Inconvenient Judgments – 2

Why do our politicians overturn so many of our Supreme Court's verdicts – out of public interest or self-interest?

WrittenBy:Anand Ranganathan
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Take an empty wine bottle. Fill it with water. Drop a stem of money plant in it. Now place the bottle on your window ledge.

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Step 5 of Socialism is a little more complicated. One has to go around dusty villages and small towns asking for votes. But, as with most things in life, practice makes perfect, and once the month-long tour is over and the votes counted, the victor is back home, to his wife and kids and his money plant that hasn’t grown one extra leaf – it seldom does.

There you have it. The beauty of Socialism. So what if it’s in a bottle – the money plant is very much alive, with its green leaves and nascent roots and all the little wiggling bugs feeding off those tangles. No, the con lies elsewhere. It lies in the eyes of those who think the money plant should be in its preferred state, it lies in the writings of the many who solicit others to witness this evergreen miracle, and it lies in the voices of those who hold aloft the bottled plant, hold it for show and proclaim it to be the perennial source of wealth.

No other ideology allows honourable thieves to come charging in and rip away society from Socialism, idea from ideology, discarding afterwards the half-eaten words like soggy pips. Phoo-thoo!

We are free to plunder, for we plunder for you. “Look! Can’t you see? It’s all here, green and inexhaustible. A plant of money, a minting press! There’s nothing to worry about, our future’s never looked brighter. Meanwhile, we’ll pluck a few leaves, if you don’t mind. We’ll get some loans sanctioned, and when they turn bad we’ll waive them off. We’ll build hospitals we dare not visit, we’ll build schools we dare not send our kids to, we’ll subsidise our bungalows and their electricity, our phones and their bills, our lal-battis and their petrol, our bureaucrats and their field trips. We’ll subsidise our stay in hotels, our train travel, our air travel, our time travel, our wheat, our rice, our bajra…yes, we’ll milk this nation dry for a better tomorrow. Of course, by ‘we’ I mean you, dear citizens. I am he as you are he as you are me and we are all together, remember? But here’s the thing: before we can rationalise the ration, we’ll have to nationalise the nation! Now, are you with me? Are you?!”

The only thing worse than the health of our nation, currently, is the health of our banks. The profits of India’s largest public sector bank, SBI, have plunged, so have the share prices of most public sector banks, leaving the BSE Bankex index gasping at a 19-month low. Fund managers are switching from public to private sector banks. NPAs, or non-performing assets of public sector banks rose a whopping 40% to Rs 200,000 crore in the June quarter. Include in this the NPAs of nationalised banks and the figure climbs to Rs 3,50,000 crore.

It gets worse. The UPA, in order to finance its pet schemes, has had to squeeze tight its budgetary allocations to the many ministries that had promised money to those vendors who had taken bank loans. Their pockets are now empty. This, fear the analysts, could lead to a chain reaction with devastating consequences for the whole of the banking sector. Our banks are now little more than instruments for financing national debt. The Statutory Liquidity Ratio, or SLR, compels every bank to bequeath 23% of its capital to the government so it may fritter it away on grandiose schemes. As if on cue, Moody’s has promptly downgraded the ratings of some of our most prominent banks.

But the worries, like the scams, seem to come in multiples. The loss to the government on account of bank fraud for the year 2012 stands at Rs 6,500 crore, an increase of 40% over the previous financial year. And although the nationalised banks report for only 18% of fraud cases, they account for as much as 83% of the total cumulative losses since 2009, totalling a staggering Rs 25,000 crore. The 2012 Deloitte Bank Fraud Survey paints a sobering picture of the state of our public sector banks, as also does our RBI Deputy Governor. A man of few words, and those he doesn’t mince, he lays the blame squarely on “non-performing administration”. The non-performing administration in turn blames constant political interference.

The Deputy Governor, though, has a point. Public sector banks, like most things public sector, soon transform into lazy dens. What else explains the fact that private banks are able to sell ten times more Mutual Funds? Analysis of a recent RBI report comparing public sector banks with their private counterparts on 20 key performance indicators bears this out succinctly. The combined market cap of 25 of our listed public sector banks has boiled down to just 45 % of their combined net worth. As one analyst puts it: “The market fears the bulk of the public banks’ net worth might get wiped off if they fully account for their non-performing assets”.

