In the Supreme Court of India 1962 AIR 171, 1962 SCR (3) 269 Petitioner All India Bank Employees' Association Respondent National Industrial Tribunal ors. Date of Judgement 28.08.1961 Bench B.P. Sinha, C.J; A.K. Sarkar; J.R. Mudholkar; N. RajagopalaAyyangar; S.K. Das, JJ
Judicial and legislative background
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 a certain Form ‘F’ were omitted and Form ‘F’ was made to retain the note which accompanied it under the Act of 1913 without the exception in favor of banks effected by the Notification. Subsequently, the day after the amending Act came into operation, the Central Government published a Notification on January 16, 1937, again under section 151 of the Companies Act restoring the alterations in the balance-sheet Form ‘F’ as had been effected by the prior Notification of March 1927. The validity of these Notifications was questioned as being beyond the powers of the Central Government
In 1944, the Central legislature passed Act XXX of 1943 with a retrospective effect validating the Notification and amending the relevant sections of the Companies Act. (Sections. 132, 151, Article 107) so as to empower the Government to effect changes in the form of the balance-sheet in the manner in which they had done in January 1937.
The next event was the report of the Company Law Amendment Committee of the United Kingdom presided over by Mr. Justice Cohen where the entire question of undisclosed reserves was fully discussed. The pros and cons of the question were elaborately considered by the Committee. The Committee made a 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 into 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 X of 1949) and banks were relieved from the obligation of disclosing the entirety of their reserves as such and also of the extent of bad or doubtful debts and the provision made, therefore.
While the law was in this state disputes arose between the employees of banks all over India and the respective banks with regard to wages, conditions of work, etc. which were referred by the Central Government in June 1949 to an ad hoc Tribunal with Shri K. C. Sen as Chairman. The Tribunal passed an award but its validity was successfully challenged in this Court in April 1951 on the ground that all the members of the Tribunal who passed the award were not those who had all inquired into the dispute.
Thereafter a fresh Tribunal was appointed in January 1952 with Shri S. Panchapagesa Sastri, as Chairman. The award of this Tribunal was published in April, 1953, Appeals against the award were preferred to the Labour Appellate Tribunal (with Shri Jeejeebhoy as president) both by the banks as well as by workmen
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 defense 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
The disputes between the employees of banks and the management, however, continued with the result that the Central Government in the exercise of the powers conferred on the dispute which related to several matters to the National Tribunal constituted by a Notification of Government.
Most of the major banks in the country were made parties to the reference including the Reserve Bank and State Bank of India.
Constitutional and Statutory Provisions Discussed
- Section 34A of the Banking Companies Act (the impugned provision) 1949 which was enacted on August 26, 1960, as an amendment to the parent Act (Act X of 1949).
- Article 19(1) of Constitution, 1950
- Section 21 of the Industrial Disputes Act, 1947
- The appellant before this Court is the All India Bank Employee’s Association which is a trade union organization of Bank Employees of several banks operating in India. The Punjab National Bank Employee’s Union, which is a trade union with similar objects has been permitted to intervene in this appeal in support of the appellant union. The three other Writ Petitions are by other Bank Employees’ Unions and all these cases have been heard together because in the writ petitions the point raised is identical, viz.
- Post the Banking Companies Act and after the Tribunal started functioning as iterated in the judicial background 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 up to December 31, 1959; and (2) statements showing the provision made “for bad and doubtful debts and other usual and necessary provisions” during the years 1954 to 1959 and the total amounts outstanding in such items in each bank in the said years. The banks filed their reply on July 16, 1960. The production of the documents and the information called for on several of the matters including the above two was resisted by the Indian Banks Association (being an association of employers) on the ground that they were by law exempted from disclosure in the interest of the industry and the public and claimed absolute privilege from making the disclosure.
- It was at this stage that the impugned provision was enacted by Parliament as an amendment to the Banking Companies Act. As several of the banks relied upon the impugned provisions in support of their plea that they could not be compelled to disclose either the quantum of their secret reserves or their nature or as regards the provision made in the several years for “bad and doubtful debts and for other reasonable and necessary provision”, the bank employees association challenged the constitutional validity of section 34A of the Banking Companies Act, which, if valid, could have afforded a sufficient answer to the demand for production of the documents in relation to these matters. This objection was argued before the National Tribunal which upheld the validity of the section (Civil Appeal No. 154 is directed against and challenges the correctness of this decision.) The Writ Petitions have been filed by Bank Employees Associations which were not parties to the application for production before the National Tribunal and are intended to support the plea of the appellant in Civil Appeal No. 154 of 1961.
