Kerala High Court Judgement On Islamic Banking

Kerala High Court
Dr.Surbahmaniam Swamy vs State Of Kerala on 27 January, 2011

IN THE HIGH COURT OF KERALA AT ERNAKULAM
WP(C).No. 35180 of 2009(S)
1. DR.SURBAHMANIAM SWAMY, A-77,
... Petitioner
Vs
1. STATE OF KERALA, REPRESENTED BY
... Respondent
2. THE PRINCIPAL SECRETARY TO GOVERNMENT,
3. KERALA STATE INDUSTRIAL DEVELOPMENT
For Petitioner :DR.SUBRAHMANIAM SWAMY (PARTY IN PERSON)
For Respondent :SRI.M.PATHROSE MATTHAI (SR.)
The Hon'ble the Chief Justice MR.J.CHELAMESWAR
The Hon'ble MR. Justice P.R.RAMACHANDRA MENON
Dated :27/01/2011
O R D E R
J.Chelameswar, C.J. &
P.R.Ramachandra Menon, J.
-----------------------------------------------
W.P.(C) No. 35180 of 2009 &
W.P.(C) No.10662 of 2010
-----------------------------------------------
Dated this the 3rd day of February, 2011
JUDGMENT
J.Chelameswar, C.J.
Indian Kanoon - http://indiankanoon.org/doc/1816970/ 1
These two writ petitions are filed in public interest. The petitioner in W.P.(C).No.35180 of 2009 is a
former Minister of the Union of India.
2. W.P.(C).No.35180 of 2009 is filed with the prayers as follows:
"a) call for the records leading to the case and issue a writ of certiorari or any other
appropriate writ, order or direction, quashing Exhibit.P1.
b) issue such other appropriate writ, oder or direction which this
Hon'ble Court may deem fit in the circumstances of the case.
c) award costs to the Petitioner".
3. The impugned order-Exhibit P1 is an Order dated 14.10.2009 evidencing a decision
taken by the Government of Kerala. The relevant portion reads as follows:
"The Islamic Financial Services (IFS) Industry has grown substantially
over the years forming a significant segment within global financial
services and is generating lot of interest as an WPs(C).35180/2009 &
10662/2010
- 2 -
alternative model of financial intermediation. Growing awareness and
demand for investment and financing in compliance with Shariah
principles as well as increasing level of affluence have provided a fillip
to Islamic Financial Services. With the objective of promoting an
interest-free financing entity that follows Shariah principles,
Government had entrusted KSIDC with conducting studies and
looking into various aspects of formation of an Islamic Investment
Company in Kerala for attracting investments in a right manner as per
the Shariah of the Muslim Community to the development of the
common public at large. The professional studies conducted on this
project have concluded that there is a genuine commercial potential
for an Islamic Financial Institution based in Kerala that has the
potential to become a global payer.
2. The Minister for Industries convened a meeting of investors at
Thiruvananthapuram on 15.07.2009 to discuss the formation of
Islamic Financial Institution and decided to incorporate a company
with 11% equity contribution from KSIDC and the remaining 89%
from private investors.
3. The Board of KSIDC had approved a share contribution of Rs.110
Lakhs (11% of the initial paid up Share Capital) to the proposed
Company and decided to proceed with further steps for registration of
the Company for promoting the Islamic Financial Institution.
4. Govt. have examined the matter in detail and found that the decision of the Board
of Directors of KSIDC is within the area of their competence and delegation of powers
and WPs(C).35180/2009 & 10662/2010
- 3 -
hence accord sanction for proceeding with further steps for registration of the
Company."
Parties are referred to hereinafter as they are arrayed in W.P.(C). No.35180 of 2009.
4. K.S.I.D.C. (Kerala State Industrial Development Corporation) the third respondent
is a wholly owned company of the first respondent that is the State of Kerala, engaged
in promotion of industrial development of the State. The objects of the third
respondent are "to promote, establish and execute industrial projects and enterprises
for the economic and industrial development of the State of Kerala" and also "to aid,
assist and finance any infrastructure projects or enterprises or other projects and to
promote and establish companies and associations of private or public character".
5. The 6th respondent is a company registered under the Companies Act and the
same is evidenced by the certificate of incorporation dated 30th November, 2009. A
copy of the memorandum of association of the 6th respondent is available in the
record from which it appears that the share capital of the company is 1000 crores. It
can be seen from the said memorandum of association that 8 individuals subscribed
to the memorandum of WPs(C).35180/2009 & 10662/2010
- 4 -
association, the details of which are given in the memorandum. Of the said 8
subscribers, 6 are Muslims and 2 are Hindus, a fact which is relevant in the context of
the dispute in the case. It is also necessary to mention that of the above mentioned 8
persons 4 appear to be non-resident Indians as it is certified that they came to India
on various dates specified in the said memorandum and under a passport. However,
the third respondent stated in its counter that they are Indian citizens. What is
important is that the third respondent is not a subscriber to the said memorandum
though it is stated in Ext.P1 that the Board of Directors of the third respondent
decided to proceed with further steps for registration of the company for promoting
the Islamic financial institution.
6. In the meanwhile an advertisement inviting applications from eligible persons for
filling up of the posts of Chief Executive Officer, Company Secretary, etc. of an
unnamed company came to be issued on-line on a website of the third respondent
which reads as follows:
"WANTED The following Executives for a Public Limited Company
with an Authorised Share Capital of Rs.1000 Crores and Head Office
at Kochi, promoted with the objective of providing
WPs(C).35180/2009 & 10662/2010
- 5 -
interest-Finance for projects & services. The company will have Pan
India presence to take up activities like PE & Venture Capital Fund,
Leasing, Investment in Equity, Mutual Funds, etc.,initially, and will be
operating in a fully Shariah compliant manner.
1. CHIEF EXECUTIVE OFFICER
The candidate should have professional
qualification/Post-graduate degree with sound experience in the
relevant field. The CEO shall be responsible for building up the
organisation and co-ordinate the overall functioning. He will report to
the Board of Directors and the Shariah Advisory Board.
2. COMPANY SECRETARY ACS with minimum 5 years'
post-qualification experience. He will report to the CEO.
3. ASSISTANT MANAGER (FINANCE & ACCOUNTS) ACA or ICWA
with 1-2 year' post-qualification experience. He will report to the CEO.
The age should not exceed 52 years for post-1, 35 years for post-2 and 28 years for
post-3, as on 1.9.09. There may be relaxation in age by 5 years in case of deserving
candidates. Emoluments will be at part with the best in the industry. Interested
persons may send their C.V. with copies WPs(C).35180/2009 & 10662/2010
- 6 -
of certificates, recent passport size photograph, on or before 30th September 2009,
super scribing the envelope "APPLICATION FOR THE POST OF CEO/COMPANY
SECRETARY/AM (F&A)" to:
The Managing Director, Kerala State Industrial Development Corporation Ltd.,
Choice Towers, Manorama Junction, KOCHI - 682 016.
Web Site : www.ksidc.org"
Though it is not very clear from the said document as to the date on which it was
issued it appears that it must have been issued sometime before 30th of September,
2009 as that is the date specified in the said advertisement to be the last date for
submitting the application in response to the advertisement. We may also state that
the third respondent in his counter affidavit did not choose to rebut to the relevant
averments made at paragraph 3 of the writ petition.
7. One factor which requires to be noticed is that by the date of the above mentioned
advertisement the 6th respondent company was not even incorporated, apart from
the fact that the decision of the State of Kerala to participate in the equity of a
company/Islamic financial institution evidenced by G.O.Rt.No.1336
WPs(C).35180/2009 & 10662/2010
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itself dated 14.10.2009, that is much later than the above mentioned advertisement.
These facts may or may not have any bearing on the main issue in the writ petition.
We only mention them to indicate the clumsy way in which the matter is handled by
the 1st and 3rd respondents. The relevance of the above mentioned advertisement is
that it also states that the company will be operating in a 'fully Shariah compliant
manner'.
8. In the background of the above mentioned facts the instant writ petition came to
be filed in the month of December, 2009. When the matter came up for admission by
an order dated 5th January, 2010 a Division Bench of this Court directed that 'the
respondents would ensure that the said company does not commence any operation
until further orders'. Subsequently the said order came to be modified by another
order dated 8th April, 2010 in substance permitting the 6th respondent to carry on
such activity as it is permissible in accordance with law, however prohibiting the
State and its instrumentalities in any way participating in the business of the 6th
respondent company.