Sleepy offices, discourteous staff, political meddling, massive fraud, sky-high debt, bad loans – like it or not, SBI is the new Air India, a hunchbacked Maharaja without his privy purse.

What’s going on? These are our banks; this is our wealth, our family silver. When did the slide begin, and who provided the first push?

On midnight of July 19, 1969, a few hours before Neil Armstrong took that small step for man, 239,000 miles away and unnoticed by the rest of the enthralled world, Indira Gandhi made a giant leap for Socialism. In one stroke 14 of India’s largest commercial banks were nationalised. The ordinance, called the Banking Companies Acquisition and Transfer of Undertakings, moved swiftly through the corridors and the wells of our Parliament before receiving its presidential approval on August 9, 1969.

The Act itself appears to have been drafted by a lawyer with archaeology as his hobby – no stone is left unturned. The takeover is complete and brutal. Overnight, the Central government becomes the custodian of what it calls a “corresponding new bank”. It wrests control of the private bank’s entire capital. The compensation to the private bank is to be through – surprise, surprise – government promissory certificates. The best bit, though, is reserved for last, under the so-called First Schedule. As it turns out, this “corresponding new bank” is the old bank but with a subtle change – Union Bank of India Limited becomes Union Bank of India, Canara Bank Limited turns into Canara Bank, and, doubtless, limited riches into unlimited ones.

To be sure, Mrs Gandhi laid out her reasons for bank nationalisation in a radio broadcast. These were: the removal of control by a few; provision of adequate credit facilities to agriculture, small industry and exports; the giving of professional-bent to bank management; the encouragement of new classes of entrepreneurs; and finally, the provision of adequate training as well as reasonable terms of service for bank staff.

Yes, none of this was possible through regulation, it seems; one needed a cold-blooded takeover of private companies so as to give them a professional bent and encourage a new class of entrepreneurs. But the politicians loved it. So did the ers and the ites and the ists.

One man didn’t.

Rustom Cavasjee Cooper vs Union of India

Date of Judgment: February 10, 1970

Citation: SCR (3) 530

Bench: Justices JC Shah, SM Sikri, JM Shelat, V Bhargava, GK Mitter, CA Vaidyialingam, KS Hegde, AN Grover, AN Ray, PJ Reddy, and ID Dua.

Rustom Cowasjee Cooper, a Bennett & Coleman employee, held fixed deposits and shares in many of the private banks that were nationalised. Incensed, he challenged the Banking Companies Act in the Supreme Court on the grounds that it violated the rights provided to him by the Constitution under articles 14 (The State cannot deny any person equality before the law), 19 (All citizens shall have the right to acquire, hold and dispose of property; All citizens shall have the right to practise any profession, or to carry on any occupation, trade or business), and 31 (All citizens are guaranteed a right to compensation for compulsory acquisition of property).

In a landmark judgment, the Supreme Court ruled in favour of Rustom Cowasjee Cooper. The judgment is a cache of brilliant arguments, both for and against, that were considered by the learned judges before they delivered the verdict. Rustom’s off-hand challenge to the Union of India proved tricky to say the least.

“It is claimed”, said the court, “that the depositors who had made long-term deposits, taking into account the confidence they had in the management of the banks and the service they rendered, are now called upon to trust the management of a statutory corporation not selected by them. This argument is based on several imponderables and does not require any detailed consideration…The Court also cannot find fault with the Act merely on the ground that it is inadvisable to take over the undertaking of banks which, it is said by the petitioner, by thrift and efficient management had set up an impressive and efficient business organisation.

