Rustom Cavasjee Cooper v. Union of India

Judgment

ORIGINAL JURISDICTION : Writ Petitions Nos. 222, 300 and 298 of 1969. Writ Petitions under Art. 32 of the Constitution of India for enforcement of the fundamental rights. N. A. Pa/khivala, M. C. Chagla, A. I. Raja, N. N. Palkhiva/a, R. N. Bannerjee, S. Swarup, B. Datta, I. B. Dadachanji, O. C. Mathur, and Ravinder Narain, for the petitiooer (in W.P. Nos. 222 and 300 of 1969). R. V. S. Mani, for the petitioner (in W.P. No. 298 of 1969). Niren De, Attorney-Gener(Jl, Jagadish Swarup, So/icitor- Genera/, M. C. Seta/vad, C. K. Daphtary, R. H. Dhebar, R. N. S{lt:hthey and S. P. Nayar, for the respondent (in W.P. No. 222 of · 1969). Niren De, Attorney-General, lagadish Swarup, Solicitor- Generol, M. C. Seta/vad, C. K. Daphtary, N. S. Bindra, R. H. Dhebar, R. N. Sachthey, S. P. Nayar and N. H. Hingorani, for respondent (in W.P. No. 300 of 1969). Niren De, Altorney-General, Jagadish Swarup; Solicitor-General~ M. C. Seta/vad, C. K. Daphtar'y, V. A. Seyid Muhammad, R.H. Dhebar, R. N. Sachthey and S. P. Nayar, for the respondent (in W.P. No. 298 of 1969).

M. C. Setalvad, S. Moha11 Kumaramangalam, R. K. Garg, S. C. Agarn>al and V. J. Francis, for intervener No. 1. M. C. Setalvad, R. H. Dhebar and S. P. Nayar, for intervener No. 2. S. Mohan· Kumaramangalam and A. V. Rangam, for intervener No. 3. Lal Narain Sinha, Advocate-General, Bihar, R. K. Garg a.nd D. P. Singh, for interevener No. 4. V. K. Krishna Menon, M. R. K. Pillai and D. P. Singh, for intervener No. S. R. C, COOPER v. UNION (Shah, J.) P. Ram Reddy and P. Parameswara Rao, for intervener No. 6. M. C. Chag/a, San,tosh Chatterjee and G. S. Chatterjee, for intervener No. 7. The Judgment of J. c. SHAH, s. M. Snoo, J. M. SHELAT, V. BHARGAVA, G. K. MITTER, C. A. VAIDIALINGAM, K. S. HEGDE, A. N. GROVER, P. JAGANMOHAN REDDY AND I. D. DuA, JJ. was delivered by SHAH, J. A. N. RAY, J. gave a dissenting Opinion. Shah, J. 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 Centq1l Bank of India Ltd. By these petitions he claims a declaration that 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 Arts. 14, 19 and 31 of the Constitution, and are on that account invalid. In India there was till 1949 no comprehensive legislation governing banking business and banking institutions. The Central Legislature enacted the Banking Companies Act 10 of 1949 (later called "The Banking Regulation Act") to consolidate. and amend the Jaw relating to certain matters concerning banking. By s. 5 (b) of that Act, "banking" was defined as meaning "the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise"; and by s. 5 ( c) a "banking company" meant "any company which transacts the business of banking in India". By s. 6 it was enacted that in addition to the business of banking as defined in s.

5 (b) a banking company may engage in one or more of the forms of business specified in els. (a) to ( o) of sub-s. (1). By sul:>-s. (2) of s. 6 banking companies were prohibited from engaging "in any form of business other than those referred to in sub-section . ( 1) ". The Act applied to commercial banks, and enacted provisions, amongst others, relating to prohibition of employment of managing agents and restrictions on certain forms of employment; minimum paid-up capital and reserves; regulation of voting rights of shareholders and election of Board of Directors; prohibition of charge on unpaid capital; restriction on payment of dividend; maintenance of a percentage of assets; return of unclaimed deposits; and accounts and balance sheets. It also enacted provisions authorising the Reserve Bank to issue directions to and for trial of proi;eedings against the Banks and for speedy disposal of winct¥ig ,up proceedings of Banks.