9. In the meanwhile another writ petition, that is W.P.(C) No.10662 of 2010 also
came to be filed in substance seeking the WPs(C).35180/2009 & 10662/2010
- 8 -
same reliefs as the one sought in the other writ petition. It was admitted on
29.3.2010. Both the writ petitions were heard together as common questions of fact
and in law arise in both the cases. One additional ground raised in the second writ
petition is that the decision of the State of Kerala and the K.S.I.D.C. to participate in
the capital structure of the 6th respondent company is an arbitrary decision as such a
decision was taken without following any fair and transparent procedure. It is stated
in Ground K of the said writ petition as follows:
"K. It is submitted that the State Government or the 3rd respondent
has not followed any fair and transparent method known to law in
choosing the 4th respondent Company as the associate in the venture
stipulated in Ext.P1. Therefore the 4th respondent is chosen by the 3rd
respondent as their partner without resorting to any open notification
or public tender for that matter. The very selection of the 4th
respondent was done in a secret and clandestine manner without any
element of transparency whatsoever. The entire deals were done
behind the back and the offer and agreements etc were done secretly."
10. The main ground of the attack in both the writ petitions is that the
decision of the State of Kerala and the K.S.I.D.C.
which is an instrumentality of the State of Kerala to contribute to the
WPs(C).35180/2009 & 10662/2010
- 9 -
share capital of the 6th respondent is inconsistent with the constitutional obligation
of these two bodies to function on secular principles. Though it is not clearly pleaded
it was specifically argued by Dr.Subramaniam Swamy that the impugned decision of
the State of Kerala would be directly contrary to the mandate contained under Article
27 of the Constitution of India which reads as follows:
"27. Freedom as to payment of taxes for promotion of any particular
religion.- No person shall be compelled to pay any taxes, the proceeds
of which are specifically appropriated in payment of expenses for the
promotion or maintenance of any particular religion or religious
denomination."
11. On the other hand, the State and the K.S.I.D.C.
pleaded in their counter affidavits that the impugned decision was taken in order to
garner huge amounts of unutilised funds from the Gulf countries available with the
non-resident Indians working in those countries with a view to utilise such funds for
the investment in the State of Kerala for the development of its people by promoting
and providing financial assistance to the industries in the State of Kerala. In
substance the respondents do not dispute the fact that a decision was taken to
participate in the business of the 6th WPs(C).35180/2009 & 10662/2010
- 10 -
respondent company. They claim that notwithstanding the references in the
Government Order dated 14.10.2009 and the advertisement issued by the 3rd
respondent that the intention of the 6th respondent is to function in accordance with
the requirements of Shariah, the motive and object of the State of Kerala and the
K.S.I.D.C. is purely secular, i.e. to derive a commercial benefit from the business to be
carried on by the 6th respondent. Therefore they cannot be accused of flouting the
constitutional mandate of running a secular State. It is also the case of all the
respondents that notwithstanding the fact that the 6th respondent company proposes
to run its business in compliance with the principles of Shariah the 6th respondent is
bound to function strictly in accordance with the law of this country. So long as the
6th respondent company so functions the fact that in addition to compliance with the
law of the land the company also proposes to comply with a further requirement of
running the business in accordance with the principles of Shariah does not make the
activity of the company in any way inconsistent with the requirement of the
secularism mandated under the Constitution. Therefore the State and its
instrumentalities are not prohibited by the Constitution to be WPs(C).35180/2009 &
10662/2010
- 11 -
associated with such a business activity of the 6th respondent company.
12. The State of Kerala in its counter affidavit had enumerated the various projects
meant for the welfare of the people of Kerala which were planned but could not be
implemented due to the shortage of funds. The reasons which prompted the State of
Kerala to take the impugned decision and the procedure followed by the State of
Kerala in taking such a decision are narrated in paragraph 9 of the counter affidavit.
13. At the outset we wish to deal with a preliminary objection raised by Dr.Rajeev
Dhavan, Senior Advocate appearing for the 6th respondent. The substance of the
submission is that the petitioners are not bona fide public interest litigants and
therefore the writ petitions must be dismissed. In this connection Sri.Dhavan relied
upon the judgment of the Supreme Court reported in State of Uttaranchal v. Balwant
[(2010) 3 SCC 402]. At paragraph 181 of the judgment the Supreme Court laid down
the following directions:
"(3) The Courts should prima facie verify the credentials of the
petitioner before entertaining a PIL.
(4) The Courts should be prima facie satisfied regarding the
correctness of the contents of the petition before entertaining a PIL.
WPs(C).35180/2009 & 10662/2010
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(5) The Courts should be fully satisfied that substantial public interest is involved
before entertaining the petition.
(6) The Courts should ensure that the petition which involves larger public interest,
gravity and urgency must be given priority over other petitions.
(7) The Courts before entertaining the PIL should ensure that the PIL is aimed at
redressal of genuine public harm or public injury. The Court should also ensure that
there is no personal gain, private motive or oblique motive behind filing the public
interest litigation.
(8) The Courts should also ensure that the petitions filed by busybodies for
extraneous and ulterior motives must be discouraged by imposing exemplary costs or
by adopting similar novel methods to curb frivolous petitions and the petitions filed
for extraneous considerations."
It is argued that: (written submission of Dr.Dhavan) "In the present case,
Subramaniam Swamy and R.Babu have not disclosed any antecedents or their real
interest in the case. The fact that Subramaniam Swamy is well known does not
obviate giving details. In the case of R.Babu details are missing altogether.
In fact Swamy has filed PIL's which could be taken to be pro- Hindu and Anti-Muslim
cause including on Babri Masjid, Ram Setu and now Islamic Banking. R.Babu has
hidden the fact that he belongs to a fundamentalist Hindu organization. A PIL cannot
be a vehicle for communal baiting or creating communal disharmony."
WPs(C).35180/2009 & 10662/2010
- 13 -
14. We are of the opinion that the submission is to be rejected for more than one
reason. The fact that Dr.Subramaniam Swamy took a particular stand either in the
case of Babri Masjid or Ram Sethu, in our opinion, does not either make him
'pro-Hindu' or 'anti-Muslim' ipsofacto. Such a stereotyping would have the effect of
shutting out all discourse in public sphere. The views held or professed by an
individual may or may not be agreeable to others but the cardinal principle on which
all democratic systems are based upon to borrow the words of Thomas Paine:
"I may not agree with a word of what you say but I shall protect your right to say so".
The 6th respondent does not specify any harm or injury to the public which is likely
to result by the examination of the issues projected by the petitioners. On the other
hand, the petitioners are projecting far reaching issues of Constitutional law. If the
views of the petitioners are eventually accepted the impugned action of the State of
Kerala would be Constitutionally impermissible. In our view, such impermissible
action would not only be a mere infraction of a Constitutional obligation but would
have the effect of disturbing the very foundation of our Constitutional structure.
Secondly, assuming for the sake of argument that either or both of the petitioners are
WPs(C).35180/2009 & 10662/2010
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'Hindu fundamentalists' an undefined expression but for the purpose of the present
case (we adopt the definition of the famous contemporary author Karen Armstrong).
It means a person of 'militant piety' we see no reason to reject audience. Our
Constitution not only assures in theory but also demonstrated in practice that the due
process of law would not be denied even to persons accused of in most heinous
crimes such as 'terrorism'. Therefore to non-suit the petitioners on the ground that
they are allegedly holding some 'militantly pious' views would neither be legally
justified nor politically correct.
15. It is not the case of the 6th respondent that the petitioners have some private gain
to be derived out of the present litigation. The only submission is that they are
resorting to 'communal baiting' or creating 'communal disharmony'. The submission
is to be rejected for three reasons. Firstly, the 6th respondent asserts that it is not a
company exclusively consisting of shareholders of a particular religious
denomination (be it Muslim or other), but only inspired by certain principles of
Sharia. Therefore the objection of the petitioners if accepted eventually would affect
all the shareholders of the company. Secondly, a legal objection before
WPs(C).35180/2009 & 10662/2010
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a Constitutional Court to a particular practice of the State on the ground that it is
inconsistent with the obligations of the State under the provisions of the Constitution
in our opinion could never be said to promote communal disharmony. Such a view in
our opinion would be 'secular fundamentalism'. Third and the most important reason
is that the debate in the instant case may be centred around the 'Sharia' and therefore
appear to be dealing with the rights of one religious denomination. But the issue
raised transcends all religion. The concept of secularism and the fundamental rights
under Articles 25 to 28 are guaranteed to followers of all religions.
16. Before we examine the various submissions in the writ petitions we deem it
appropriate to make a brief survey of the letter of the Constitution in so far as it is
relevant for the purpose of the present case.
17. The preamble of the Constitution declares that the aim of the Constitution is to
constitute India into a sovereign socialist secular democratic republic and also to
secure all its citizens justice, liberty, equality and fraternity. In Part III of the
Constitution various fundamental rights are guaranteed. Some of these fundamental
rights are guaranteed only to the citizens of India while WPs(C).35180/2009 &
10662/2010
- 16 -
some are guaranteed to all persons who are subject to the sovereignty of India.
