TMI Blog1961 (8) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in the appeal is as regards the constitutional validity of s. 34A of the Banking Companies Act, 1949 which was enacted on August 26, 1960 as an amendment to the parent Act (Act X of 1949). The appellant before this Court is the All India Bank Employees' Association which is a trade union organization of Bank Employees of several banks operating in India The Punjab National Bank Employees' Union, which is a trade union with similar objects has been committed to intervene in this appeal in support of the appellant union The three other Writ Petitions are by other Bank Employees' Unions whose description would be apparent from the cause title and all these cases have been heard together because in the writ petitions also the point raised is identical, viz., the validity of s.34A of the Banking Companies Act, which will be referred to hereafter as the impugned provision. Section 34A whose validity is the matter in dispute in these proceedings runs in the following terms 34A. (1)Notwithstanding anything contained in section 11 of the Industrial Disputes Act, 1947. or any other law for the time being in force, no banking company shall in any I proceeding under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, as well as, the secret reserves created and held under various items a practice which received judicial recognition by Buckley, L., J. in .Newton v. Birmingham Small Arms Co.. Ltd. (1) This practice was followed by several banks in India and questions arose from time to time as to how far the practice was consistent with the statutory provisions as to disclosure contained in the several Companies Acts enacted from time to time.; We shall, however, add that the desirability and; even the legality of this practice has not gone without challenge, though there has been a considerable body of opinion which has held this to be salutary and necessary for the preservation and progress of a credit institution like a bank. We are not now concerned with the desirability or ethics of the practice which is a matter for the consideration of the legislature but as to the steps by which accord was established between the practice and the law. The Indian Companies Act of 1866 drew no distinction between the contents of balance sheet,of banking companies as distinguished from those of other companies and both were required to disclose a list of debts owing to the concern which were conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication for revision was filed before the High Court of Bombay and Fawcett, J. allowed it holding that a declared provision. of the form cannot be allowed to be whittled down by general considerations as to the object of a balance-sheet. This judgment was rendered on February 28, 1927 (vide Shamdasani v. Pochkanwala (A.I.R. 1927 Bom. 414 : 29 Bom. L.R. 722.) and very soon thereafter the Government of India intervened by a notification dated March 29, 1927 under s. 151 of the companies Act 1913 amending form 'F' and as amended banks were excluded from the requirement of disclosing the reserve for bad and doubtful debts under the heading, `capital and Liabilities' in the left hand side of the balance-sheet, and in the right-hand column book debts which were bad and doubtful for which provision had been made to the satisfaction of the auditors ,, were not required to be shown as part of the property and assets of a Bank. The provisions of the Companies Act of 1913 underwent numerous changes by the amending Act of 1936 which included inter alia one whereby the change effected by the Notification, dated March 29, 1927, in Form `F' were omitted and Form `F'was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reehold and leasehold property or plant and machinery by creating excessive provisions for bad debts or other contingencies by charging capital expenditure to revenue ; or by undervaluing stock in trade. Normally the object of creating an undisclosed reserve is to enable a company to avoid violent fluctuations in its published profits or its dividends. The Committee made number of recommendations several of which were adopted in' the U. K. Companies Act of 1948, and those relevant' to the point under discussion served to bring the law as to the contents of a balance-sheet of a Banking Company unto. line with the practice of sound and well managed banks. In India, special legislation in relation to Banking Companies embodying several of these recommendations was enacted in the shape of the Banking Companies Act 1949 (Act of 1949). Section 29 of the Act laid down the law in regard to requirements of the contents of the balance-sheets of banks. The balance-sheet and Profit Loss account were to be in the form set out in the 3rd schedule to that and sub-s. (3) of that section exempted Banking Companies from the, requirements of conforming to the form of balance-sheet and P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of three members with Shri Jeejeebhoy as president. The claim of the workers in the appeal before the Appellate Tribunal in great part related to a demand for increased wages and salaries and the main defence of the banks was that they had not the capacity to pay anything beyond what the Sastry Tribunal had granted. The Jeejeebhoy Tribunal set out their difficulties in assessing the plea of incapacity raised by the banks in the context of the provisions of the Banking Companies Act and the form of balance-sheet prescribed thereunder in the following terms : At the very outset there is an initial difficulty in arriving at a correct estimate of the financial position of banks. There are two circumstances which militate against our securing a proper insight into the financial state of banks. We refer in particular to (a) the undisclosed or secret reserves and (b) to the manner in which it is permissible in law for a banking company to exhibit its balance sheet. It is not in dispute that bank do have undisclosed or secret reserves which they acquire in a number of ways, and such undisclosed reserves cannot be ascertained from the balance sheet................................ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the correctness or otherwise of this claim by the workmen. The diputes between the employees of banks and the managements, however, continued with the result that on March 21, 1960 the Central Government in exercise of the powers conferred on it by sub-s. (1A) of s. 10 of the Industrial Disputes Act referred the dispute which related to several matters to the National Tribunal constituted by Notification of Government of the same date, K. T. Desai, J. was the Tribunal so appointed. Most of the major banks in the country were made parties to the reference including the Reserve Bank and State Bank of India. After the Tribunal started functioning and after the parties formulated their respective contentions, applications were filed by the Bank Employees Association on June 9, 1960, for directing the respondent-banks to produce before the Tribunal for the purposes of adjudication several documents listed in the applications. Among the items in respect of which production was thus sought were (1) statements showing the secret reserves in any form of each bank from 1954 right upto December 31, 1959 ; and (2) statements showing the provision made for bad and doubtful debts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onditions of work having financial implications. Parliament had, by the impugned legislation, extended the protection from compulsory disclosure to the workmen as well, but with a safeguard in their cue that the Reserve Bank would determine the amount of reserves etc. which could be taken into account in the course of industrial adjudication. The question before us is, is this attempt at some approximation of the position of the workmen to that of shareholders etc. unconstitutional ? Mr. Chari, learned Counsel for the appellant in Civil Appeal No. 154 addressed to us the main arguments in the case and these were supplemented by learned Counsel appearing for the petitioners in the several writ petitions and also by learned Counsel on behalf of the Interveners both in the appeal as well as in the petitions. Though the arguments before us ranged over a very wide field, the attack on the validity of the legislation was rested on two main grounds : (1) that the impugned legislation contravened the fundamental right guaranteed to trade unions by the provision contained in sub-cl. (c) of el. (1) of Art. 19; and (2) that it violated the freedom of equality guaranteed by Art. 14 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by workmen for trade union purposes ; the word union, being specially chosen to designate labour or Trade unions. (2)The right to form an union in the sense of forming a body carries with it as a concomitant right a guarantee that such unions shall achieve the object for which they were formed. If this concomitant right were not conceded, the right guaranteed to form an union would be an idle right, an empty shadow lacking all substance. (3)The object for which labour unions axe brought into being and exist is to ensure collective bargaining by labour with the. employers. The necessity for this has arisen from an incapacity stemming from the handicap of poverty and consequent lack of bargaining power in workmen as compared with employers which is the reason d'etre for the existence of labour organizations. Collective bargaining in order to be effective must be enforceable labour withdrawing its co-operation from the employer and there is consequently a fundamental right to strike a right which is thus a natural deduction from the right to form unions guaranteed by sub-cl. (c) of cl.(1) of Art. 19. As strikes, however, produce economic dislocation of varying intensi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being rendered ex parte, the trade unions being deprived even of the knowledge of facts which lead to the decision. It was on this line of reasoning that learned Counsel submitted that the impugned enactment violated the freedom guaranteed by sub-cl. (c) of el. (1) of Art. 19. We shall now proceed to consider the soundness and tenability of the steps in the reasoning. It is not necessary to discuss in any detail the first step as sub-cl (c) of el. (1) of Art. 19 does guarantee to all citizens the right ',to from associations . It matters little whether or not learned Counsel is right in his submission that the expression union' in the clause has reference particularly to Trade Unions or whether the term is used in a generic sense to designate any association formed for any legitimate purpose and merely as a variant of the expression Association for comprehending every body of persons so formed. It is not controverted that workmen have a right to form associations or unions and that any legal impediment in the way of the formation of such unions imposed directly or indirectly which does not satisfy the tests laid down in cl. (4) would be unconstitutional as contraven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... citizen to whom a right to carry