## Facts

- The President promulgated the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969, nationalizing the undertakings of 14 large commercial banks and transferring them to newly created government-owned “corresponding new banks.”
- Parliament replaced the Ordinance with the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969, deemed effective from the same date as the Ordinance.
- Rustom Cavasjee Cooper, a shareholder and director of a nationalized bank, filed writ petitions seeking constitutional relief, alleging the acquisition extinguished or diminished shareholder interests and affected the ability to carry on banking business.
- The Act’s compensation mechanism relied on agreement with the government or, failing agreement, tribunal determination, with payment spread in installments over up to ten years.
- The challenge asserted violations of equality, property, trade/business, and compulsory acquisition protections under the Constitution of India.

## Issues

1. Whether a shareholder/director could petition for enforcement of fundamental rights when the law directly acquired a company’s undertaking.
2. Whether the Ordinance and Act were valid exercises of constitutional and legislative authority for nationalizing banks.
3. Whether the Act violated equality and fundamental rights by selecting only 14 banks and by impairing property and business rights.
4. Whether the compensation scheme satisfied constitutional requirements by providing compensation reasonably related to the value of the property acquired.

## Decision

- The Court held the petitions maintainable: the relevant inquiry was the law’s effect on the individual’s rights, not merely the corporate form of the entity acquired.
- The Court upheld Parliament’s competence to legislate for bank acquisition and declined to invalidate the Ordinance solely on a challenge to the President’s satisfaction.
- The Court accepted that nationalization of banking, as economic policy, was not unconstitutional in itself.
- The Court invalidated the Act’s scheme insofar as it provided compensation not reasonably related to the value of the undertakings and used an arbitrary, discriminatory classification in selecting the 14 banks, violating equality guarantees.
- The Court found the manner of implementation (including discriminatory selection and inadequate compensation) rendered the resulting restrictions on property and business rights unreasonable.

## Legal Principles

- Standing to enforce fundamental rights depends on the real and direct effect of state action on an individual; corporate form does not bar a shareholder from complaining of direct infringement of personal fundamental rights.
- Economic and nationalization policy may be pursued by the State, but implementing legislation remains subject to judicial review for compliance with equality and fundamental rights guarantees.
- For compulsory acquisition, “compensation” must be real and not illusory; statutory principles for valuation must bear a reasonable relationship to the value of what is acquired, and payment structure cannot make the award arbitrary in substance.
- A statutory classification must rest on an intelligible differentia and a rational nexus to the law’s objectives; selecting a subset of entities by criteria lacking such nexus violates equality.
- Where acquisition and restructuring directly impair property and business rights, the State must justify the restrictions as reasonable in the public interest; arbitrary selection and illusory compensation defeat that justification.

## Conclusion

The Court treated shareholders as entitled to constitutional relief when legislation directly affected their rights, upheld the State’s power to nationalize banking in principle, but struck down key aspects of the 1969 nationalization framework because its bank selection was arbitrarily discriminatory and its compensation arrangement failed to provide constitutionally adequate compensation.


Rustom Cavasjee Cooper v. Union of India, (1970) 3 S.C.R. 530 (India 1970)