The Banking Regulation Act was amended by Act 58 of 1968, to give effect to the policy of "social control" over commercial banks. Act 58 of 1968 provided for reconstitution of the Boards of Directors of commercial banks with a Chainnan who had practical experience of the working of a Bank or financial, economic and business administration, and with a membership not less than - 51 % consisting of persons having special knowledge or practical experience in accountancy, agriculture and rural economy, banking, cooperation, economics, finance, law and small-scale industry. The Act also provided that no loans shall be granted to any director of the Bank or to any concern in which he is interested as Managing Director, Manager, employee, or guarantor or partner or in which he holds substantial interest.

The Reserve Bank was invested with power to give directions to commercial banks and to appoint directors or observers in the interest of depositors or proper management of the Banking Companies, or in the interest of Banking policy (which expression was defined by s. 5 (ca) as "any policy which is specified from time to time by the Reserve Bank in the interest of the banking system or in the interest of monetary stability or sound economic growth, having due regard to the interests of the depositors, volume of deposits and other resources of the bank ·and the need for equitable allocation and the efficient use of these deposits and resources". The Reserve Bank was also invested with power to remove managerial and other personnel from office and to appoint additional directors, and to issue directions prohibiting certain activities in relation to Banking Companies.

The Central Government was given power to acquire the business of any Bank if it failed repeatedly to comply with any direction issued by the Reserve Bank under certain specific provision in regard to any - F matter copcerning the affairs of the Bank and if acquisition 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 of credit generally or of credit to any particular section of the community or in a particular area. During the last two decades the Reserve Bank reorganised the banking structure. A number of units which accounted for small section of the ban king business were amalgamated under directions of the Reserve Bank. The total number of commercial banking institutions was reduced from 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 21 1955 the undertaking of the former Imperial Bank of India was taken over by a public corporation controlled by the R. C. COOPER V. UNION (Shah, J.) Central Government. The State Bank took over seven subsi· diaries under authority conferred by Act 38 of 1959. There wer~ in June .1969 14 commercial banks operating in India each havmg. deposits exceeding Rs. 50 crores. The following is an analysis of the commercial banking structure in India in June 1969: State Bank of India Subsidiaries of State Bank No.of Banks No. of Offices 1,566 Deposits Credit (in crores) (in crores) oflndia 7 Indian scheduled commerc1aI banks (each with deposit exceeding Rs. 50 cores) Banks incorporated in 14 4,130 2,632 1,829 foreign countries Other Indian Scheduled Banks Non-scheduled commercial Banks *Only 13 were operating.

36 16 1,324 28 16 Late in the afternoon of July 19, 1969 (which was a Saturday) the Vice-President (acting as President) promulgated, in exercise of the power conferred by cl. ( 1) of Art. 123 of the Constitution, Ordinance 8 of 1969 transferring to and vesting the undertaking of 14 named commercial banks in corresponding new banks set up under the Ordinance. The long little of the Ordinance read as follows : "An Ordinance to provide for the acquisition and transfer of the undertakings of certain banking companies in order to serve better the needs of development of the economy in conformity with national policy and objectives and for matters cQllJ1ected therewith or incidental thereto." By s. 2 "banking company" was defined as not including .a foreign company within the meaning of s. 591 of the Compames Act, 1956. An "existing bank" was defined bys.

2(b) as meaning "a banking company specified in column 1 of the First Schedule, being a company the deposits 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 Regulation Act, 1949, were not less than rupees fifty crores". In the Schedule to the Act were included the names of fourteen commercial banks :

1The Central Bank of Iadia Ltd.

2The Bank of India Ltd.

3The Punjab National Bank Ltd.

4The Bank of Baroda Ltd.

5The United Commercial Bank Ltd.

6Canara Bank Ltd.

7United Bank of India Ltd.

8Dena Bank Ltd.

9Syndicate Bank Ltd.

10The Union Bank of India Ltd.

11Allahabad Bank Ltd.

12The Indian Bank Ltd.

13The Bank of Maharashtra Ltd.

