SHAH, - (1.) THE Majority Judgment of the court was delivered by
(2.) RUSTOM Cavasjee Cooper hereinafter called 'the petitioner'-holds shares in the central Bank of India Ltd., the Bank of Baroda Ltd., theUnion Bank of India Ltd., and the Bank of India Ltd., and has accountscurrent and fixed deposit-with those Banks ; he is .also a director of theCentral Bank of India Ltd. By these petitions he claims a declaration thatthe Banking Companies (Acquisition and Transfer of Undertakings) Ordinance 8 of 1969 promulgated on 19/07/1969, and the Banking Companies(Acquisition and Transfer of Undertakings) Act, 22 of 1969 which replacedthe Ordinance with certain modifications impair his rights guaranteed underArticles 14, 19 and 31 of the Constitution, and are on that account invalid. In India there was till 1949 no comprehensive legislation governingbanking business and banking institutions. The central Legislature enactedthe Banking Companies Act, 10 of 1949 (later called "The Banking RegulationAct") to consolidate and amend the law relating to certain matters concerning banking. By Section 5(b) of that Act "banking" was defined as meaning''the accepting, for the purpose of lending or investment, of deposits ofmoney from the public, repayable on demand or otherwise'' ; and by Section 5(c) a "banking company" meant "any company which transacts thebusiness of banking in India". By Section 6 it was enacted that in additionto the business of banking as defined in Section 5(b) a banking company mayengage in one or more of the forms of business specified in clauses (a) to (o) ofsub-section (1). By Ss. (2) of Section 6 banking companies wereprohibited from engaging "in any form of business other than those referred toin Ss. (1)". The Act applied to commercial banks, and enactedprovisions, amongst others, relating to prohibition of employment of manag-267ing agents and restrictions on certain forms of employment ; minimum paidup capital and reserves ; regulation of voting rights of shareholders and election of Boards of Directors ; prohibition of charge on unpaid capital ; restriction on payment of dividend ; maintenance of a percentage of assets ; returnof unclaimed deposits; and accounts and balance-sheets. It also enactedprovisions authorising the Reserve Bank to issue directions to and for trial ofproceedings against the Banks and for speedy disposal of winding up proceedings of Banks. The Banking Regulation Act was amended by Act 58 of 1968, togive effect to the policy of "social control" over commercial banks. Act 58of 1968 provided for reconstitution of the Boards of Directors of commerialbanks with a Chairman who had practical experience of the working of aBank or financial, economic and business administration and with a membership not less than 51/o consisting of persons having special knowledge orpractical experience in accountancy, agriculture and rural economy, banking,cooperation, economics, finance, law and small-scale industry. The Act alsoprovided that no loans shall be granted to any director of the Bank or to anyconcern in which he is interested as Managing Director, Manager, employee,or guarantor or partner or in which he holds substantial interest. TheReserve Bank was invested with power to give directions to commercial banksand to appoint directors or observers in the interest of depositors or propermanagement of the Banking Companies, or in the interest of Banking policy[which expression was defined by Section 5(ca)] as "any policy which isspecified from time to time by the Reserve Bank in the interest of the bankingsystem or in the interest of monetary stability or sound economic growth,having due regard to the interests of the depositors, volume of deposits andother resources of the bank and the need for equitable allocation and theefficient use of these deposits and resources". The Reserve Bank was alsoinvested with power to remove managerial and other personnel from officeand to appoint additional directors, and to issue directions prohibiting certainactivities in relation to Banking Companies. The central government wasgiven power to acquire the business of any Bank if it failed repeatedly tocomply with any direction issued by the Reserve Bank under certain specificprovision in regard to any matter concerning the affairs of the Bank and ifacquisition of the Bank was considered necessary in the interest of the depositors or in the interest of the banking policy or for the better provision ofcredit generally or of credit to any particular section of the community or ina particular area.
(3.) DURING the last two decades the Reserve Bank reorganised thebanking structure. A number of units which accounted for a small sectionof the banking business were amalgamated under directions of the ReserveBank. The total number of commercial banking institutions was reducedfrom 566 in 1951 to 89 in 1969-73 scheduled and 16 non-scheduled. In exercise of the authority conferred by the State Bank of India Act, 21of 1955 the undertaking of the former Imperial Bank of India was taken overby a public corporation controlled by the central government. The StateBank too over seven subsidiaries under authority conferred by Act 38 of 1959.There were in June 1969 fourteen commercial banks operating in India eachhaving deposits exceeding Rs. 50 crores. The following is an analysis ofthe commercial banking structure in India in June 1969 : 268 JUDGEMENT_248_1_1970Html1.htm Late in the afternoon of 19/07/1969 (which was a Saturday) theVice-President (acting as President) promulgated, in exercise of the powerconferred by clause (1) of Article 123 of the Constitution, Ordinance 8 of1969 transferring to and vesting the undertaking of 14 named commercialbanks in corresponding new banks set up under the Ordinance. The Preamble of the Ordinance read as follows : "An Ordinance to provide for the acquisition and transfer of theundertakings of certain banking companies in order to serve better theneeds of development of the economy in conformity with national policyand objectives and for matters connected therewith or incidental thereto." By Section 2 "banking company" was defined as not including a foreigncompany within the meaning of Section 591 of the Companies Act, 1956. An"existing bank" was defined by Section 2(b) as meaning "a banking company specified in Column 1 of the First Schedule, being a company thedeposits of which, as shown in the return as on the last Friday of June, 1969,furnished to the Reserve Bank under Section 27 of the Banking RegulationAct, 1949, were not less than rupees fifty crores". In the Schedule to theAct were included the names of fourteen commercial banks : JUDGEMENT_248_1_1970Html2.htm 269A "corresponding new bank" was defined in relation to an existing bank asmeaning "the body corporate specified against such bank in Column 2 ofthe First Schedule". By Section 2(g) it was provided that the works andexpressions used in the Ordinance and not defined but defined in the BankingRegulation Act, 1949, bad the meaning respectively assigned to them in thatAct. Thereby the definitions of "banking" and "banking company" inSection 5(b) and Section 5(c) of the Banking Regulation Act were incorporated in the Ordinance.;