- What is the constitutional validity of Section 34A of the Banking Companies Act (the impugned provision) 1949 which was enacted on August 26, 1960, as an amendment to the parent Act (Act X of 1949)? This was split into parts:
- The impugned legislation contravened the fundamental right guaranteed to “trade unions” by the provision contained in sub-clause (c) of clause (1) of Article 19; and;
- that it violated the freedom of equality guaranteed by Article 14 of the Constitution;
- When sub-clause (c) of clause (1) of Article 19 guarantees the right to form associations, is a guarantee also implied that the fulfillment of every object of an association so formed is also a protected right, with the result that there is a constitutional guarantee that every association shall effectively achieve the purpose for which it was formed without interference by law except on grounds relevant to the preservation of public order or morality set out in clause (4) of Article 19.
- For an adjudication to satisfy the tests of reasonableness and effectiveness two conditions are necessary : (a) that the adjudicator should be enabled to have before him all the materials which are necessary for pronouncing upon the matter in controversy before him; and (b) that the adjudicator by whom the controversy between the parties should be decided should be an impartial person or body who would render the decision or award after fully hearing the parties, and that no matter in controversy should be the subject of ex parte decision by an interested party or without the disputants having an opportunity to know the materials on which the decision is reached, as also an opportunity to place their case with reference to such material
- Impugned enactment was a piece of colorable legislation, and that the purported objective of securing secrecy from disclosure was really a device adopted for depressing wages and for denying to workmen employed in banks their legitimate rights.
- It would not be a proper construction of the content of this guaranteed freedom to read the text literally but that the freedom should be so understood as to cover not merely a right to form a union in the sense of getting their union registered to function as a union, i.e., of placing no impediments or restrictions on their formation which could not be justified as dictated by public order or morality but that it extended to confer upon unions so formed a right to effectively function as an instrument for agitating and negotiating and by collective bargaining secure, uphold or enforce the demands of workmen in respect of their wages, prospects or conditions of work.
- Unless the guaranteed right comprehended these, the right to form a union would be mostly illusory.
- Expression ‘union’ in addition to the word ‘association’ found in the Article refers to associations formed by workmen for “trade union” purposes; the word ‘union’ being specially chosen to designate labor or Trade unions.
- The right to “form a 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 a union would be an idle right, an empty shadow lacking all substance.
- The object for which labor unions are brought into being and existence is to ensure collective bargaining by labor 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 are the reason d’etre for the existence of labor organizations.
- In regard to the right of labor unions to function effectively and to achieve the object of their existence the only limitations permitted to be imposed by law are those set out in clause (4) of Article 19 and unless, therefore, either the objects of the association or the manner of achieving them are contrary to, or transgress public order or morality, for which reason alone reasonable restrictions might be imposed upon the guaranteed right, the freedom guaranteed is absolute.
- Section 34A (1) and (2) violated Article 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 Disputed 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 section 34A (2) the provisions of the impugned enactment were applied in a discriminatory manner to all banks other than the Reserve Bank
- If an association was formed for carrying on a lawful business, the guarantee by sub-clause (c) of the freedom to form the association does not carry with it a further guaranteed right to the company or the partnership to pursue its trade and achieve its profit-making object and the only limitations which the law could impose on the activity of the association or in the way of regulating its business activity will not be those based on public order and morality under clause (4) of Article 19. If the opposite was accepted, any such argument would mean that while in the case of an individual citizen to whom a right to carry on a trade or business or pursue an occupation is guaranteed by sub-clause (g) of clause (1) of Article 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 clause (6) of Article 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 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 clause (4) of Article 19.
- Thus, if an association was formed for the purpose of carrying on business, the right to form it would be guaranteed by sub-clause (c) of clause (1) of Article 19 subject to any law restricting that right conforming to clause (4) of Article 19. As regards its business activities, however, and the achievement of the objects for which it was brought into existence, its rights would be those guaranteed by sub-clause (g) of clause (1) of Article 19 subject to any relevant law on the matter conforming to clause (6) of Art 19; while the property which the association acquires or possesses would be protected by sub-clause (f) of clause (1) of Article 19 subject to legislation within the limits laid down by clause (5) of Article 19. So, in case of labor unions, the position would be while the right to form a union is guaranteed by sub-clause (c), the right of the members of the association to meet would be guaranteed by sub-clause (b), their right to move from place to place within India by sub-clause (d), their right to discuss their problems and to propagate their views by sub-clause (a), their right to hold property would be that guaranteed by sub-clause (f) and so on each of these freedoms being subject to such restrictions as might properly be imposed by clauses (2) to (6) of Article 19 as might be appropriate in the context
- The right guaranteed under sub-clause (c) of clause (1) of Article 19 extends to the formation of an association and insofar as the activities of the association are concerned or as regards the steps which the union might take to achieve the purpose of its creation, they are subject to such laws as might be framed and that the validity of such laws is not to be tested by reference to the criteria to be found in clause (4) of Article 19 of the Constitution.