“Two questions, however, immediately arise for determination. What is the true meaning of the expression ‘compensation’ and what is the extent of the jurisdiction of the Court when the validity of a law providing for compulsory acquisition of property for a public purpose is challenged?…To concentrate merely on power of the State and the object of the State action in exercising that power is therefore to ignore the true intent of the Constitution. The provisions of the Constitution are to be interpreted in a harmonious manner, that is, each provision must be rendered free to operate with full vigour in its own legitimate field. If acquisition or requisition of property for a public purpose has to satisfy again the test of reasonable restriction in the interest of the general public, harmony is repelled…”

The Bench finally delivered its verdict. “The Act”, it said, “is within the legislative competence of the Parliament but it makes hostile discrimination against the named banks and restricts them from carrying on business other than banking. Also, this Act substantially impairs the guarantee of compensation, and on that account the Act is liable to be struck down. ORDER. It is declared that the Banking Companies Acquisition and Transfer of Undertakings Act is invalid and the action taken or deemed to be taken in exercise of the powers under the Act is declared unauthorised.”

All hell broke loose. Now it was the turn of the politicians to be incensed, so much so that the Supreme Court had to reconvene hastily.

In the Matter of Rustom Cavasjee Cooper vs Union of India

Citation: SCR (1) 512

Bench: Chief Justice M Hidayatullah

Three days after the Supreme Court delivered its verdict, several newspapers reported that a few MPs – Krishna Menon among them – convened at Patel House, Delhi, to vent their anger. “Such decisions”, they cried, “do not enhance the prestige of the Judiciary. This will only encourage Naxalites…Ten Judges sitting in an ivory tower cannot sit over the verdict of Parliament which represents the people…Parliament would have to take steps to respect the feelings of the people.”

During the contempt-of-court proceedings, the rabble-rousers denied the newspaper reports, complaining that “the newspapers had picked out ideas but put them in their own words and that it was not always possible to contradict the newspapers”.

The Court let the culprits off with a warning – but what a beautifully worded warning it was. “Respect”, said the Court, “is expected not only from those to whom the judgment of the Court is acceptable but also from those to whom it is repugnant. Those who err in their criticism by indulging in vilification of the institution of Courts, administration of justice and the instruments through which the administration acts, should take heed for they will act at their own peril.”

Revenge was equally swift. On July 28, 1971 our parliamentarians brought forth the Twenty-fifth Amendment, nullifying the Supreme Court judgment. The word “compensation” in article 31(2), that underpinned the verdict, was replaced with “amount”. Another basis for the landmark judgment, article 19(1)(f), was banished altogether. And finally, a new article was introduced – article 31C – that cushioned the State from any further legal interference if its policy was found to be inconsistent with article 14.

Socialism had triumphed. Rustom’s fixed deposits from hereon would be in the safe hands of public sector banks.

The nullification meant that our leaders now had a glint in the eye and a hand in the till. Little surprise, then, that many attribute the quantum jump in India’s political and financial corruption over the past 30 years to the passing of the twenty-fifth amendment. Bank Chairmen were summoned routinely to ministers’ bungalows to fix loans and deals. Public sector banks were raided for loans and cheap financing, and reluctant bank managers summarily replaced with sycophants. Sucheta Dalal’s brilliant reportage of the Harshad Mehta scam demonstrated just how deep the rut went.

The ruts may have sunk deep but they continue to carry the jalopies of Socialism even now. The Unit Trust of India and the Ketan Parikh scams showed a clear collusion of public sector bank employees with politicians and other protagonists. A case is now being made whether CBI should investigate the actions of our public sector banks. Massive loans to Kingfisher Airlines and Deccan Chronicle, allegedly under political pressure and arm-twisting, are being cited as recent examples worthy of scrutiny. And what Harshad bhai can do, Bansal’s CA can do one better.

In the end, the collective wisdom of ten Supreme Court judges came to nothing. Their exquisitely crafted 60,000 word judgment now probably gathers dust atop a corridor Godrej. But why should that worry us? We have our wine bottle and the money plant. And its last leaf that shall never wither and break free, no matter how strong the winds of change.

*****

* Author’s note: In my September 5 article, Inconvenient Judgments, I had written: “…The series would conclude with an analysis of the nullification which hasn’t happened yet, but is sure to: of the recent Supreme Court ruling that convicted politicians stand disqualified.” On September 24, 2013, the government passed an ordinance nullifying this judgment. It is highly likely that the recent Aadhar card judgment could also meet the same fate. The list of inconvenient judgments gets longer with each passing day.

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