14The Indian Overseas Bank Ltd. These banks are hereinafter referred to as the named banks. A "corresponding new bank" was defined in relation to an exist· ing bank as meaning "the body corporate specified against such bank in column 2 of the First Schedule". Bys. 2(g) it was provided that the words and expressions used in the Ordinance and not defined, but defined in the Banking Regulation Act, 1949, had the meaning respectively assigned to them in that Act. Thereby the definitions of "banking" and "banking company" in s. 5 (b) and s. 5 ( c) of the Banking Regulation Act were incorporated i11 the Ordinance. The principal provisions of the Ordinance were :- ( 1) Corporations styled in the ordinance "corresponding new banks" shall be established, each such corporation having paidup capital equal to the paid-up capital of the named bank in relation to which it is a corresponding new bank. The entire capital of the new bank shall stand vested in the Central Govern· l ment.

The corresponding new banks shall be authorised to carry on and tran~act the business of banking as defined in cl. (b) of s. 5 of the Banking Regulation Act, 1949, and also to engage in one or more forms of business specified in sub-s. ( 1) of s. 6 of that Act. The Chairman of. the named bank holding office immediately before the commencement of the Ordinance shall be the' Custodian of the corresponding new bank. The general superintendence and direction of the affairs and business of a corresponding bank shall be vested in the Custodian, who shall be the chief executive officer of that bank. R. C. COOPER v. UNION (Shah, J.) (2) The undertaking within or without fadia of ever; num~d bank on the commencement of the Ordinance shall stand transferred to and vested in the corresponding new bank.

The expression "undertaking" shall include all assets, rights, powers, authorities and privileges, and all property, movable and immovable, cash balances, reserve fund investments and all other rights and interests arising out of such property as are immediately before the commencement of the Ordinance in the ownership, possession, power or control of the named bank in relation to the undertaking, including all books of accounts, registers, records and all other documents of whatever nature relating thereto. It shall also include all borrowings, liabilities and obligations of whatever kind then subsisting of the named bank in reiation to the undertaking.

If according to the Jaw of any foreign country, the provisions of the Ordinance by themselves do not effectively transfer or vest any asset or liability situated in that country in the corresponding new bank, the affairs of the named bank in relation to such asset or liability shall stand entrusted to the chief executive officer of the corresponding new bank with authority to take steps to wind up the affairs of that bank.

All contracts, deeds, bonds, agreements, powers of attorney, grants of legal representation and other instruments of whatever nature subsisting or having effect immediately before the commencement of the Ordinance, and to which the named bank is a party or which are in favour of the named bank shall be of as full force and effect against or in favour of the corresponding new bank, and be enforced or acted upon as fully and effectively as if in the place of the named bank the corresponding new bank is a party thereto or as if they are issued in favour of the corresponding new bank. In pending suits or other proceedings by or against the named bank, the corresponding new bank shall be substituted in those suits or proceedings. Any reference to any named bank in any Jaw, other than the Ordinance, or in any contract or other instrument shall be construed as a reference to the corresponding new bank in relation to it. (3)

The Central Government shall have power to frame a scheme for carrying out the provisions of the Act. and for that purpose to make provisions for the corresponding new banks relating to capital structure. constitution of the Board of Directors, manner of payment of compensation to the shareholders, and matters incidental, consequential and supplemental. Corresponding new banks shall also be guided in the discharge of their functions by such directions in regard to matters of policy involving public interest as the Central Government may give. ( 4) On the commencement of the Ordinance, every person holding office as Chairman, Managing Director, or other Director of a named bank, shall be deemed to have vacated office, and all officers and other employees of a named bank shall become officers or other employees of the corresponding new banks. Every named bank shall stand dissolved on such date as the Central Government may by notification in that behalf appoint. ( 5)

The Central Government shall give compensation to the named banks determined according to the principles set out in Second Schedule, that is to say,- ( a) where the amount of compensation can be fixed by agreement, it shall be determined in accordance with such agreement; (b) where no such agreement can be reached, the Central Government shall refer the matter to the Tribunal within a period of three months from the date on which the Central Government and the existing bank fail to reach an agreement regarding the amount of compensation. Compensation so determined shall be paid to each named bank in marketable Central Government securities. For the purpose of determining compensation, Tribunals shall be set up by the Central Government with certain powers of a Civil Court. (6) The Central Government shall 'have power to make such orders not inconsistent with the provisions of the Ordinance which may be necessary for the purpose of removing defects.