- The adjudicator alone determines the capacity of the industry to pay or to bear the enhanced cost. The only result of section 34A is that in regard to two items, viz., secret reserves and the provision made by banks “for bad and doubtful debts and other necessary provisions”, the reasonable quantum which would be available for being taken into account by the adjudicator would be estimated and determined by an expert body which is a governmental authority or practically a department of Government, viz., the Reserve Bank of India which is entrusted by law with the duty of maintaining the credit structure of the country.
- The fact that the legislation does not cover every banking company is, therefore, no ground for holding the provision to be discriminatory within Article 14.
- 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 under section 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-clause (c) of clause (1) of Article 19 is negated and legislative competence being conceded there could be no legal objection to its validity.
- Objections based on colorable legislation have relevance only in situations when the power of the legislature is restricted to particular topics, and an attempt is made to escape legal fetters imposed on its powers by resorting to forms of legislation calculated to mask the real subject-matter. No such problem exists in the present case and it is common ground that once the legislation passes the test of the fundamental right guaranteed by Part III, legislative competence not being in dispute, its validity is beyond cavil.
- The question whether the secrecy assured by section 21 of Industrial Disputes Act is or is not sufficient to protect the interests of the Banks, is a matter of legislative policy – and is for Parliament alone – and even the fact that the Court could be persuaded that the existing law is sufficient would be no ground for invalidating the impugned legislation.
- The principles underlying the Constitution and the manner in which its Part III has been framed the guarantees embodied in it are to be interpreted in a liberal way to subserve the purpose for which the constitution-makers 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.
- Under the Trade Unions act as well as under the Industrial Disputes Act the expression ‘union’ signifies not merely a union of workers but includes also unions of employers.
- The very idea of freedom of expression necessarily connotes that what one has a right to express may be communicated to others. Unless therefore the freedom guaranteed by sub-clause (a) of clause (1) of Article 19 was read as confined to the right to speak to oneself or to express his ideas to himself, which obviously they could not mean, the guaranteed freedom would mean freedom to address others, and of conveying to others one’s ideas by the printed word, viz., freedom of circulation.[i]
- The content of the ‘freedom of speech and expression’ includes within its scope the freedom of the press, for the press with the printed word is merely the mechanism by which the freedom is exercised do not really carry the matter any further.[ii]
- Though the Banking Companies Act applied to every banking company, it is only those banks whose operations extended beyond one State were brought within the scope of the definitions of a “banking company” under the Industrial Disputes Act. The result of that was that Banking Companies not having branches in more than one state would be an industry so as to be within the Industrial Disputes Act but not “a banking company” within its definition.
- Freedom of speech and assembly which were fundamental rights guaranteed by the Constitution would be abrogated or improperly encroached upon by legislation which compelled the disclosure to public authorities of the membership rolls.[iii]
- The right guaranteed by sub-clause (c) of clause (1) of Article 19 does not carry with it a concomitant right that the unions formed for protecting the interests of labor shall achieve the purpose for which they were brought into existence, such that any interference, to such achievement by the law of the land would be unconstitutional unless the same could be justified as in the interests of public order or morality.
- Banking companies as are not within the definition of “a banking company” under the Industrial Disputes Act would not be entitled to claim the protection from disclosure conferred on “banking companies” by the impugned provision.
The Supreme Court’s decision, in this case, marks an important distinction to the jurisprudence of labor laws in India, especially section 34A. This principle is also 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 balance-sheet and of the Profit & Loss accounts of banking companies as distinguished from other trading and industrial organizations.
The question which this interpretation answered was how far information which in the interests of a national economy the banks were entitled to withhold from their shareholders and the general public, was to be made available for determining the capacity of the banks to pay their employees. It was also in these circumstances that the impugned legislation was enacted which while preserving industrial adjudication in respect of disputes between the banks and their employees, entrusted the duty of determining the surplus reserve which could be taken into account as part of the assets for determining capacity to pay, to the Reserve Bank. The need to protect from disclosure certain of the items of appropriation by banks to preserve them as credit institutions and for enabling the workers in these institutions not to be denied a proper wage and other emoluments and proper conditions of service was fulfilled and delineated.
“The views of the authors are personal“
[i]RomeshThappar’s Case (1950) S. C. R. 594.
[ii] Express Newspapers (Private) Ltd. v. Union of India MANU/SC/0157/1958: (1961)I.L.L.J. 339.
[iii] National Association for the advancement of colored people v. Alabama 2 Law. Ed. Sec 1488.