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Indian Express
3 days ago
- Business
- Indian Express
Radio news & a dinner party: When bank nationalisation was ruled ‘unconstitutional' over unfair compensation method
During an intimate dinner party hosted by Rustom Cavasjee Cooper, 47, in July 1969, a news development crackled over the radio: the government had nationalised 14 of India's largest private commercial banks having deposits of over Rs 50 crore. Recalling that dinner party in an article for Himmat, a weekly magazine, Cooper, a shareholder in several of these banks and a Swatantra Party leader, remembers spending the rest of the evening pacing and feeling agitated. Sensing his turmoil, a senior government official at the party remarked casually, 'Why don't you contest it in the Supreme Court?' That casual suggestion would ignite one of the most important legal battles in India's constitutional history, ending with the Supreme Court emphasising that actions made for public interest must ensure just compensation and reaffirming that Directive Principles of State Policy, the guiding principles in making policies that aim to create a welfare state, cannot override fundamental rights. After the dinner party The very next morning, Cooper boarded the first flight to Delhi. Fate, it seemed, had conspired in his favour. Nani Palkhivala, one of India's brightest legal minds, happened to be in Delhi too. By that evening, the preparations for a constitutional challenge were underway. Six months later, on February 10, 1970, an 11-judge Bench of the Supreme Court led by Justice J C Shah, while holding the Bank Nationalization Act, 1969, as 'unconstitutional' since it violated the right to property, clarified that nationalisation of banks itself was not unconstitutional. Striking down the law, the SC said the method of calculating compensation to the shareholders undervalued the banks' assets by ignoring their goodwill and key properties. Born on August 18, 1922, in a Mumbai-based Parsi family, Cooper, a chartered accountant, had completed his PhD in economics from the London School of Economics (LSE). He was also president of the Institute of Chartered Accountants of India (1963-64), the president of the Indian Merchants' Chamber (IMC), and the treasurer and general-secretary of Swatantra Party. The ordinance enabling bank nationalisation was promulgated on July 19, 1969, a few days before the Parliament session was to begin. Three days prior to the ordinance, then Prime Minister Indira Gandhi had divested Morarji Desai of his finance portfolio. Cooper's opposition to bank nationalisation was not about personal financial loss. Besides holding shares in the Central Bank of India Ltd (of which he was a director), Bank of Baroda Ltd, Union Bank of India Ltd and Bank of India Ltd, he also had current and fixed deposit accounts in these banks. His shareholdings were modest, entitling him to cash compensation in any event. Instead, Cooper's grievance was rooted in principle: he believed the ordinance, promulgated in haste and without parliamentary debate, had trampled upon the Constitution's sanctity since it violated his right to property under Articles 19 (1)(f) and 31 over the unfair compensation method. Cooper challenged the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance 8 of 1969. The ordinance transferred and vested the undertaking of 14 commercial banks that held over 80% of India's bank deposits and had deposits of not less than Rs 50 crore, in the corresponding new nationalised banks set up under the decree. Though pleas challenging the ordinance were lodged before the Supreme Court, before they were heard, Parliament enacted the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969, replacing the ordinance with modifications. The objective of the Act was to enable acquisition and transfer of the undertakings of certain banking companies so as to 'better serve the needs of development of the economy, in conformity with national policy' and connected matters. Filed under Article 32 (right to move to Supreme Court to enforce fundamental rights), Cooper, through Palkhivala, argued that the law impaired his rights guaranteed under Articles 14, 19 and 31 (right to property). In his February 20, 1970, article for Himmat, Cooper wrote, 'I thought that it (bank nationalisation) was done with unreasonable haste…a clear violation of the sanctity of the Constitution…I felt that not only political parties but individuals in the highest places had started regarding the Constitution as something which could easily be played with.' While accusations later surfaced that big business interests were backing Cooper's case, he steadfastly denied such claims. 'Insinuations were made to this effect before the Supreme Court during the hearings too. I would like to clarify that not only was there no interest in financing this petition, but every single person (lawyers, accountants and experts)…who assisted Mr Palkhivala and me in these proceedings, did …not charge any fees,…including a large amount of travelling expenses,' his article states, adding that 'none of the Chairmen or members of the old boards of Directors of the nationalised banks or eminent businessmen and industrialists came forward to join us in this fight for democracy'. Besides stating that the method of calculating compensation undervalued the banks' assets by ignoring their goodwill and key properties, the Supreme Court's February 10, 1970, verdict also held that forcing nationalised banks to cease both banking and non-banking activities was discriminatory and especially violative of equality before law under Article 14. Denying the government's submission that banks — and not the shareholders — were directly affected by the decision, the SC held that shareholders could independently move the top court if their fundamental rights were infringed upon. This