Articles 15 and 16 prohibit the State from discriminating against any citizen on the
ground only of religion in the matters of access to various public facilities or public
employment. Articles 25 to 28 guarantee freedom of religion in its various facets.
Clause (1) of Article 25 declares that all persons are equally entitled to freedom of
conscience and the right to freely profess, practise and propagate religion. Article 26
guarantees to every religious denomination the rights to acquire and administer
property in accordance with law to manage its own affairs in matters of religion and
to establish and maintain institutions for religious and charitable purposes. Article 27
prohibits the State not to subject any person to any tax the proceeds of which are to
be utilised for the promotion or maintenance of any particular religion. Article 28 on
the one hand prohibits any kind of religious instruction in any educational institution
wholly maintained out of the State funds, but recognises the right of a privately
established institution to provide religious instruction, etc. A minute examination of
these various provisions dealing with the freedom of religion is not necessary at this
stage. It is sufficient to notice that the Constitution guarantees WPs(C).35180/2009
& 10662/2010
- 17 -
to all the Subjects the freedom of conscience and the right to freely profess, propagate
and practise religion while prohibiting the State in any way subjecting any person to
discrimination only on the basis of his/her religion. The Constitution restricts the
State's interaction with the religion.
18. It must be noticed that Articles 25 to 28 deal with the fundamental rights
regarding the freedom of religion irrespective of the fact whether the religion is the
religion of the minority or majority population of this country. In fact the rights
guaranteed under the above mentioned Articles are extended even to persons other
than citizens.
19. All the promoters of the 6th respondent company are asserted to be citizens of
this country. They assert that they are entitled to the fundamental rights guaranteed
under Article 19(1)(g) of the Constitution of India to carry on any trade, occupation or
business. They admit that such a right is subject to the law of the land. The 6th
respondent claims that the business proposed to be undertaken by it is the business
of non-Banking Financial Service as defined under Section 45-I(a) of The Reserve
Bank of India Act. It is admitted at the Bar that the 6th respondent's application to
the WPs(C).35180/2009 & 10662/2010
- 18 -
Reserve Bank of India (R) is returned on some preliminary objection, i.e., the 6th
respondent did not make a deposit of Rs.2.00 crores as required under Section 45-IA
of the Act. The 6th respondent is willing to comply with the said requirement and
resubmit the application.
20. Chapter IIIB of the Reserve Bank of India Act, 1934 was introduced by the
amendment Act 55 of 1963. It deals with various aspects of the regulation of the
business of "non-banking financial institutions".
21. Though an attempt is made by the petitioners to argue that the business such as
the one proposed by the 6th respondent is impermissible under the provisions of
Chapter III-B of the RBI Act, we decline to examine the said question for two reasons.
Firstly, there is no pleading at all on the said aspect and, therefore, it would be unjust
to examine the said issue and secondly it is primarily for the RBI to decide the said
issue. Any examination of the said issue by this Court would have the effect of
pre-empting the examination by the RBI. More particularly in the light of the
fundamental rights under Articles 19(1)(g) and 25 and 26, the claims of the 6th
respondent and its shareholders, the issue requires a more WPs(C).35180/2009 &
10662/2010
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critical examination on appraisal of the full facts. It is the duty of the Reserve Bank of
India as a body entrusted with the regulation of the business proposed to be
undertaken by the 6th respondent to undertake such an examination.
22. Two submissions made by the petitioners are required to be examined. The first is
that the decision of the State to associate itself with the business of the 6th
respondent is contrary to the Constitutional requirement that the State should be a
secular State. The 6th respondent Company, which professes to run the business of
non-banking financial institution in a manner which is compliant with Shariah is in
essence a Company mixing the business with religion. Shariah is a body of law based
on the religious principles enunciated in Koran, the holy book followed and venerated
by "Umma", i.e., the Muslim brotherhood around the world. Therefore, any
association of the State with the 6th respondent would amount to actively promoting
or assisting the religion. Such an activity would be inconsistent with the principles of
secularism, which is one of the goals sought to be achieved by the Constitution.
WPs(C).35180/2009 & 10662/2010
- 20 -
23. On the other hand, it is the case of the respondents that though the 6th
respondent proposes to conduct the business complying with the dictates of Shariah,
the 6th respondent is bound by the law of the land and is obliged to comply with all
the requirements of the laws made under the Constitution of India. Therefore, such a
business is purely a secular aspect of the Muslim Canon law. Hence, the State is not
prohibited from associating with such a business.
24. To resolve the above issue, we are of the opinion that a clear understanding of the
expressions "secularism", "religion", "secular activity associated with religious
practice" is necessary.
25. The ambit and meaning of the expression "secularism" contained in the preamble
of the Constitution fell for the consideration of the Supreme Court in S.R.Bommai v.
Union of India [(1994) 3 SCC 1]. A Larger Bench of the Supreme Court, of nine
Judges, considered the issue. Six separate opinions were delivered. Four Judges -
Justice P.B.Sawant, Justice K.Ramaswamy, Justice B.P.Jeevan Reddy who spoke for
himself and Justice S.C.Agrawal - made an elaborate enquiry into the
WPs(C).35180/2009 & 10662/2010
- 21 -
meaning of the expression "secularism". Justice Sawant, on an analysis of Articles 25
to 30 and also Articles 14 to 16, the preamble of the Constitution and Article 51A of
the Constitution, opined at para 146 as follows:
"These provisions by implication prohibit the establishment of a
theocratic State and prevent the State either identifying itself with or
favouring any particular religion or religious sect or denomination.
The State is enjoined to accord equal treatment to all religions and
religious sects and denominations.", and again at para 148 the learned
Judge held as follows:
"One thing which prominently emerges from the above discussion on
secularism under our Constitution is that whatever the attitude of the
State towards the religions, religious sects and denominations,
religion cannot be mixed with any secular activity of the State. In fact,
the encroachment of religion into secular activities is strictly
prohibited. This is evident from the provisions of the Constitution to
which we have made reference above. The State's tolerance of religion
or religions does not make it either a religious or a theocratic State.
When the State allows citizens to practise and profess their religions, it
does not either explicitly or implicitly allow them to introduce religion
into non-religious and secular activities of the State. The freedom and
tolerance of religion is only to the extent of permitting pursuit of
spiritual life which is different from the secular life. The latter falls in
the exclusive domain of the affairs of the State".
WPs(C).35180/2009 & 10662/2010
- 22 -
Justice Ramaswamy in his judgment at para 178 held as follows:-
"Though the concept of "secularism" was not expressly engrafted while making the
Constitution, its sweep, operation and visibility are apparent from fundamental
rights and directive principles and their related provisions. It was made explicit by
amending the preamble of the Constitution 42nd Amendment Act. The concept of
secularism of which religious freedom is the foremost appears to visualise not only of
the subject of God but also an understanding between man and man. Secularism in
the Constitution is not anti-God and it is sometimes believed to be a stay in a free
society. Matters which are purely religious are left personal to the individual and the
secular part is taken charge by the State on grounds of public interest, order and
general welfare. The State guarantee individual and corporate religious freedom and
dealt with an individual as citizen irrespective of his faith and religious belief and
does not promote any particular religion nor prefers one against another".
The learned Judge after taking notice of the position obtaining in the United States of America
opined at para 180 as follows:
"Thereby this Court did not accept the wall of separation between law and the
religion with a wider camouflage to impress control of what may be described
exploitative parading under the garb of religion".
WPs(C).35180/2009 & 10662/2010
- 23 -
Justice Jeevan Reddy, once again, on a consideration of the relevant Articles of the Constitution, at
para 304 opined as follows:
"While the citizens of this country are free to profess, practice and propagate such
religion, faith or belief as they choose, so far as the State is concerned, i.e., from the
point of view of the State, the religion, faith or belief of a person is immaterial. To it,
all are equal and all are entitled to be treated equally. How is this equal treatment
possible, if the State were to prefer or promote a particular religion, race or caste,
which necessarily means a less favourable treatment of all other religions, races and
castes. How are the constitutional promises of social justice liberty of belief, faith or
worship and equality of status and of opportunity to be attained unless the State
eschews the religion, faith or belief of a person from its consideration altogether
while dealing with him, his rights, his duties and his entitlements? Secularism is thus
more than a passive attitude of religious tolerance. It is a positive concept of equal
treatment of all religions. This attitude is described by some as one of neutrality
towards religion or as one of benevolent neutrality. This may be a concept evolved by
western liberal thought or it may be, as some say, an abiding faith with the Indian
people at all points of time.