on a trade or business or pursue an occupation is guaranteed by sub-cl. (g) of cl. (1) of Art. 19, the validity of a law which imposes any restriction on this guaranteed right would have to be tested by the, criteria laid down by cl. (6) of Art. 19. if however he associated with another and carried on the same activity-say as a partnership, or as a company etc., he obtains larger rights of a different content and with different characteristics which include the right to have the validity of legislation restricting his activities tested by different standards, viz., those laid down in el. (4) of Art. 19. This would itself be sufficient to demonstrate that the construction which the learned Counsel for the appellant contends is incorrect, but this position is rendered clearer by the fact that Art. 19-as contrasted with certain other Articles like Arts. 26, 29 and 30-grants rights to the citizen as such, and associations can lay claim to the fundamental rights guaranteed by that Article solely on the basis of their being an aggregation of citizens, i.e., in right of the citizens composing the body. As the stream can rise no higher than the source, asso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kers intended them and not in any pedantic or narrow sense, but this however does not imply that the Court is at liberty to give an unnatural and artificial meaning to the expressions used based on ideological considerations. Besides it may be pointed out that both under the Trade Unions act as well as under the Industrial Disputes Act the expressions `union signifies not merely a union of workers but includes also unions of employers. If the fulfilment of every object for which an union of workmen was formed were held to be a guaranteed right, it would logically follow that a similar content ought to be given to the same freedom when applied to an union of employers which would result in an absurdity. We are pointing this out not as any conclusive answer, but to indicate that the theory of learned Counsel that a right to, form unions guaranteed by sub-cl. (c) of ol.(1) of Art. 19 carries with it a fundamental right in the union so formed to achieve every object for which it was formed with the legal consequence that any legislation not falling within el. (4) of Art. 19 which might in any way hamper the fulfilment of those objects, should be declared unconstitutional and void under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te industrial legislation, And the validity of such legislation would have to be tested not with reference to the criteria laid down in cl.(4) of Art. 19 but by totally different considerations. We shall now proceed to consider the authorities, relied ion by the learned Counsel in support of this theory of Concomitant right to collective bargaining guaranteed to labour unions. first as regards the decisions of this Court on which learned Counsel relied Romesh Thappar v. The State of Madras(1)Was the earliest case referred to; and learned counsel placed reliance in particular on the following passage in the judgment of the learned Chief Justice : Turning now to the' merits, there can be no doubt that freedom of speech and expression includes freedom of propagation of ideas, and that freedom is ensured by the freedom of circulation. 'Liberty of circulation is as essential to that freedom as the liberty of publication. Indeed, without circulation the publication would be of little value : Ex parte Jackson, 96 U.S. 727 . Based on this, learned Counsel submitted that if the phrase freedom of speech and expression' in sub-cl. (a) of el. (1) of Art. 19 were given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, mean the right to establish real institutions which would effectively serve the needs of their community and the scholars who resort to their educational institutions. There is, no doubt, no such thing as fundamental right to recognition by the State but to deny recognition to' the educational institutions except upon terms tantamount to the surrender of their constitutional right of administration of the educational institutions of their choice is in truth and in effect to deprive them of their rights under Art. 30 (1).19 We do not consider that these observations and this construction of el. (1) of Art. 30 assist learned Counsel in his submission as regards the theory of concomitant rights flowing from the freedom guaranteed by sub-cl. (c) of cl. (1) of Art. 19. The observations of the learned Chief Justice and the conclusions drawn are in relation to the construction of Art. 30 and cannot be divorced from' the context. They do not purport to lay down any general rule of construction for the freedoms guaranteed under the several sub-heads of cl. (1) of Art. 19, and, indeed, what we have pointed out earlier should suffice to indicate the impossibility of uphold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Steel Corporation and ors., (81 Law. Ed. 893,909.) and Amalgamated Utility Workers v.. Consolidated Edison Company of New York) (84 Law. Ed. 738, 741.). We do not consider the inference sought to be drawn well-founded. What the learned Judges of the Supreme Court were referring to as a fundamental right was not with reference to a fundamental right as recognized or guaranteed by the Constitution, but in the sense of a right of the unions which enacted law. recognized or respected, and as other decisions of the United states' Supreme Court show, was subject to regulation by the legislature(3). We have, therefore, reached the conclusion that the right guaranteed. by sub-cl.