approach would later become the bedrock of public interest litigation (PILs) in the country, empowering citizens to seek justice not just for themselves, but for broader public causes. The Supreme Court clarified that nationalisation of banks itself was not unconstitutional, while emphasising that actions made for public interest must ensure just compensation. The court also reaffirmed that Directive Principles of State Policy cannot override fundamental rights. Justice A N Ray, who became the Chief Justice of India (CJI) in April 1973, superseding three of his Bench colleagues, Justices J M Shelat, A N Grover and K S Hegde, however, took a dissenting view. Upholding the Act, Justice Ray said it was 'for development of the national economy with the aid of banks'. Then CJI Mohammad Hidayatullah had recused himself from hearing the matter as he had given assent to the impugned law in capacity as then acting President of India. Before 1970, constitutional law was still shaped by the judgment in the A K Gopalan v State of Madras (1950), where the Supreme Court had held that each fundamental right operated in isolation and that as long as a law adhered to one specific constitutional provision, its effects on other rights were irrelevant. However, R C Cooper v Union of India shattered this view. The Supreme Court held that the impact of state action on individual rights determined constitutionality. 'Impairment of the right of the individual and not the object of the State in taking the impugned action, is the measure of protection. To concentrate merely on power of the State and the object of the State action in exercising that power is therefore to ignore the true intent of the Constitution…,' stated the majority opinion, authored by Justice Shah on behalf of the nine other judges and him. In his article, Cooper opined that the SC judgment was important for shareholders of nationalised banks, as well those of any industries that may be nationalised in future. 'Parliament certainly has a right to legislate for nationalisation of certain aspects of economic activity…The second important principle which has emerged is that for assets which are taken over by the State there should be fair and reasonable compensation. And the third is that there should be no hostile discrimination against any particular concern or concerns in an industry,' he wrote. Four days after the judgment, on February 14, 1970, then President V V Giri issued a new ordinance that stipulated compensation to shareholders of the 14 nationalised banks. Cooper felt the new decree 'was an improvement over the previous one' and sought to 'undo illegalities' pointed out by the Constitution Bench. He added that the compensation offered to shareholders under the new ordinance was 'more realistic' and 'payable wholly in cash if so desired…in three years …, together with interest'. The judgment paved the way for the apex court's decision in the 1973 Kesavananda Bharati case, in which it laid down the 'basic structure' doctrine that put limits on Parliament's powers to amend the Constitution, along the verdict in the 1978 Maneka Gandhi vs Union of India. Cooper's case is remembered not merely for challenging bank nationalisation, but for establishing that constitutional rights must be protected against the real impact of state action, not just its stated aims. While the right to property ceased to be a fundamental right in 1978, it is protected under Article 300A, which provides protection to citizens against arbitrary deprivation of their property by the state. With the Swatantra Party dissolving in 1974 and Indira Gandhi imposing an Emergency in the country ini 1975, Cooper relocated to Singapore. where he set up a financial consultancy and also wrote two books, Job Sharing in Singapore (1986) and War on Waste (1991). He died at the age of 90 while on a visit to London in June 2013. Nearly 55 years after the judgment, Cooper's spirit — demanding fairness, reasonableness and accountability from the state — continues to guide judicial review.
The Print
15-05-2025
- Business
- The Print
Dear Shekhar Gupta, don't fear caste census. Let it prove private sector has no caste inequality
Gupta's approach can be loosely described as non-interventionist liberalism — a position characteristic of libertarianism. But we need not split ideological hairs here. Suffice it to say, Gupta has raised similar arguments for a free market in the past, and is a nostalgic supporter of the long-obsolete Swatantra Party. In that sense, Shekhar Gupta is courageous to have stuck to his guns. Gupta argues that caste enumeration will inevitably snowball into caste-based welfarism, eventually culminating in private sector reservations. According to his ideal schema for progress, none of this is optimal. An unintended consequence of the BJP's continuous hegemony is that it has flattened divisions between opposition intellectuals. Unlike two decades ago, very few commentators have directly opposed the recent announcement of caste enumeration alongside the census. Instead, they are reduced to clamouring about technicalities. The pro-BJP intelligentsia, meanwhile, toes the party line anyway. Yet in the case of caste enumeration, to borrow the words of Argentinian President Javier Milei — himself a libertarian — the argument is 'using a noble cause to protect caste interests.' Milei has persistently used 'caste' as a metaphor for a closed group of Argentine elites — unlike India, where caste is real. Still, the essence of Milei's 'anti-caste' campaign applies: caste domination and market liberty are fundamentally contradictory. In India, an unregulated capitalist economy does little more than reproduce feudal regulations. Also read: Caste census is a bad idea whose time has come. Much worse lies ahead Markets don't erase caste—they repackage it A study published just last month found little evidence that lower castes — Dalits and OBCs, Hindu and Muslim — have been freed from caste-based occupations. It identified the 'inter-generational predominance of Hindu general castes in Grade A and B service sector jobs, business, and trading' in Uttar Pradesh. Nominal freedom matters little to this huge population still under the 'despotism of custom', as John Stuart Mill would put it. 