ARTICLE 14, ITS RELATION WITH R. C.COOPER VS UNION OF INDIA Rustom Cavasjee Cooper--hereinafter called 'the petitioner'--holds shares in the Central Bank of India Ltd., the Bank of Baroda Ltd., the Union Bank of India Ltd., and the Bank of India Ltd., and has accounts--current and fixed deposit -with those Banks : he is also a director of the Central Bank of India Ltd. By these petitions he claims a declaration that tha t the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance 8 of 1969 promulgated on July 19, 1969, and the Banking Companies (Acquisition and Transfer of Undertakings) Act 22 of 1969 which replaced the Ordinance with certain modifications impair his rights guaranteed under Articles 14, 19 and 31 of the Constitution, and are on that account invalid. The petitioner challenges the validity of the Ordinance and the Act on the following principal grounds: (i) The Ordinance promulgated in exercise of the power under Article 123 of the Constitution was invalid, because the condition precedent to the exercise of the power did not exist; (ii) That in enacting the Act the Parliament encroached upon the State List in the Seventh Schedule of the Constitution, and to that extent the Act is outside the legislative competence of the Parliament; (iii) That by enactment of the Act, fundamental rights of the petitioner guaranteed by the Constitution under Articles 14, 19(1)(f) & (g) and 31(2) are impaired; (iv) That by the Act the guarantee of freedom of trade under Art. 301 is violated; and (v) That in any event retrospective operation given to Act 22 of 1969 is ineffective, since there was no valid Ordinance in existence. The provision in the Act retrospectively validating infringement of the fundamental rights of citizens was not within the competence of the Parliament. That Sub-sections (1) & (2) of Section 11 and Section 26 are invalid. The restriction imposed upon the right of the named banks to carry on "non-banking" business is, in our judgment, plainly unreasonable. No attempt is made to support the Act which while theoretically declaring the right
of the named banks to carry on "non-banking" business makes it impossible in a commercial sense for the banks to carry on any business. Protection of Article 14By Article 14 of the Constitution the State is enjoined not to deny any person equality before the law or the equal protection of the laws within the territory of India. The Article forbids class legislation, but not reasonable classification in making laws. The test of permissible classification under an Act lies in two cumulative conditions: (i) classification under the Act must be founded on an intelligible differentia distinguishing persons, transactions or things grouped together from others left out of the group; and (ii) the differentia has a rational relation to the object sought to be achieved by the Act: there must be a nexus between the basis of classification and the object of the Act: Chiranjit Lal Chowduri's case [1950]1SCR869 ; The State of Bombay v. [1951]2SCR682 ; The State of West Bengal v. 1952CriLJ510 ; Budhan Choudhry and Ors. v. 1955CriLJ374 ; Shri Ram Kishan Dalmia v. : [1959]1SCR279 ; and State of Rajasthan v. [1964]6SCR903 . Counsel for the petitioner contended that the 1969 Act violated the provisions of Article 14 on these grounds: First, the Act discriminated against 14 banks as against other Indian scheduled banks, secondly, the selection of 14 banks has no reasonable connection to the objects of the Act; thirdly, banks which may be described to be inefficient and which are liable to be acquired under Section 36AE of the 1949 Act are not acquired whereas 14 banks who have carried on their affairs with efficiency are acquired; fourthly under Section 15(2)(d)(e) of the 1969 Act the 14 banks cannot do any banking business whereas other Indian scheduled banks or any other new banking company can do banking business. There is no evidence to show that the 14 banks are more efficient than the others as counsel for the petitioner contended. Section 15(2)(d)(e) of the 1969 Act states that these 14 banks after acquisition are not to carry on any banking business for the obvious reason that these 14 banks are not in the same class as the other Indian banks. Besides, it is also reasonable that the 14 banks should not be permitted to carry on banking business as the corresponding new banks. Therefore the classification of the 14 banks is also a rational and intelligible classification for the purposes of the Act. The object of the 1969 Act was to meet credit gaps and to have a wider distribution of economic resources among the weaker sections of the economy, namely, agriculture, small scale industry and retail trade.
CONCLUSION By a central law, the undertakings of 14 banks were acquired by the central government and these banks were prohibited from doing any baking business. This was held to be discriminatory as others bank could carry on banking business and new banks could be floated and there was no other rational explanation for the prohibition on the banks in the question.
