In Rustom Cavasjee Cooper v. Union of India, the petitioner, Rustom Cavasjee Cooper, challenged the constitutionality of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969. This Act nationalized several major banks in India. Cooper, a shareholder in one of the banks affected, argued that the Act violated fundamental rights guaranteed by the Indian Constitution, specifically the right to property under Article 19(1)(f) and Article 31.

• 1. Whether the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969, which aimed to nationalize banks, violated the right to property under Article 19(1)(f) and Article 31 of the Indian Constitution.
• 2. Whether the Act constituted an infringement of the fundamental rights of individuals and companies by mandating the acquisition of private banks by the government without compensation.

The Supreme Court, in a detailed judgment, observed that the Act indeed interfered with the property rights of individuals and entities. The Court acknowledged that while the state has the power to regulate and even nationalize industries, such actions must conform to constitutional guarantees. Specifically, the Act was scrutinized in light of whether it constituted a reasonable restriction under Article 19(5) and whether it provided for adequate compensation as required under Article 31(2).

• • A majority ruling invalidated the Banking Companies (Acquisition and Transfer of Undertakings) Act. The court established the “Effect” Test and invalidated the “Object” Test, according to which any legislative act’s impact will be considered before its goal.
• • Regarding whether or not the ordinance’s promulgation was appropriate, the Court ruled that since the Parliament had previously approved the ordinance for it to become law, the Supreme Court’s intervention was neither required nor appropriate.
• • According to the Court, the Act violates Articles 14 and 31. article 14 of the Indian Constitution deals with equality; in this case, the government only forbids the 14 banks from conducting banking operations; Article 31 deals with compensation; in this case, fair and reasonable compensation was not going to be given. Thus, the Act was overturned.
• • Regarding Article 19 (1) (f), the Court determined that the Act complies with the provision because the State is authorized to hold an absolute monopoly.