That is not material. What is material is that it is a constitutional goal and basic feature of the
Constitution as affirmed in Kesavananda Bharati [(1973) 4 SCC 225] and Indira N. Gandhi v. Raj
Narain [1975 Supp SCC1]. Any step inconsistent with this constitutional policy is, in plain words,
unconstitutional. This does WPs(C).35180/2009 & 10662/2010
- 24 -
not mean that the State has no say whatsoever in matters of religion. Laws can be made regulating
the secular affairs of temples, mosques and other places of worships and maths (See S.P.Mittal v.
Union of India [(1983) 1 SCC 51]". Again at para 307, the learned Judge observed as follows:
"In short, in the affairs of the State (in its widest connotation) religion is irrelevant; it
is strictly a personal affair. In this sense and in this behalf, our Constitution is
broadly in agreement with the U.S. Constitution, the First Amendment whereof
declares that "Congress shall make no laws respecting an establishment of religion or
prohibiting the free exercise thereof..." (generally referred to as the "establishment
clause"). Perhaps, this is an echo of doctrine of the separation of Church and State;
may be it is the modern political thought which seeks to separate religion from the
State - it matters very little".
The substance of Bommai's judgment, as can be culled out from the above extracted portions of the
judgment in so far as it deals with the meaning of the expression "secularism" obtaining in the
preamble of the Constitution and the secular nature of the State emerging from the scheme of
various provisions of the Constitution, is that there is no wall of separation between the State and
the religion as understood in the context of the American Constitution. WPs(C).35180/2009 &
10662/2010
- 25 -
The expression "wall of separation" originally employed by Thomas Jafferson in the context of the
1st amendment to the American Constitution, which declares:
"Congress shall make no laws respecting an establishment of religion or prohibiting the free exercise
thereof............" The question whether the framers of the Indian Constitution imported the theory of
"wall of separation" into Indian Constitution initially fell for consideration of the Madras High Court
Kidangazhi Manakkal Narayanan Nambudiripad v. State of Madras [AIR 1954 Madras 385]. Justice
Venkatarama Aiyar, speaking for the Bench, on an elaborate examination of the scheme of the
American Constitution as expounded by the various decisions of the American Supreme Court and
the scheme of the Indian Constitution, opined:
"Apart from making provisions in respect of particular subjects, the Constitution does
not enact a general prohibition of legislation in respect of "establishment of religion".
In this respect our Constitution makes a substantial departure from the American
Constitution".
He further held:
"On the other hand, there are provisions in our Constitution which are inconsistent
with the theory that there should be a wall of separation between Church and State".
WPs(C).35180/2009 & 10662/2010
- 26 -
The Bench concluded that:
"It is difficult in the face of these provisions to accede to the contention that our
Constitution has adopted the American view that the State should have nothing to do
with religious institutions and endowments. It would, therefore, not be safe to build
any argument based on the "establishment of religion" clause in the first Amendment
and the decisions interpreting the same.", a conclusion which found acceptance by
the apex Court in Bommai's case, as already noticed earlier.
26. Our Constitution does not create an absolute embargo on the State's association with every and
any religious activity; nor does the Constitution permit the establishment of a theocratic State. As
observed in Bommai's case (supra), the State's attitude is one of the benevolent neutrality towards
religion. While the Constitution grants a great degree of freedom of conscience and guarantees a
fundamental right to freely profess, practice and propagate any religion, such a right is made subject
to the requirements of public order, morality and health. Our Constitution also recognise a
distinction between practices which are essentially religious and activities which are secular, but
associated with religious practice. Such activities include the economic, financial,
WPs(C).35180/2009 & 10662/2010
- 27 -
political activities associated with religious practices. They are expressly made amenable to
regulation by law. The distinction is recognised by the Supreme Court in The Commissioner, Hindu
Religious Endowments, Madras v. Sri.Lakshmindra Thirtha Swamiar of Sri Shirur Mutt [1954
S.C.R.1005=AIR 1954 S.C.282].
27. To understand the distinction, it is necessary to understand the meaning of the expression
"religion". The Supreme Court in Shirur Mutt's case (supra) at pages 1023 and 1023 held as follows:
"What then are matters of religion? The word "religion" has not been defined in the
Constitution and it is a term which is hardly susceptible of any rigid definition. In an
American case [Davis v. Benson, 133 U.S.333 at 342], it has been said "that the term
'religion' has reference to one's views of his relation to his Creator and to the
obligations they impose of reverence for His Being and character and of obedience to
His will. It is often confounded with cultus of form or worship of a particular sect, but
is distinguishable from the latter." We do not think that the above definition can be
regarded as either precise or adequate. Articles 25 and 26 of our Constitution are
based for the most part upon article 44(2) of the Constitution of Eire and we have
great doubt whether a definition of "religion" as given above could have been in the
minds of our Constitution-makers when they framed the Constitution. Religion is
certainly a matter of faith with individuals or communities and it is not necessarily
theistic. There are well known religions in India like Buddhism WPs(C).35180/2009
& 10662/2010
- 28 -
and Jainism which do not believe in God or in any Intelligent First Cause. A religion
undoubtedly has its basis in a system of beliefs or doctrines which are regarded by
those who profess that religion as conducive to their spiritual well being, but it would
not be correct to say that religion is nothing else but a doctrine or belief. A religion
may not only lay down a code of ethical rules for its followers to accept, it might
prescribe rituals and observances, ceremonies and modes of worship which are
regarded as integral parts of religion, and these forms and observances might extend
even to matters of food and dress.
The guarantee under our Constitution not only protects the freedom of religious
opinion but it protects also acts done in pursuance of a religion and this is made clear
by the use of the expression "practice of religion" in article 25".
It was argued by the Attorney General that the right of freedom of religion guaranteed under the
Constitution is limited only to the religious activities proper and does not extend to the secular
activities associated with religious practice which are not essential part of the religion. Such
authority of the State to restrict the fundamental rights guaranteed under Articles 25 and 26 flows
from the opening clauses of both the Articles which state that the rights guaranteed therein are
subject to "public order, morality and health", Dealing with the submission, the Supreme Court held
at page 1025 as follows:
WPs(C).35180/2009 & 10662/2010
- 29 -
"In the first place, what constitutes the essential part of a religion is primarily to be ascertained with
reference to the doctrines of that religion itself. If the tenets of any religious sect of the Hindus
prescribe that offerings of food should be given to the idol at particular hours of the day, that
periodical ceremonies should be performed in a certain way at certain periods of the year or that
there should be daily recital of sacred texts or oblations to the sacred fire, all these would be
regarded as parts of religion and the mere fact that they involve expenditure of money or
employment of priests and servants or the use of marketable commodities would not make them
secular activities partaking of a commercial or economic character; all of them are religious
practices and should be regarded as matters of religion within the meaning of article 26(b). What
article 25(2)(a) contemplates is not regulation by the State of religious practices as such, the
freedom of which is guaranteed by the Constitution except when they run counter to public order,
health and morality, but regulation of activities which are economic, commercial or political in their
character though they are associated with religious practices".
28. Thus it can be seen that the Constitution guarantees the fundamental right to freely profess,
practice and propagate any religion. However, every activity undertaken by the followers of a
religion or religious denomination is not protected or free from the interference of the State on the
ground that it forms part of a fundamental right guaranteed under the Constitution. The
Constitution expressly recognises that there can be secular activities associated with a religious
practice, such as economic, financial and WPs(C).35180/2009 & 10662/2010
- 30 -
political activities associated with a religious practice. Further the Constitution recognises the
authority of the State to regulate such secular activities associated with a religious practice. Even
with reference to the non-secular aspects of the religious practices the Constitution declares that the
fundamental rights guaranteed under Articles 25 and 26 are subject to the demands of public order,
morality and health. In other words, by necessary implication even those activities which can be
called "purely religious" are also amenable to regulation by the State's law making authority if the
State rationally comes to a conclusion that such practices are not conducive to the public order or
requirements of morality of the society or harmful to the health of the society.
29. The resolution in the preamble to constitute a SECULAR REPUBLIC thus has two facets, i.e.,
that the State shall not unduly (i) interfere with the fundamental rights of the subjects to freely
profess, practice and propagate any religion; (ii) unduly associate itself with any religious activity or
favour in any way one religion over the other.
30. The complaint in the instant case is that the impugned action of the State of Kerala is
objectionable on the WPs(C).35180/2009 & 10662/2010
- 31 -
ground that it amounts to undue association with a religious activity amounting to favouring or
promoting a religion.
31. We have already examined the scheme of the Constitution in the context of the authority of the
State to regulate the fundamental right to religious freedom. However the permissible limits of the
State's association/entanglement with the religious activity is required to be examined.
32. The Constitution does not totally prohibit the association of the State with all the religious
activity. Article 28*
------------------------------------------------------------------------------ * Art.28. Freedom as to
attendance at religious instruction or religious worship in certain educational institutions.- (1) No
religious instruction shall be provided in any educational institution wholly maintained out of State
funds.