Under the Ordinance the entire undertaking of every named commercial bank was tak.~n over by the corresponding new bank, and all assets and contractual rights and all obligations to which the named bank was subject stood transferred to the corresponding new bank. The Chairman and the Directors of the Banks vacated their respective officers. To the named banks survived oniy the right to rec:eive compensation to be determined in the manner prescribed. Compensation, unless settled by agreement, was to be determined by the Tribunal, and was to be given in marketable Government securities. The entire business of each named bank was accordingly taken over, its chief executive officer ceased to hold office and assumed the office of Custodian of the corresponding new bank, its directors vacated, office; and the services of the administrative and other staff stood transferred to the corresponding new bank.

The /llamed bank had thereafter no assets, no business, and no managerial, administrative or other staff, ii was incompetent (I) use the word "Bank" in its name, because of the provisions contained in s. 7 (1) of the Banking Regulation Act, 1949, and was liable to be dissolved by a notification of the Central Government. R. C, COOPER V. UNION (Shah, /,) Petitions challenging the competence of the President to promulgate the Ordinance were lodged in this Court on July 21, 1969. But ~fore the petitions could be heard by this Court, a.Bill to enact provisions relating to acquisition and transfer. of undertakings of the existing banks was introduced in the Parhament, and was enacted on August 9, 1969, as "The Banking Companies (Acquisition and Transfer of Undertakings) Act 22 of 1969". The Jong title of the Act was in terms identical with the long title, of the Ordinance. By sub-s. ( 1) of s. 27 of the Act, Ordinance 8 of 1969 was repealed.

In the First Schedule were included the names of the 14 banks named in the Ordinance in juxtapositien with the names of the corresponding new banks. By sub-s. (2) of s. 1, the Act came into force on July 19, 1969, and the undertaking of every named bank was deemed, with effect from that date, to have vested in the corresponding new bank. Bys. 27(2), (3) and (4) actions taken or things done under the Ordinance inconsistent with the provisions of the Act were not to be of any force or effect, and no right, privilege, obligation or liability was to be deemed to h;tve been acquired, accrued or incurred under the Ordin.ance. The general scheme of the Ordinance relating to the transfer to and vesting in the corresponding new bank of the undertaking of each named bank, payment of compensation, and management of the corresponding new bank, remained unaltered. The Act departed from the Ordinance in certain matters : (I)

Under the Act the named banks remain in existence for certain purposes and they are not liable to be dissolved by order of the Government. If under the laws in force in any foreign country it is not permissible for a banking company. owned or controlled by Government, to carry on the business of banking in that country, the assets, rights, powers, authorities and privi!eg.es and property, movable and immovable, cash balances and investments of any named bank operating in that country shall not vest in the corresponding new bank.

The directors of the named banks shall remain in office and may register transfers or transmission of shares; arrive at an agreement about the amount of compensation payable under the Act or appearing before the Tribunal for obtaining a determination as to the amount of compensation; distribute to shareholders the amount of compensation received by the Bank under the Act for the acquisition of its undertaking; carry on the business of banking in any country outside.India if under the law in force in that country any bank,. owned or controlled by Gov-· ernment, is prohibited from carrying on the business of banking there; and carry on any business other than the business of banking. The Central Government has power to authorise the corresponding new bank to advance the amount required by the named bank in connection with the functions which the directors may perform. Reference to any named bank in any Jaw, or in any (1970)

3 S.CJ!.. contract or other instrument shall be construed as a reference to 4 the corresponding new bank in relation to it, but not in cases where the hamed bank may carry on any business and in relation to that business. ( 2) Prip.ciples for determination of compensation and the manner of payment are modified. ll)terim compensation may be paid to a named bank if it agrees to distribute to its shareholders in accordance with their rights and interests. A major change is made in the principles for determining compensation set out in Sch. II. BY Explanation I to cl. ( e) of Part I of Sch.

