Rustom Cavasjee Cooper v. Union of India
Rule established
Bank nationalisation is valid as public purpose but must provide adequate compensation; the 1969 Act struck down for inadequate compensation
Facts
- Parliament enacted the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969, nationalising 14 major commercial banks
- Rustom Cavasjee Cooper, a shareholder in Central Bank of India, challenged the Act as violating Articles 14, 19(1)(f), 19(1)(g), and 31(2)
- The Act provided compensation based on a formula that excluded goodwill and future profits, and barred access to courts on compensation quantum
Issues
- Whether nationalisation of banks violated fundamental rights under Articles 14, 19, and 31
- Whether compensation provided was adequate and justiciable
Held
- Inadequate compensation: The Act excluded goodwill and earning capacity from compensation calculation, making it illusory. Art.31(2) required compensation, not an amount the legislature arbitrarily chose.
- Hostile discrimination: S.22 of the impugned Act barred nationalised banks from carrying on non-banking business while permitting other banks to continue; this violated Art.14.
Ratio Decidendi
Nationalisation of banks serves a public purpose but must satisfy the constitutional mandate of adequate compensation under Art.31(2). Legislation providing illusory compensation or creating hostile discrimination between similarly situated entities violates Articles 31(2) and 14 respectively.
How to use it in an exam
Deploy for questions on: (a) constitutional validity of bank nationalisation, (b) fundamental rights and banking regulation, (c) history of public sector banking. Key line: "Nationalisation serves public purpose but compensation must be adequate, not illusory; hostile discrimination between banks violates Art.14."
Source
Source: SCC Online
This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.