(2) Nothing in clause (1) shall apply to an educational institution which is administered by the State
but has been established under any endowment or trust which requires that religious instruction
shall be imparted in such institution.
(3) No person attending any educational institution recognised by the State or receiving aid out of
State funds shall be required to take part in any religious instruction that may be imparted in such
institution or to attend any religious worship that may be conducted in such institution or in any
premises attached thereto unless such person or, if such person is a minor, his guardian has given
his consent thereto. WPs(C).35180/2009 & 10662/2010
- 32 -
categorically prohibits any kind of religious instruction in any educational institution wholly
maintained out of State funds. However, sub-Articles (2) and (3) thereof carve out exception to the
above rule. Sub-Article (2) recognises the possibility of the existence of educational institutions
established under any endowment or trust but under the administration of the State which are
obliged by virtue of the mandates of the endowment or trust to impart religious instruction.
Sub-Article (3) recognises the possibility of the experience of educational institutions which are
established and administered by private parties which are recognised by the State and receive aid
from the State, where religious instruction is imparted or religious worship is conducted. Article 28
does not prohibit the association of State with such institutions, either by way of administering such
institutions or granting aid to such institutions or recognising such institutions, provided the
student or his guardian, wherever the student is a minor, consents to attend such a religious
instruction or worship. In our opinion, sub-Articles (2) and (3) clearly establish the fact that our
Constitution does not adopt the American doctrine of "wall of separation". The kind of association of
the State contemplated under sub-Articles (2) and (3) of Article 28 WPs(C).35180/2009 &
10662/2010
- 33 -
perhaps would be wholly impermissible under the scheme of American Constitution.
33. Even on the face of an express prohibition of the establishment of a religion by the State some
interface between the State and religion is inevitable. Various activities of the State are challenged
on the ground that they are inconsistent with the prohibition under the establishment clause. The
US Supreme Court over a period of time recognised that there is a "zone of required
accommodation". The Supreme Court formulated various tests to determine whether a particular
State action is within the zone of required accommodation or not; such as the test of 'political
neutrality', 'secular purpose', 'secular effect' and 'excessive entanglement'.
34. Another major difference between the Constitution of India and U.S. is that Article 30
guarantees a fundamental right in favour of the minorities, whether based on religion or language,
to establish and administer educational institutions of their choice. Such express provision is absent
in U.S. Constitution. The ambit of the said right has been the subject matter of debate before the
Supreme Court in the case of St.Stephen's College v. University WPs(C).35180/2009 & 10662/2010
- 34 -
of Delhi [AIR 1992 SC 1630]. The majority of the Supreme Court, speaking through Justice
K.Jagannatha Shetty, held* that "minorities cannot be treated in a religious neutral way".The State
is prohibited from discriminating against such educational institutions established and
administered by a religious minority in the matter of granting aid to them. A Constitutional
guarantee of the minority religious denomination's right to establish and administer educational
institutions of their choice coupled with the guarantee of non-discrimination in the matter of
granting aid is unknown to American constitutional system. Similarly, Article 290A mandates
----------------------------------------------------------------------------- * The minorities cannot be treated
in a religious neutral way in the educational institutions established and administered by them.
Clearly that was not the aim of Article 30(1). Article 30(1) was incorporated to secure to the
minorities a fair deal in the name of religion only. It was guaranteed to them as a fundamental right
after a great deal of deliberation of the Framers. It should not be nullified by narrow judicial
interpretation or crabbed pendantry. There must be a broad approach and the Satesman-like vision.
The catholic approach that led to the drafting of the provisions dealing with the minority rights, as
discussed earlier, should not be set at naught. It must be ensured that nothing is done to deprive the
minorities of a sense of belonging and of a feeling of security.
WPs(C).35180/2009 & 10662/2010
- 35 -
the payment of certain amounts from out of the Consolidated Funds of the States of Kerala and
Tamil Nadu for the maintenance of certain Hindu temples and shrines, a Constitutional obligation
necessitated by some historical compulsion. These Articles, in our opinion, clearly indicate that the
State is not totally prohibited from having any association with religion or a religious denomination.
35. The question is, whether these provisions of the Constitution are to be understood as exhaustive
of the permissible limits of the State's association with religion or a religious denomination or only
indicative of the permissible limits of the State's association. In view of the Constitution Bench
decision of the Supreme Court in Bommai's case (supra) declaring that the State's attitude is one of
the benevolent neutrality in the matter of religion, we find it difficult to come to the conclusion that
the abovementioned provisions are exhaustive of the permissible limits of the State's association
with religion.
36. Then the question would be, whether the kind of association which the State of Kerala proposes
to pursue and the impugned action is Constitutionally permissible? To answer the question, we also
deem it appropriate to advert to another aspect of WPs(C).35180/2009 & 10662/2010
- 36 -
the Constitution. Under Article 298, it is declared that the executive power of the Union and of each
State extends to carrying on of any trade or business and also to acquire, hold and dispose of
property and making of contracts for any purpose. If the State has the freedom or the authority to
carry on any trade or business or acquire, hold or dispose of property by entering into any contract
for any purpose, to believe that the State is prohibited from carrying on any trade or business either
with a religious organisation or denomination or an organisation though not religious but proposes
to carry on its business in a manner compliant with a set of beliefs based on a religion, in our
opinion, would be inconsistent with the established rules of interpretation of Constitutional
documents. It is well settled that a broad and liberal spirit should inspire those who are entrusted
with the duty of interpreting the Constitution. The complexity of administration of a modern State
demands a great deal of 'play in the joints' of the State to secure the goal of maintaining benevolent
neutrality with regard to religion. To disable the State by imposing fetters on the power of the State
would neither be in accordance with the settled principles of Constitutional interpretation or
economic health of the State. Therefore, to restrict WPs(C).35180/2009 & 10662/2010
- 37 -
the commercial interaction of the State even with a religious denomination, on the ground that it is
inconsistent with the declaration that the State should be a 'Secular Republic' would be illogical
having regard to the scheme of the Constitution. In our opinion, such interpretation of the
Constitution is not warranted.
37. Whether the impugned decision of the State has the effect of promoting a religion: To find a
constitutionally viable answer to the said question the principle that even religious associations are
required to be treated with political equality and accorded equal civil opportunities for their
development on par with other voluntary associations must be kept in mind. Such a principle
emerges from the fundamental rights guaranteed under Articles 14 to 16, 19 and 25 to 30.
38. The grievance of the petitioners is that since the 6th respondent Company is proposed to be run
in a Shariah compliant manner, association of the State with such a Company would have the effect
of either promoting or aiding a religion. It is not very clear from the record nor the respondents,
either the State of Kerala or the 6th respondent Company or its promoters, offer any explanation as
to what exactly is meant by them when they proclaimed that the WPs(C).35180/2009 & 10662/2010
- 38 -
6th respondent would carry on its business in a Shariah compliant manner.
39. Sharia, we understand, is the legal system based on the Koran and teachings of the Prophet
Mohammed.
"Law in the eyes of the Muslim scholars was not in fact an independent or empirical
study. It was the practical aspect of the religious and social doctrine preached by
Mohammed. For the early Muslims there was little or no distinction between 'legal'
and 'religious'. In the Koran the two aspects are found side by side, or rather
interwoven one with the other, and so likewise in the Hadith.
The study and interpretation of the Koran involved sometimes the one and sometimes the other,
and nearly a century elapsed before scholars began to specialize in one or the other aspect.
Ultimately they were distinguished by relative terms: 'ilm - `positive knowledge', denoting theology
(though not excluding law), and fiqh, `understanding', denoting law (based on theology). Only at a
much later date was Greek word `canon' (qanun) adopted to denote administrative rule as distinct
from revealed law. (Thus `canon law' in Arabic should mean the exact opposite of canon in
European usage.) The connexion between law and religion thus established by Mohammed and
adopted by his followers persisted throughout all later centuries. Characteristically, all expositions
of Muslim law begin with the `religious duties' or `acts of worship', such as ablution, prayer, and
pilgrimage. As in other Semitic religions, law is thought WPs(C).35180/2009 & 10662/2010
- 39 -
of, not as a product of human intelligence and adaptation to changing social needs and ideals, but of
divine inspiration hence immutable. For Muslims its proof-texts were to be found in the Koran and
Prophetic Tradition; and on this assumption the jurists and theologians of the second century
elaborated a structure of law that is, from the point of view of logical perfection, one of the most
brilliant essays of human reasoning.
Before examining the product of this activity, it is of some importance to look a little more closely
into the methods followed by the jurists in their endeavour to systematize their material, for the
insight which it affords into the character of Muslim epistemology and reasoning.