II, the value of any land or buildings to be taken into account in valuing the assets is to be the market value of the land or buildings, but where such market value exceeds the "ascertained value", that "ascertained value" is to be taken into account, and by Explanation II the "ascertained value" of any building wholly occupied on the 8 date of the commencement of the Act is to be twelve times the amount of the annual rent or the rent for which the building may reasonably be expected to be let out from year to year, and reduced by one-sixth of the amount of the rent on account of maintenance and repairs, annual premium paid to insure the building against risk of damage or destruction, annual charge, if any, on the building, ground rent, interest on any mortgage or other capital charge on the building, interest on borrowed capital if the building has been acquired, constructed, repaired, reinewed or re-constructed with borrowed capital, and the sums paid on account of land revenue or E other taxes in respect of such building.

( 3) The Central Government may reconstitute any corresponding new bank into two or more corporations; amalgamate any corresponding new bank with another banking institution; transfer the whole or any pari of the undertaking of a corresponding new bank to any other banking institution: or transfer the · whole or any part of the undertaking of any other banking institution to a corresponding new bank. The Board of Directors of the corresponding new banks are to consist of representatives of the depositors of the corresponding new bank. employees of such banks, farmers. workers and artisans to be elected in the prescribed man- . ner and of other persons as the Central Government may appoint. ( 4)

The profits remaining after making provision for bad and doubtful debts. depreciation in assets, contributions to staff and superannuation funds and ail other matters for which provision is necessary under any law. th.~ corresponding new bank shall transfer the balance of profits to the Central Government. ( 5) Provision of law relating to winding up of corporations do not apply to the corresponding new banks, and a correspondini: new bank may be ordered to be liquidated only by the order of the Central Government. R. C. COOPER V, UNION (Shah,/,) The petitioner challenges tb.e validity of the Ordinance and the Act on the following principal grounds : (i) The Ordinance promulgated in. exercise of the power under Art. 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 1 Act, fundamentay rights of the petitioner guaranteed by the Constitution under Arts. 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 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 citizem was not within the competence of the Parliament. That sub-sections (1) & (2) of s. 11 and s. 26 are invalid.

The Attorney-General contended that the petitions are not maintainable, because no fundamental right of the petitioner i& directly impaired by the enactment of the Ordinance. and the Act, or by any action taken thereunder. He submitted that the petitioner who claims to be a shareholder, director and holder of deposit and current accounts with the Banks is not the owner of the property -0f tb.e undertaking ,taken over by the corresponding new banks and is on that account incompetent to maintain the petitions complaining that the rights guaranteed under Arts. 14, 19 and 31 of the constitution were impaired. A company registered under the Companies Act is a legal person, separate and distinct from its individual members. Property' of the Company is not the property of the shareholders. A shareholder has merely an interest in the Company arising un~er its Articles of Association, measured by a sum of money for the purpose of liability, and by a share in the profit.

Again a director . of a Company is merely its agent for the purpose of management. The holder of a deposit account in a Company is its creditor : he ·is not the owner of any specific fund lying with the Company. A SUPREME COUJ.T REPORTS (1970) 3 S.C.ll. :shareholder, a depositor or a director may not therefore be entitled to move a petition for infringement of the rights of the Company, unless by the action impugned by him, his rights are also infringed. By· a petition praying for a writ against infringement of fundamental rights, except in a case where the petition is for a writ of habeas corpus and probably for infringement of the guarantee under Arts. 17, 23 and 24, the petitioner may seek relief in respect of his own· rights· and notof others. The shareholder of a ·Company, it is ~rue, is not the owner of its assets; he has merely a right to participate in the profits of the Company subject to the contract contained in the Articles of Association.

But on that account the petitions will not fail. A measure executive or legislative may impair the rights of the Company alone, and not of its shareholders; it may impair the rights of the shareholders and not of the Company : it may impair the rights of the shareholders as well as of the Company. Jurisdiction of the Court to grant relief cannot be denied, when by State action the rights of the individual shareholder are impaired, if that action impairs the rights of the Company as well. The test in determining whether the sharebolder's right is impaired is not formal: it is essentially qualitative: if the State action impairs the right of the shareholders as well as to the Company, the Court will not, concentrating merely upon the technical operation 9f the action, deny itself jurisdiction· to grant relief. The petitioner claims that by .the Act and by the Ordinance the rights guaranteed to him under Arts. 14, 19 and 31 of the Constitution are impaired.

