'amount' in Article 31 and the 24th Amendment strengthening Parliament's power to amend fundamental rights — both part of the larger battle between Parliament and the judiciary that culminated in Kesavananda Bharati (1973).
Impact on Indian Law
The Bank Nationalisation case is a landmark in the constitutional history of property rights in India. It struck down one of the most politically significant pieces of legislation of the Indira Gandhi era and triggered a constitutional amendment in response. The 44th Constitutional Amendment (1978) eventually removed property rights from the fundamental rights chapter (Article 19(1)(f) and Article 31 were deleted), making the right to property a constitutional right under Article 300A (not a fundamental right). The Cooper case is essential for understanding the history of property rights in India and the Parliament-judiciary confrontation of the 1960s–1970s.
Frequently Asked Questions
What was the Bank Nationalisation case and what did the Supreme Court decide?
Rustom Cawasjee Cooper v. Union of India (1970) — the Bank Nationalisation case — was a challenge to the Indira Gandhi government's nationalisation of 14 major banks. The 11-judge Supreme Court bench struck down the Banking Companies (Acquisition and Transfer of Undertakings) Act as unconstitutional — primarily because the compensation provisions were illusory and the classification of banks was discriminatory under Article 14.
Is the right to property a fundamental right in India today?
No. The 44th Constitutional Amendment (1978) removed property rights from the Fundamental Rights chapter — Articles 19(1)(f) and 31 were deleted. The right to property now exists as a constitutional right under Article 300A (which says no person shall be deprived of property save by authority of law) — but it is not a fundamental right enforceable under Article 32. State acquisition of property must still be by law, but compensation adequacy is no longer judiciable as a fundamental right.