The Koran and the Tradition are not, as it is often said, the basis of Islamic legal speculation, but
only its sources. The real foundation is to be sought in the attitude of mind which determined the
methods of utilizing these sources. The first question, then, is not `What is laid down in the Koran
and the Hadith?', but `Why are the Koran and the Hadith accepted as sources of law?', and the
second is `How are their prescriptions to be understood and applied?' To answer the first question
by saying that Koran and the Hadith are accepted as infallible sources because they are the
foundations and title-deeds of the religion of Islam is to argue in a circle. The ultimate reason is
metaphysical and a priori. It is a conviction of the imperfection of human reason and its inability to
apprehend by its sole powers the real nature of the Good or indeed any reality whatsoever. Absolute
good and evil can therefore be known to men WPs(C).35180/2009 & 10662/2010
- 40 -
only through a divine revelation mediated through Prophets. By Divine Providence there has been a
succession of such Prophets ever since, by the creation of Adam (who was the first of them),
mankind has existed on this earth. The revelations accorded to these Prophets were all identical in
principle, but formed a gradually developing series adapted to the stages of man's development.
Each in turn expanded, modified, and abrogated the preceding revelations. The Koran is the final
revelation and therefore contains the final and most perfect solutions for all questions of belief and
conduct.
(Quoted from HAR Gibb............) It is claimed to be the municipal law followed by some countries in
the Middle East. The principle of the private international law followed by all the countries which
follow the Anglo-Saxon jurisprudence is that foreign law is always a question of fact in so far as
municipal Courts are concerned. Therefore the question as to what are those principles of the law of
Shariah which regulate the business such as the one proposed to be carried on by the 6th respondent
Company is required to be clearly pleaded and proved.
40. In the absence of any clear pleading much less the proof of those principles of Shariah which the
respondents propose to comply with while carrying on the business, we can only proceed on the
view that the respondents proposed to carry on the business WPs(C).35180/2009 & 10662/2010
- 41 -
in accordance with some principles based on certain teachings of the Prophet. We must also make it
clear that the respondents made an emphatic statement at the Bar that they are bound to follow
each and every prescription of law of this country. In addition, they also intend to observe certain
principles of Shariah.
41. In response to a specific query of the Court as to what are those principles of the law of Shariah
which are inconsistent with the mandate of secular State contemplated by the Constitution of India
or the laws of India, the petitioner rightly answered that unless the respondents plead clearly as to
what are the principles of Sharia they propose to follow, it is not possible to answer the question.
42. In the circumstances we are only left with a situation that the respondents propose to carry on
the business of a 'non-banking financial institution' in accordance with the laws of the land and in
addition follow some principles of Shariah in carrying on such business.
43. Every legal system has some basis in some religion or religious beliefs. For example, all legal
systems known to a civilized world disapprove activities such as theft, causing harm to
WPs(C).35180/2009 & 10662/2010
- 42 -
fellow human beings,licentiousness, etc. It is also equally true that no major religion known to
humanity approves any one of the above activities. Therefore, to categorize laws which disapprove
or prohibit such activities as non-secular merely because the prescription of such laws also coincides
with certain religious beliefs and avoid such State action that it should be non-secular would not be
conducive to the promotion of an orderly society either secular or non-secular. If the purposes of the
State are to be classified as "non-secular" simply because the mandate of the law made by the State
coincided with the beliefs of a religion or originated in a religion, virtually no law can be made. In
our opinion it is for the above mentioned reason both Articles 25 and 26 open with the clause:
"subject to public order, morality and health......" The makers of the Constitution realised that there
can always be claims that either a belief or conduct based on a belief is a part of the fundamental
right to practice and profess a religion. If such a right were to be absolute most of the modern law
would be offending the fundamental right to practice some religion or the other. The same principle
in our opinion should apply in deciding the question WPs(C).35180/2009 & 10662/2010
- 43 -
whether the association of the State with any activity is to be classified as aimed at a non-secular
purpose or promoting a religion.
44. It is not in dispute that whatever the basis of Shariah, the principles of Shariah are meant to
regulate the conduct of human beings adhering to the said system of law. Such an adherence may be
with a view to either secure the establishment of an orderly society and maintain the same or to
secure the devine approval for the human conduct or both. Whatever be the motive of the adherent,
so long as the belief results in regulating the interaction between human beings, in our opinion, it is
required to be treated as a secular aspect of a religious belief.
45. Looked at from the above angle, when the respondents propose to carry on the business of the
6th respondent Company in a Shariah compliant manner in addition to complying with the law of
this country, that cannot be condemned as either promoting a religion or aiding a religion.
46. The other submission made by the petitioners is that the action of the State to participate in
equity of the 6th respondent Company would necessarily involve expenditure of money from the
exchequer, which in turn is money collected, by way of tax, from WPs(C).35180/2009 &
10662/2010
- 44 -
the people and therefore is violative of Article 27* of the Constitution.
47. In Shirur Mutt's case (supra), the Supreme Court held:
"What is forbidden by the article is the specific appropriation of the proceeds of any
tax in payment of expenses for the promotion or maintenance of any particular
religion or religious denomination. The reason underlying this provision is obvious.
Ours being a secular State and there being freedom of religion guaranteed by the
Constitution, both to individuals and to groups, it is against the policy of the
Constitution to pay out of public funds any money for the promotion or maintenance
of any particular religion or religious denomination".
48. In T.M.A.Pai Foundation and others v. State of Karnataka and others [(2002) 8 SCC 481]
dealing with Article 27 of the Constitution, per Kirpal, C.J. observed at paragraph 85 as follows:
"Secularism being one of the important basic features of our Constitution, Article 27
provides that no person shall be compelled to pay any taxes, the proceeds of which
are specifically appropriated for
--------------------------------------------------------------------------------------------------------
*Art.27. Freedom as to payment of taxes for promotion of any particular religion.- No person shall
be compelled to pay any taxes, the proceeds of which are specifically appropriated in payment of
expenses for the promotion or maintenance of any particular religion or religious denomination.
WPs(C).35180/2009 & 10662/2010
- 45 -
the payment of expenses for the promotion and maintenance of any particular religion or religious
denomination. The manner in which the article has been framed does not prohibit the State from
enacting a law to incur expenses for the promotion or maintenance of any particular religion or
religious denomination, but specifies that by that law, no person can be compelled to pay any tax,
the proceeds of which are to be so utilized. In other words, if there is a tax for the promotion or
maintenance of any particular religion or religious denomination, no person can be compelled to
pay any such tax." Such an observation came to be made in the context of the question whether a
minority educational institution which received financial aid from the State can prefer candidates of
their own community in the matter of admission to the various courses and whether State's financial
aid to such an institution which insists upon the maintenance for preference is violative of Article 27
of the Constitution of India.
49. The scope of Article 27 vis-a-vis the utilization of State's funds fell for consideration of the
various courts in the following cases. In Surksh Chandra Chiman Lal Shah v. Union of India and
others (ILR 1975 Delhi 32) a Division Bench of the Delhi High Court considered the legality of a
programme of the Union of India involving an expenditure of about Rupees fifty lakhs in
WPs(C).35180/2009 & 10662/2010
- 46 -
connection with the celebration of the 2500th Anniversary of Bhagwan Mahavir's Nirvan. Under the
programme various activities including arrangement for imparting of knowledge about the life and
teachings of Bhagwan Mahavir to the children were undertaken. Such an expenditure came to be
challenged as violative of Article 27 of the Constitution on various grounds. A Division Bench of the
Delhi High Court came to the conclusion that the various activities undertaken in the above
programme do not constitute promotion or maintenance of the Jain religion.
50. In Mahanagar Gaziabad Chetna Munch v. State of U.P. (2007 (2) AWC 1113) a Division Bench of
the Allahabad High Court had occasion to consider the legality of the decision of the State of U.P. to
lease out a piece of land to the Haj Samithy of U.P. for a period of 30 years and also the payment of
an amount of Rupees two crores from out of the State fund for construction of the Haj House. The
challenge was repelled by the High Court. At paragraph 41 of the judgment the Court held as
follows:
"From the aforesaid discussion it is crystal clear that promotion or maintenance of
any particular religion or religious denomination by a State and administrative
exigency to protect the interest of the citizen belonging to one religion of the secular
State WPs(C).35180/2009 & 10662/2010
- 47 -
are two distinct and different features. No public fund can be misutilized for the
purpose of promotion or maintenance of any particular religion or religious
denomination. But there is no bar to the administration to protect the interest of the
pilgrims of one religion because such pilgrims are the citizens of the secular State."
The Court on an elaborate consideration of the matter concluded as follows:
".............we do not find that any sum from the State exchequer is proposed to be
utilized for the promotion or maintenance of any particular religion or religious
denomination but to facilitate pilgrims for going Haj. Facilitating the pilgrims is an
administrative action, which can not be held to be religious action for its promotion
or maintenance."