He says that the Act and the Ordinance are without legislative competence in that they interfere with the guarantee of freedom of trade and are not made in the public interest; that the Parliament had no le)!islative competence to enact the Act and the President had no power to promulgate · F the Ordinance, because the subject-matter of the Act and the Ordinance is (partially at least) within the State List; and that the Act and Ordinance are invalid because thev vest the undertaking of the named banks in the new corporations without a public purpose and without setting out principles and the basis for determination and payment of a just equivalent for the pro· perty expropriated.

He says that in conseciuence of the hostile discrimination practised by the State the value of his investment in the shares is substantially reduced, his right to receive dividend from his investment has ceased, and he has suffered great financial loss, he is deprived of the right as a shareholder to carry on business through the agencv of the Company, and that in respect of the deposits the obligations of the corresponding new banks not of his choice are substituted without his consent. (l) (1954] S. C. R. 674. R. c. COOPER v, UNION (Shah,/.) In Dwarkadas Shrlnivas v. The Sho/apur Spinning &: Weaving Co. Ltd, and Others(') this Court held that ·a p,refereince shareholder of a company is competent to maintain a suit challenging the validity of the "Sholapur Spinning and Weaving Company (Emergency Provisions) Ordinance" 2 of 1950 (which was later replaced by Act 27 of 1950), which deprived the Company of its property without payment of compensation within the meaning of Art. 31.

Mahajan, J., observed : "The plaintiff and the other preference shareholders are in imminent danger of sustaining direct injury as a result of the enforcement of · this Ordinance, the direct injury being the amount of the call that they are called upon to pay and the consequent forfeiture of their shares," Das, J., in the same case examined the matter in some detail and observed at p. 722 : "The impugned Ordinance, . . . directly affects the preference shareholders by imposing on them this liability, or the risk of it, and gives them a sufficient interest to challenge the validity of the Ordinance, . . . . Certainly he can show that the Ordinance ' under which these persons have been appointed was beyond the legislative competence of the authority which made it or that the Ordinance had not been duly promulgated.

If he can, with a view to destroy the locus standi of the persons who have made the call, raise the question of the invalidity of the Ordinance . . . , I can see no valid reason why, for the· self same purpose, he should not be permitted to challenge the validity of the Ordinance on the ground of its unconstitutionality for the breach of the fundamental rights of the .company or of other persons." A similar view was also taken in Chiranjit Lal Chowduri v. The Union of India(') by Mukherjea, J., at p. 899, by Faz! Ali, J., at p. 876, by Patanjali Sastri, J., at p. 889 and by Das, J., at p. 922. The judgment of this Court in The State Trading Corporation of India Ltd. & Others v. The Commercial Tax Officer, Visakhapatna111 & Ors. (2 ) has no bearing on this question. In that case in a petition under Art. 32 of the Constitution the State Trading Corporation challenged the infringement of its right to hold property and to carry on business under Art. 19 (l)(f) & (g) of (I) (19501 S. C. R. 869.

(2) (1964] 4 $.C.R. 99. the Constitution and this Court opined that the Corporation not being a citizen was incompetent to enforce the rights guaranteed by Art. 19. Nor has the judgment in Tata Engineering and Loco· motive Co. Ltd. v. State of Bihar and Ors.(') any bcaril)g on the question arisiag in these petitions. In a petition under Art. 32, of the Constitution filed by a Company challenging the levy of sales-tax by th.e State of Bihar, two shareholders were also im· pleaded as petitioners. It was urged on behalf of the shareholders that in subsiance the interests of the Company and of the shareholders were identical and the shareholders were entitled to maintain the petition. The Court rejected that contention, observing that what the Company could not achieve directly, it could not relying upon the. "doctrine of lifting the veil" achieve indirectly.

