The case this week is from India and is interestingly connected in more ways than one to the one we discussed last week from the US. It's the bank nationalisation case - RC Cooper v. Union of India. This year marks the 50th anniv of this tragedy 2.1/n https://twitter.com/SandeepParekh/status/1171362281545879552?s=20

Morarji Desai who stridently opposed nationalisation of banks was removed as FM in July of 1969 by PM Indira Gandhi. Within 3 days of his removal, and drafted by sycophants and loyalists, the nationalisation was promulgated as an ordinance in just a few hours. 2.2/n

It nationalised the 14 largest banks with deposits of over 50 crore rupees. If people agreed to the compensation, they would be paid by way of bonds, anyone challenging it would need to wait for ten years for payment to be made. 2.3/n

None of the banks challenged the ordinance. It was RC Cooper, (a free market supporter, member of the Swatantra Party, later to become a Singaporean national) and shareholder-director of Central Bank who challenged the ordinance. 2.4/n https://www.orfonline.org/expert-speak/the-singaporean-who-took-indira-gandhi-to-court-53298/

Overnight, Cooper like all other investors in the banks were converted from shareholders into deposit holders in their respective banks. The jurist Nani Palkhivala, challenged the Ordinance and the Act which followed. 2.5/n

The key aspect of the case was the compensation the government had calculated. They excluded vast chunks of business, goodwill etc. and undervalued even things like land. The various arguments of RCC were: 2.6/n

The Supreme Court held in favour of the shareholder and thus indirectly the shareholders of the bank, that the Act violated the principle of compensation guaranteed by the Constitution under Article 31(2). 2.7/n

The court also found that the Act was an act of hostile discrimination preventing the right to conduct business under Article 19, while other private and foreign banks could do business as usual. See: 2.8/n

First, it is a clear that the constitution guarantees fundamental rights only to citizens of the country. This excludes juristic persons like companies. The govt argued that the plea was not to protect the rights of the shareholder, but to protect the rights of the bank. 2.9/n

The bank as a corporate entity could not assert any violation of fundamental rights. The court however held that it will look at the 'effects' test and if the action of the government could in effect harm a citizen or abridge his/her fundamental rights 2.10/n

On the power to acquire property by the govt, it was found within its powers. The court also found that the state had the right to create a monopoly. But the court found the acquisition to be in violation of Art 31 which required just compensation of the property acquired. 2.11/n

It also found the acquisition of only 14 banks to be a violation of the equality article of the constitution. The court did not explore the important challenge of the Act on the basis of the right to conduct trade and commerce. 2.12/n

The battle was won, the war was lost. The govt pushed and brought a new amended Act in 1970 and paid an additional 58 crore rs. and the same was never challenged. More damagingly the Parliament passed the 25th amendment to the Constitution of India. 2.13/n

This tragic amendment curtailed compensation and curtailed courts from reviewing the quantum. The amendment also exempted any law giving effect to Article 39 of the Constitution 2.14/n

dealing with the directive principles of state policy from judicial review even if it violated fund rights (this latter part was later struck down in the Kesavananda Bharti Case). 2.15/n

The directive principle is vague and talks of "the ownership and control of the material resources of the community are so distributed as best to subserve the common good" and 2.16/n

that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment". 2.17/n

In short the 25th amendment to the constitution took away just compensation for forcible acquisition by the government and also tried to protect the vague objectives of 'directive principles' from a test of fundamental rights of equality and right to conduct business. 2.18/n

The first has not been successfully challenged and the govt continues to have the power to take citizens assets without just compensation. 2.19/n

The tragic acquisition resulted in the first step of a series of calculated mis-steps, populism and authoritarianism. The bank acquisition in 1969 and 1970 was followed by the 24th amend. compromising the might of fundamental rights of citizens 2.20/n

and then the 25th amendment emboldening expropriation for peanuts in 1971 to avoid challenges like the Cooper case 2.21/n

This was followed by Indira Gandhi’s proclamation of emergency in June 1975 (Cooper left India for Singapore permanently) and the passing of the 42nd amendment, creating a new anti-constitution of India, that would make Kim Jong Un and his lineal ascendants proud. 2.22/n

The not-last nail in the head of a dynamic India was the deletion of the right to property from a fundamental right to merely a right under the constitution, by the 44th amendment. 2.23/n

What followed, predictably was over two decades of rot, authoritarian politics, slothful bureaucracy, corruption, poverty framed in a cuckoo land of license raj. 2.24/n

I say predictable because with one shot, nationalisation paralysed 3 of the four factors of production. Land/property (expropriated or curtailed), capital (expropriated and seized) and entrepreneurship (extinguished and license raj made rajaas). 2.25/n

The fourth factor was already in steady decline by this time. Labour productivty. 2.26/n

Here is a link to the full case for those interested. END 2.27/n
https://indiankanoon.org/doc/513801/