51. In Vijay Harishchandra Patel v. Union of India [(2009) 3 GLR 2153] a Division Bench of the
Gujarat High Court had occasion to deal with the question whether certain steps taken by the Union
of India and the Planning Commission to utilize the national resources in favour of a particular
minority community was legal. The challenge was on various grounds. One of the grounds is
whether such an expenditure is violative of Article 27 of the Constitution. At paragraph 12 of the
judgment the Court held as follows:
WPs(C).35180/2009 & 10662/2010
- 48 -
"Petitioner has raised the contention that national resources are being utilised for betterment of a
particular religion which is impermissible in law. Law is well settled that a State is prohibited to
patronage any particular religion. Ours is a Secular nation and it has no religion of its own and no
particular religion can receive any special patronage from the State. State's endeavour to improve
health, family welfare, safety recreation and general well-being of the citizens of the minority
community may indirectly impose burden on the State exchequer, but it cannot be said that those
actions of the State would amount to patronizing any particular religion. Article 27 of the
Constitution states that no person shall be compelled to pay any taxes, the proceeds of which are
specifically appropriated in payment of expenses for the promotion or maintenance of any particular
religion or religious denomination. Funds utilised by the States for improving the basic amenities,
providing infrastructure facilities to minority concentrated areas, improvement of their health,
family welfare, safety, general well-being, spreading literacy, providing education, etc. would not
violate Article 27 of the Constitution. Funds are not utilised for inculcating any religion or
advancement of any particular religion affecting the constitutional requirement of neutrality."
52. The decisions demonstrate that the courts examined the dominant purpose behind the State
action in deciding whether the State action is in violation of Article 27. The principle that emerges
from the above decisions is that the spending of money by WPs(C).35180/2009 & 10662/2010
- 49 -
the State on an activity which has a basis in some religion does not by itself attract the prohibition
contained in Article 27. If that were to be so, all the policies of the State which provide subsidization
of the food to poor people would also attract the prohibition contained in Article 27 as such a
practice not only coincides but also is rooted in religious belief common to all major religions that
feeding the poor is a meritorious activity. In our opinion to attract the prohibition of Article 27 the
State action must have the effect of intentionally and directly promoting or maintaining any
particular religion. To ascertain the same the purpose behind the expenditure and the primary result
of such an activity are required to be examined.
53. In the instant case, the State has clearly explained in its affidavit the reasons which prompted
the State to take the impugned decision. In paragraphs 7, 8 and 9 of the affidavit filed on behalf of
the State of Kerala, the purpose behind the decision of the State is explained as follows:
"7. At present there is considerable dearth of Industrial and Infrastructural projects
in the State of Kerala which without the availability of sufficient finance will remain
an insurmountable problem, hindering to a great extend, the overall progress of the
State in general, and its advancement in the industrial and infrastructural sectors, in
particular. To add to this adverse situation, the refinancing scheme of
WPs(C).35180/2009 & 10662/2010
- 50 -
the Industrial Development Bank of India, which was the main source of finance for
the 3rd respondent, has also been discontinued with the conversion of the Industrial
Development Bank into a Commercial Bank resulting in the 3rd respondent ceasing
to have its principal source of finance for Industrial financing.
8. In the meantime, it was in the scheme of the 1st respondent-State to have a few of
the major infrastructure projects to be implemented which would have resulted in an
unprecedented advancement in the industrial and infrastructural sectors of the State
leading the State and its people a long way to well-being and prosperity. This could
not be achieved only for the reason of want of sufficient funds. To name a few of such
projects, a Rail Corridor Project from Kasargode to Thiruvananthapuram and from
Cochin to Coimbatore which for its implementation requires approximately
Rs.50000 Crores in capital investment and an ultra Mega Power Project of 2400
MVA at Cheemeni in Kasargode involving Rs.13000 Crores investment, could not
either be implemented or remain delayed for want of funds. Apart from the above,
the 3rd respondent is also promoting Industrial Growth Centers at various locations,
Life Science Park at Thiruvananthapuram, Electronic Hub, City Gas Distribution
Projects, Trade and Convention Centre at Kochi, Petrochemical Project at Kochi etc.
all of which require for their establishment and implementation, substantial funds.
9. On a consideration of the matter, and studying the situation in detail, it came to the notice of the
Government that there were huge unutilized funds in Gulf countries as also with non-resident
Indians and if only such funds could be availed of, the situation confronted by them which operates
to the great detriment in progress and advancement of WPs(C).35180/2009 & 10662/2010
- 51 -
the State and its people could be tied over. But such sources were averse to collecting or receiving
interest on deposits or loans of any kind in accordance with the Shariah Principles followed by them.
In such a state of affairs, the Government entrusted KSIDC with conducting studies and looking into
various aspects of formation of a Company in Kerala for attracting investments for the development
of the common public at large. The 3rd respondent with a view to explore the possibility of securing
fresh source of finance arranged to get a feasibility report prepared by M/s.Ernst & Young (P) Ltd.,
Mumbai, a reputed International Financial and Professional Consultant. The said consultant
conducted an elaborate study of the matter and submitted a detailed project report to the 3rd
respondent wherein they have recommended the incorporation of a company for carrying on the
business of leasing and hire purchase, investment in shares and to act as financiers, portfolio
managers, finance brokers and guarantors. The business activities thus proposed which were of a
wide range required huge financial investments. One of the recommendations in the project report
was that the business activities of the company shall not embark or undertake any interest based
financing. It was pursuant to the said project report that a company with the name Al Barakh
Financial Services Ltd. was registered under the companies Act, the Memorandum and Articles of
Association together with the certificate of Incorporation of which have been produced and marked
as Ext.R3(a) along with the counter-affidavit filed by the 3rd respondent. It is submitted that the
said company has been promoted and incorporated as a joint initiative of KSIDC and private
promoters. The private promoters include Industrialists and business belonging to different
religions, who have big and substantial WPs(C).35180/2009 & 10662/2010
- 52 -
industrial and business enterprises in Gulf Countries as well as in India. The 3rd respondent is only
a minority share holder in the said company with 11% share capital contribution".
It can be seen from the above that the purpose and intention of the State in taking the impugned
decision is to secure a commercial benefit from the activity proposed to be carried on by the 6th
respondent Company by generating adequate funds for the development of the State.
54. Coming to the question whether the impugned action has the direct and primary effect of
promoting or maintaining the religion, it is not demonstrated before us as to how such a result is
achieved by the impugned action. The money from the exchequer would not be paid to any
institution whose primary purpose is to carry on religious activity like preaching of or propagating a
religion. The payment of money from the exchequer is proposed to be made with a view to achieve a
commercial benefit. Such payment would be made to a corporate body which proposes to carry on
the business in compliance with certain principles based on the religious text of a particular religion,
but not to propagate religion. In our view such a payment would not have the primary and direct
effect of supporting or maintaining the religion. The main and primary purpose of the 6th
WPs(C).35180/2009 & 10662/2010
- 53 -
respondent is commerce but not propagation of religion. On the other hand, the denial of the State
to participate only on the ground that the 6th respondent proposes to carry on the business in
compliance with Shariah may amount to discrimination on the basis of religion. Our conclusion is
further fortified by the order of the Supreme Court in Writ Petition (Civil) No.1 of 2007 dated
28.01.2011 (Prafull Goradia v. Union of India). The Supreme Court was considering the
Constitutionality of the Government of India's granting subsidy in the air fare of the Haj pilgrims,
specifically in the context of Article 27 of the Constitution of India. The Supreme Court rejected the
challenge and observed as follows:-
"In our opinion Article 27 would be violated if a substantial part of the entire income
tax collected in India, or a substantial part of the entire central excise or the customs
duties or sales tax, or a substantial part of any other tax collected in India, were to be
utilized for promotion or maintenance of any particular religion or religious
denomination. In other words, suppose 25 per cent of the entire income tax collected
in India was utilized for promoting or maintaining any particular religion or religious
denomination, that, in our opinion, would be violative of Article 27 of the
Constitution".
55. One more submission of the petitioners which is required to be examined is the submission
made on the basis of paragraph 4 of the counter affidavit filed on 07.09.2010 by the Union
WPs(C).35180/2009 & 10662/2010
- 54 -
of India. Paragraph 4 of the counter affidavit reads as follows:
"Government of India have always maintained that in the current statutory and
regulatory frame work, it is not legally feasible for banks in India to undertake
Islamic Banking activities in India or for branches of Indian Banks abroad to
undertake Islamic Banking outside India. This has been the stance of the
Government of India even while giving reply to Questions in the Parliament as well as
in response to various VIP correspondences on the subject. The said stance of the
Government of India is applicable mutatis mutandis to the activities of NBFCs also."