The petitioner seeks in this case to challenge the in· fringement of )1is own rights and not of the Banks of which he is a shareholder and a director and with which he has accounts-. current and fixed deposit. It was urged that in any event the guarantee of freedom _of trade does not occur in· Part III of the Constitution, and the peti· tioner is not 1111titled to mainrain a petition for breach of that guarantee in this Court. But the petitioner does not seek by these petitions to. enforce the guarantee of freedom of trade and commerce in Art 301: he claims that in enacti,ng the Act the Parliament has violated, a constitutional restriction imposed by Part XIII of its legislative power and in determining the extent to which his fundamental freedoms are impaired, the statute which the Parliament is incompetent to enact must be ignored. It is not necessary to consider whether Art. 31A (l)(d) of the Constitution bars the·petitioner's claim to enforce his rights as a director.

The Act prima facie does not (though the Ordinance purported to) seek to extinguish or modify the right of the peti· tioner as a director : it seeks to fake away expressly the right of the named Banks to carry on banking business, while reserving their right to c.arry on business other than banking. Assuming that he is not entitled to set up his right to enforce his guaranteed rights as a director, the petition will· not still fail. The prelimi- ·nary objection raised by the Attorney-General against the maintainability of the petitions must fail. "I. Validity of Ordinance 8 of 1969- Power to issue Ordinance is by1Art. 123 of the Constitution vested in t!Je President. Article 123 provides : " ( 1) If at any tiine, except when bot!J Houses of Parliament are in session, the President is satisfied that OJ [1964J 6 s.c.a. ass. R. C. COOPER v. UNION (Shah, J.) circumstances exist which render it necessary for him to take immediate action, he may promulgate such Ordinance as the circumstances appear to him tci requite.

(2) An Ordinance promulgated under this Article shall have the same force and effect as an Act of Parliament, but every such Ordinance- (a) shall be laid before both Houses of Parliament and shall cease to operate at the expiration of six weeks from the re-assembly of · Parliament, or, if before the expiration of that period resolutions disapproving it are passed by both Houses, upon the passing of the second of those resolutions; and (b) may be withdrawn at any time by the President. Exp/anation.-Where the Houses of Parliament are summoned to reassemble on different dates, the period of six weeks shall be reckoned from the later of those dates for the purposes of this clause. ( 3} If and so far as an Ordinance under this article makes any provision which Parliament would not under this Constitution be competent to enact, it shall be void."

Under the Constitution, the President being ~ constitutional head, normally acts in all matters including the promulgation of an Ordinance on the advice of his Council of Ministers. Whether in a given case the President may decline to be guided by the advice of his Council of Ministers is a matter which need not detain us. The Ordinance is promulgated in the name of the President ll!ld in a constitutional sense on his satisfaction: it is in truth promulgated on the advice of his Council of Ministers and on their satisfaction. The President is under the Constitution not the repository of the legislative power of the Union, but with a view to meet extraordinary situations demanding immediate enactment of laws, provision is made in the Constitution investing the President with power to legislate by promulgating Ordinances. Power to promulgate such Ordinance as the circumstances appear to the President to require is exercised-( a) when both Houses of Parliament are not .in session;

(b) the provision in· tended to be made is within the competence of the Parliament to enact; ·and ( c) the President is satisfied that circumstances exist which render it necessary for him to take immediate action. Exercise of ~he power is .strictly conditioned. The clause relating to SUPREME COUil T llBPOR TS [1970] 3 S.C.!l. the satisfaction is composite: the satisfaction relates to tho exist· ence of circumstances, as well as to tho necessity to take immediate action on account of those circumstances. Determination by the· President of the existence of circumstances and the necessity to take immediate action on which the satisfaction depends, is not declared final. The Attorney-General contended that the condition of satisfaction of the President in both the branches is purely subjective and the Union of India is under no obligation to disclose the exist· ence of, or to justify the circumstances of the necessity to take immediate action.