'Oh, Uttar Pradesh,' sighs the reader. Sadly, this is not confined to a single state. Fed up with Prime Minister Narendra Modi's tea-seller stories, Mallikarjun Kharge once reminded him during a campaign speech that even if his family had a tea stall, no one would have drunk from it. Kharge is from Karnataka. CPI(M) MP K Radhakrishnan has previously narrated how a Dalit started a soda manufacturing company in Kottayam, Kerala, and it was silently boycotted. Indeed, researcher and public policy professor Aseem Prakash's work, based on interviews with several Dalit entrepreneurs, shows that the relationship between caste and capitalism does not operate on abstract notions of merit and efficiency. It is deeply embedded in social relationships, not governed by the impersonal contracts typical of modern market ideals. Similarly, Barbara Harriss-White argues that caste networks play a crucial role in regulating business — networks that upper castes exploit most effectively. Meanwhile, the occupational ties of Dalits are reinforced by their concentration at the lowest rungs in stigmatised industries such as those leatherwork, cleaning, brick kilns, and the waste economy. The literature on this is not abundant, but it is conclusive. This reflects a pattern not of exclusion but of 'adverse or unfavourable inclusion,' as Aseem Prakash would call it — where Dalits participate in the market on unequal terms, shaped by enduring caste hierarchies. In Western liberal societies, non-aggression may be interchangeable with non-interference, since the state is often the most aggressive actor. But the social condition of Dalits offers a counterexample. For them, protection comes through intervention; non-intervention means everyday aggression from the rest of caste society. David Mosse, drawing on several ethnographies, argues that caste identity continues to shape modern urban job opportunities in often subtle and hard-to-detect ways. Individuals migrating from stagnating agricultural sectors are sorted into jobs by skill, insecurity, danger, toxicity, and status — gradients deeply informed by caste. This likely holds true for many OBCs, but current data leaves a vacuum by focusing solely on two poles of the labour-capital relationship, and does not include the majority of OBCs. Which rational capitalist cannot see that this is an inefficient use of human capital? Also read: Bihar census identified the privileged and under-privileged castes. Go national now Free markets need state intervention to break caste Market liberty can indeed be a positive force — in societies that have overcome feudal overgrowth. But in societies still governed by caste norms and customs, freeing the market from state regulation achieves the opposite of liberty. The idea of the free market holds that the state should intervene as little as possible — but emphasis must be placed as much on 'possible' as on 'little.' A just state would find it impossible not to intervene against caste norms. Intervention to establish individual rights and personal sovereignty is what actually enables freer market access. The liberal philosopher John Locke offers a justification for such acts: a legitimate government is allowed to redirect private property for public use. This is the doctrine of eminent domain. We already have a tried and tested instrument to counter caste-based oligopoly: reservations. They are not ideal, but they are the least-worst option — and they work. Reservations in private education and eventually in organised, white-collar private-sector jobs would be inconvenient in the short term and benefit only a small share of SCs, STs, and OBCs. Yet they provide a good way to integrate these backward groups into the capitalist economy. It would be cruel to ask them to wait for public-sector expansion or rely solely on intermittent appeals for greater inclusivity from the organised private sector. Without a constitutional mandate, such incorporation is unlikely. Seventy years have passed without much inclusivity; the problem won't resolve itself one fine morning. For the state to intervene — or for capitalists to correct course — we need data. Caste enumeration could lay the groundwork for study and gradual reform in the private sector, but only if it counts all castes, including the privileged ones, and collects economic data as well. Christopher Hitchens once quipped, 'A serious ruling class will not lie to itself in its own statistics.' It shouldn't suppress data either. Gupta assumes, even before the census is conducted, that the data will fuel demands for private sector reservation. We would be glad if the census proves otherwise — that India is already caste-equitised. Sociological data, in itself, hasn't plunged any country into crisis. Nor has caste data in the three Indian states that collected it. It is thus prudent to take a leap in good faith than to make a priori assumptions about the outcome. In fact, with or without a caste census, there is libertarian logic in implementing private sector reservations. Principled liberals should be calling for it — it is, after all, in the 'national interest' — incidentally, the title of Gupta's column in ThePrint. This article is in response to ThePrint Editor-in-Chief Shekhar Gupta's National Interest column published on 3 May 2025. Sumit Samos is an MSc graduate from Oxford University. He tweets @SumitSamos. Arjun Ramachandran is a PhD scholar at the University of Hyderabad. He tweets @___arjun______. Views are personal. (Edited by Prashant)