The petitioners argued that in view of the stand taken by the Government of India, the State of
Kerala cannot be a shareholder in a company which proposes to carry on the business in Sharia
compliant manner.
56. On the other hand, it is argued by Dr.Dhavan that the opinion such as the one contained in the
affidavit filed by the Under Secretary of the Government of India in the Ministry of Finance is not
determinative of the Constitutional interpretation. Secondly, even on the examination of the
language of the statement of Mr.M.M.Dawla (Under Secretary), it is his opinion that the activities of
the Islamic Banking are not legally feasible "in the current statutory and regulatory frame work".
Dr.Dhavan submitted that the issue before this Court is the Constitutionality of the action of the
WPs(C).35180/2009 & 10662/2010
- 55 -
State of Kerala, but not whether the existing statutory framework permits the carrying on of "Islamic
Banking" activity. He further submitted that except making such an omnibus statement no specific
prohibition contained in any statute which makes it impermissible to carry on the Islamic Banking is
brought to our notice.
57. We see substantial force in the submission made by Dr.Dhavan. The Supreme Court in Sanjeev
Coke Manufacturing Co. v. M/s.Bharat Coking Coal Limited [(1983) 1 SCC 147] at paragraph 25 held
as follows:
"But, in the ultimate analysis, we are not really to concern ourselves with the
hollowness or the self-condemnatory nature of the statements made in the affidavits
filed by the respondents to justify and sustain the legislation. The deponents of the
affidavits filed into court may speak for the parties on whose behalf they swear to the
statements. They do not speak for the Parliament. No one may speak for the
Parliament and Parliament is never before the court. After Parliament has said what
it intends to say, only the court may say what the Parliament meant to say. None else.
Once a statute leaves Parliament House, the Court is the only authentic voice which
may echo (interpret) the Parliament. This the court will do with reference to the
language of the statute and other permissible aids. The executive Government may
place before the court their understanding of what Parliament has said or intended to
say or what they think was Parliament's WPs(C).35180/2009 & 10662/2010
- 56 -
object and all the facts and circumstances which in their view led to the legislation.
When they do so, they do not speak for Parliament. No Act of Parliament may be
struck down because of the understanding or misunderstanding of parliamentary
intention by the executive Government or because their (the Government's)
spokesmen do not bring out relevant circumstances but indulge in empty and
self-defeating affidavits. They do not and they cannot bind Parliament. Validity of
legislation is not to be judged merely by affidavits filed on behalf of the State, but by
all the relevant circumstances which the court may ultimately find and more
especially by what may be gathered from what the legislature has itself said."
In other words, the Supreme Court held that while interpreting the Constitution or determining the
constitutional validity of the statutes the court cannot be guided by the views expressed by
individual officers of the State as the court has to ascertain the true meaning of the statutes made by
the legislature. In our opinion, the principle applies with a greater vigour in determining the
constitutionality of the State action.
58. We do not propose to deal with this question any further for the reason that whether the 6th
respondent company can carry on the business such as the one proposed by the Union of India or
whether such a business is prohibited by any statute are questions which in our opinion are
primarily to be dealt with by the Reserve Bank of India. The Reserve Bank of India is yet to examine
WPs(C).35180/2009 & 10662/2010
- 57 -
this question and we do not propose to preempt such an examination. We are also conscious of the
fact, assuming for any reason, that there is some provision in law which either seek to regulate or
prohibit such an activity of the 6th respondent, the right of the 6th respondent or its shareholders to
question the constitutionality of such a regulation or prohibition cannot be ignored or jeopardised.
59. Lastly, we come to the submission made by Sri.Kaleeswaram Raj appearing for the petitioner in
W.P.(C) No.10662 of 2010 that the impugned decision of the State of Kerala is violative of Article 14
of the Constitution as the said decision was taken in an arbitrary manner without following any
transparent procedure. The learned counsel for the petitioner heavily relied upon paragraphs 10 and
11 of the decision of the Supreme Court in M/s.Kasturi Lal Lakshmi Reddy,etc. v. the State of
Jammu & Kashmir and another (AIR 1980 SC 1992) which reads as follows:
"10. It was pointed out by this Court in "Ramana Dayaram Shetty v. The
International Airport Authority of India (1979) 3 SCC 489: (AIR 1979 SC 1628)" that
with the growth of the welfare State, new forms of property in the shape of Govt.
largess are developing, since the Government is increasingly assuming the rule of
regulator and dispenser of social WPs(C).35180/2009 & 10662/2010
- 58 -
services and provider of a large number of benefits including jobs, contracts, licences,
quotas, mineral rights etc. There is increasing expansion of the magnitude and range
of governmental functions, as we move closer to the welfare State, and the result is
that more and more of our wealth consists of these new forms of property. Some of
these forms of wealth may be in the nature of legal rights but the large majority of
them are in the nature of privileges. The law has however not been slow to recognise
the importance of this new kind of wealth and the need to protect individual interest
in it and with that end in view, it has developed new forms of protection. Some
interests in Government largess, formerly regarded as privileges, have been
recognised as rights, while others have been given legal protection not only by forging
procedural safeguards but also by confining, structuring and checking Government
discretion in the matter of grant of such largess. The discretion of the Government
has been held to be not unlimited in that the Government cannot give largess in its
arbitrary discretion or at its sweet will or on such terms as it chooses in its absolute
discretion. There are two limitations imposed by law which structure and control the
discretion of the Government in this behalf. The first is in regard to the terms on
which largess may be granted and the other, in regard to the persons who may be
recipients of such largess.
11. So far as the first limitation is concerned, it flows directly from the thesis that,
unlike private individual, the State cannot act as it pleases in the matter of giving
largess. Though ordinarily a private individual would be guided by economic
considerations of self-gain in any action taken by him, it is always open to him under
the law to act contrary to his self-interest or to oblige another in entering into a
contract or dealing with his property. But the Government is not free to act as it likes
in granting largess such as awarding a contract or selling or leasing out its property.
WPs(C).35180/2009 & 10662/2010
- 59 -
Whatever be its activity, the Government is still the Government and is, subject to restraints
inherent in its position in a democratic society. The constitutional power conferred on the
Government cannot be exercised by it arbitrarily or capriciously or in an unprincipled manner, it
has to be exercised for the public good. Every activity of the Government has a public element in it
and it must, therefore, be informed with reason and guided by public interest. Every action taken by
the Government must be in public interest; the Government cannot act arbitrarily and without
reason and if it does, its action would be liable to be invalidated. If the Government awards a
contract or leases out or otherwise deals with its property or grants any other largess, it would be
liable to be tested for its validity on the touchstone of reasonableness and public interest and if it
fails to satisfy either test, it would be unconstitutional and invalid."
60. On the other hand, Dr.Dhavan, learned counsel appearing for the 6th respondent relied upon a
decision reported in Sachidanand Pandey v. West Bengal [(1987) 2 SCC 324]. At paragraph 40 of the
said judgment the Supreme Court held as follows:-
"Public auction is the ordinary rule, it is not an invariable rule. There may be
situations where there are compelling reasons necessitating departure from the rule
but then the reasons for the departure must be rational and should not be suggestive
of discrimination. Appearance of public justice is as important as doing justice.
Nothing should be done which gives the appearance of bias, jobbery or nepotism."
WPs(C).35180/2009 & 10662/2010
- 60 -
61. In our opinion, calling of tenders is not the only procedure which answers the requirement of
non-arbitrariness on the part of the State. When the State is intending to purchase or sell property
or goods or seeking to have certain work like construction of a building or a project, etc. to be done
by private parties inviting competitive bids from persons interested is generally a rational and
transparent process, but even in such cases courts have recognised exceptions to the rule. However,
in a case like the one on hand where the State is proposing to carry on some business by
participating in a venture jointly with others, the decision cannot in any way be called distribution of
largess. It is not the case of either of the petitioners that they are also interested in carrying on the
same business that is to be carried on by the 6th respondent, nor some other persons would be
interested in such business and if only the State of Kerala advertised its intention to participate in
such business venture there would have been more competition enabling the State of Kerala to take
a decision which would be economically more beneficial to the State. We are of the opinion that by
the very nature of the impugned decision it is incompatible with the process of inviting tenders. We
therefore reject this submission. WPs(C).35180/2009 & 10662/2010
- 61 -
For all the above mentioned reasons we do not see any merit in these writ petitions. Therefore, the
writ petitions are dismissed.
Sd/-
J.Chelameswar, Chief Justice Sd/-
P.R.Ramachandra Menon, Judge vns/vku.

Kerala High Court Judgement On Islamic Banking

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Kerala High Court Judgement On Islamic Banking

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Kerala High Court

Dr.Surbahmaniam Swamy vs State Of Kerala on 27 January, 2011

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