He relied upon the decisions of the Judicial Committee in Bhagat Singh v. The King Emperor('); King Emperor v. Benoari Lal Sarma('). and upon a &cision of the Federal Court in Lakhi Narayan Das v. The Province of Bihar(8 ), which interpreted the analogous provisions of the Government of India Act, 1935, conferring upon the Governor. General in the first two cases, and upon the Governor of a Province in the last case, power to issue Ordinances. He also relied upon the judgment of the Judicial Committee in Hubli Electricity Co. Ltd. v. Province of Bombay('). The Attorney-General said that investment of legislative power upon the President being an incident of the division of sovereign functions of the Union and a "matter of high policy", the expression "the President is satisfied that circumstances exist which ren&r ~ necessary for him to take immediate action" is incorporated as a guidance and not as a condition of the exercise of power.

He invited our attention to the restraints inherent in the Constitution on the exercise of the. power to promulgate Ordi· nance in els. ( 1 > & (2) of Art. 74; els. (3) & ( 4) of Art. 75 and Art. 361, and submitted that the rule applicable to the interpre· tation of parliamentary statutes conferring authority u~n officers of the State to act in a prescribed manner on being satisfied about the existence of certain circumstances is inept in determining the true perspective of the power of the head of the State in situations of emergency. 1 On the other hand, Mr. Palkhivala contended that the Presi· dent is not made by Art. 123 the final arbiter of .the existence of the conditions on which the power to promulgate an Ordinance may be exercised.

Power to promulgate an Ordinance being conditional, counsel urged, this Court in the absence of a provi· sion-express or necessarily implicit in the Constitution-to the contrary, is competent to determine whether the power was exer· cised not for a collateral purpose, but on relevant circumstances (1) L. R. 58 I. A. 169. (2) L. R. 72 !. A. 57. (3) [1949) F. C. R. 693. (4) L. R. 76 I. A. S7. ff R, C, COOPER v, UNION (Shah, /,) which, prima facie, establish the necessity to take immediate action. Counsel submitted that the rules applicable fo the inter· pretation of statutes conferring power exercisable on satisfaction of the specified circumstances upon the President and upon ofli· cers of the State, are not different.

The nature of the power to perform an official act where the authority is of a certain opinion, or that in his view certain circumstances exist or that he has reasonable grounds to believe, or that he has reasons to believe, or that he is satisfied, springing from a constitutional provision is in no manner different from a similar power under a parliamentary statute, and no greater sanctity n\ay attach to the exercise of the power merely because the source of the power is in the Constitution and not in a parliamentary statute. There is, it was urged, nothing in the constitutional scheme which supports the contention that the clause relating to satisfaction is not a condition of the exercise of the power. Counsel relied upon the judgments of this Court in Barium Chemical Ltd. and Another v. The Company Law Board and Ors.(1) and Rohtas Industries Ltd. v. S. D. Agarwal and Anr;(2) upon the decisions of the House of Lords in Padfield & Others v. Minister of Agriculture, Fisheries and Food and Others('); and of the Judicial Committee in Dura,vappah Fernando and Others(');

Nakkuda Ali v. M. F. De S. Jayaratne('); Ross- Clunis v. Papadopoul/os('), and contended that the decisions of the Judicial Committee in Bhagat Singh's case(') and Benoari Lal Sarma' s case (') interpreted a provision which was in sub· stance different from the provision of Art. 123, that the decision in Lakhi Narayan Das's case(9 ) merely followed the two judg· ments of the Judicial Committee and since the status of the President under the Constitution qua the Parliament is not the same as the constitutional status of the Governor-General under the Gov· ernnv.mt of India Act, 1935, the decisions cited have no bearing on the interpretation of Art. 123. The Ordinance has been repealed by Act 22 of 1969, and the question of its validity is now academic. It may assume sig· nificance only if we hold that Act 22 of 1969 is valid.

Since the Act is, in our view, .invalid for reasons hereinafter stated, we accede to the submission of the Attorney.General that we need express no opinion in this case on the extent of the jurisdiction of the Court to examine whether the condition relating to satisfaction of the ;i"resident was fulfilled. 1. [1966] Supp. s.c.R. 311. 3. [1968J 1 All E. R. 694. 5. L.R. (1951] A.C. 66. 7. L.R. 58 I.A. t69. 9. (1949] F.C.R. 693, 2. (1969] 3 S.C.R. 108. 4. L.R. (1967] A.C. 337. 6. (1958] 2 All E.R. 23. 8, L.R. 72 I.A. 57. L8SupCij70-6