(c) of cl.(1) of Art. 19 does not carry with it a concomitant right Vide Weaver Constitutional Law and its Administration (1946) p. 505, referring to Dorchy v., Kansas 272 U. S. 306 : 71 L. Ed. 2A8 Neither he common law nor the 14th Amendment confers the absolute right to strike. that the unions formed for protecting the interests of labour shall achieve the purpose for which they were brought into existence, such that any interference, to such achievement bythe law of the land would be unconstitutional unles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... structure of the country. From what we have 'stated earlier as the genesis of the legislation now impugned, it would be apparent that Government had to effect a reconciliation between two conflicting interests : one was the need to preserve and maintain the delicate fabric of the credit structure of the country by strengthening the real as well as the apparent credit worthiness of banks operating in the country. It was really this principle which is vital to the economic life of the community that has been responsible for the changes that have been made from 1927 onwards as regards the form of balancesheet and of the Profit Loss accounts of banking companies as distinguished from other trading and industrial organizations. There was urgent need to protect from disclosure certain of the items of appropriation by banks in order to preserve them as credit institutions. On the other hand, there was the need-an equally urgent need for enabling the workers in these institutions not to be denied a proper wage and other emoluments and proper conditions of service. the question was how far information which in the interests of national economy the banks were entitled to withhold from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Disputes Act and r. 30 of the Industrial Disputes Rules had made ample provision for securing secrecy to the affairs of every concern in regard to which disclosure would not be in public interest. We are satisfied that this submission has no basis in fact and besides even if made out does not affect the validity of the legislation. As we have pointed out already, the impugned legislation merely carries out to its logical conclusion the effect of the changes in the form of the balance-sheet and Profit and Loss accounts of Banks which starting in 1927 culminated in the notification dated December 22, 1951 under s. 29 (4) of the Banking Companies Act amending the Forms appended to that Act. If the construction of the right to form unions under sub-cl. (c) of cl.(1) of Art. 19 put forward by learned Counsel for impugning the validity of the enactment is negatived, then subject to the point about Art. 14 which we shall examine presently, legislative competence being conceded there could be no legal objection to its validity. Objections based on colourable legislation have relevance only in situations when the power of the legislature is restricted to particular topics, and an attempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also submitted that sub-cl. (b) of sub-s. (1) was vague, in that a reference was made to provision made for bad and doubtful debts and other usual or necessary provisions . We do not see any substance in this point either, because these words are taken from the form under the Banking Companies Act and their meaning is clear in banking circles. In fact, in the application which the employee associations made before the adjudicator to direct the production of information and documents from the banks this phrase was used and it is apparent that even the Bank Employees' Associations understood it as having a definite connotation. It was next submitted on behalf of some of the interveners that s. 34A(1) and (2) violated Art. 14 in that the classification contained in it was impermissible as not being based on rational grounds. It was said (1) that the protection against a disclosure applied only to adjudications under the industrial Disputes Act and not to other adjudications ; (2) that it applied only to certain banking companies and not to all banking companies; and (3) that by reason of s. 34A (2) the provisions of the impugned enactment were applied in a discriminatory man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India from the operation of s. 34A (2) has also no substance. in the very nature of things and on the scheme of the provision the Reserve Bank could not but be excluded from sub-s. (3) of the impugned provision. In determining what reserves could properly be taken into account, the Reserve Bank would be discharging not any quasi judicial but only an administrative function, determining this matter with reference to uniform business principles and it therefore appears to us that. there is no impropriety in its findings being final even in regard to itself. A submission on similar lines about bias was also made in relation to the impact of the impugned provision insofar as it related to the industrial dispute between the State Bank of India and its employees. It was pointed out to us that the Reserve Bank of India owned practically the entirety of the share capital of the State Bank of India, with the result that the Reserve Bank was pecuniarily and vitally interested in supporting the State Bank as against the latter's employees in any industrial dispute and that the element of bias which the situation involved would invalidate the impugned provision. We consider this argume ..... X X X X Extracts X X X X X X X X Extracts X X X X
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