ABEY WILSON

4TH SEM LL.M

Introduction
 “There may be no philosophy of nationalisation but
nationalization has non the less expressed an
evolution of thought”
- B.chenot
Social foundation of nationalisation
 Social instinct-Ubi Societas Ibi Jus ( 'where there is society,
there is law‘)
 Instinct of appropriation- natural tendency of man over
physical objects
Economic Foundation
 Marx,engels and his disciple Lenin-”surplus
value”(Mehrwert)
 Derived from socio-economic, political and philosophical
principles
 A form of state intervention which changes ownership and
control of the material means of production from private to
public with a view to achieve some general or some specific
stated or unstated objectives.
 Close connection with the economic policy and
development of a nation
 Core idea- to restrict concentration of wealth -public
interest
 A means to achieve economic growth of a nation
 Katzarov defines:-
Nationalisation is the transformation in the public
interest of a superior kind of specific assets or specific
activity which are or may be, means of production or
exchange in the widest sense of the term into the assets
or activity or the community; state local bodies or
cooperative with a view to their immediate or future
utilisation in the general interest and no longer in the
private interest
Ideological and Political
Backgrounds
 • Pandit Nehru had a firm belief that socialism was the
economic model most suited to India, and needless to
mention that after his demise, his daughter Mrs. Indira
Gandhi effectively continued the legacy of her father’s
belief. •
 In fact, Fabian Socialism was popular in several developing
countries. State control of important industries was seen as
the means to achieve the objective of the greatest good of
the greatest numbers.
 • After independence several states nationalized transport
undertakings; electricity was made a state monopoly and
the insurance sector was nationalized. In the late 1960s,
several refineries and oil companies were nationalized
 Article 19(1) All citizens shall have the right—
 (g) to practise any profession, or to carry on any occupation,
trade or business.
 Article 19(6) Nothing in sub-clause (g) of the said clause shall
affect the operation of any existing law in so far as it imposes, or
prevent the State from making any law imposing, in the
interests of the general public, reasonable restrictions on the
exercise of the right conferred by the said sub-clause, and, in
particular, [nothing in the said sub-clause shall affect the
operation of any existing law in so far as it relates to, or prevent
the State from making any law relating to,—
 (ii) the carrying on by the State, or by a corporation owned or
controlled by the State, of any trade, business, industry or
service, whether to the exclusion, complete or partial, of
citizens or otherwise.]
Article 39 (b) & (c) -The State shall, in particular, direct its policy towards
securing—
 (b) that the ownership and control of the material resources of the
community are so distributed as best to subserve the common good;
 (c) that the operation of the economic system does not result in the
concentration of wealth and means of production to the common detriment;
Article 31C. Notwithstanding anything contained in article 13, no law giving
effect to the policy of the State towards securing all or any of the principles
laid down in Part IV shall be deemed to be void on the ground that it is
inconsistent with, or takes away or abridges any of the rights conferred by
article 14 or article 19; and no law containing a declaration that it is for
giving effect to such policy shall be called in question in any court on the
ground that it does not give effect to such policy:
 Provided that where such law is made by the Legislature of a State, the
provisions of this article shall not apply thereto unless such law, having
been reserved for the consideration of the President, has received his assent.
Article 300A. No person shall be deprived of his property save by authority of
law
Nationalization and Indian
Judiciary
 Motilal V. State of UP (AIR 1951 All.157)
Nationalisation of Road transport in the State of UP-
Struck down by the Court as violating Article 19(1)(g)
court held that nationalization must be by legislation
and legislation have to be justifies under 19(6) .
Sagheer Ahmed V. State of UP (AIR
1954 SC 728)

Court was called upon to consider the validity of the relevant provisions of
the U. P. Road Transport Act and the question had to be decided in the
light of Art. 19(6) as it stood before the' amendment. But at the time
when the judgment of the court was pronounced, the Amendment Act
had been passed, and Mukherjea, J., who spoke for the Court, referred
to this amendment incidentally. '-
The result of the amendment", observed the learned judge, "is
that the State would not have to justify such action as reasonable
at all in a Court of law and no objection could be taken to it on
the ground that it is an infringement of the right guaranteed
under Art. 19(1)(g) of the Constitution. It is quite true that if the
present statute was passed after the coming into force of the new
clause in Art. 19(6) of the Constitution, the question of
reasonableness would
Akadasi v. State of Orissa(AIR 1963
SC 1047)

 Creation of monopoly of Kendu leaves by Orissa Kendu

leaves (Control of Trade) Act, 1961
 Court held that Law creating a state monopoly would be
valid under the latter part of Art. 19 (6), and if it indirectly
impinges on any other right, its validity cannot be
challenged on that ground. If the said law contains other
incidental provisions which are not essential and do not.
constitute an integral part of the monopoly created by it,
the validity of those provisions will have to be tested under
the first part of Art. 19 (6), and if they directly impinge on
any other fundamental right guaranteed by Art. 19 (1), the
validity of the said clauses will have to be tested by
reference to the corresponding clauses of Art. 19
Rustom Cavasjee Cooper vs Union
Of India (1970 AIR 564)

 The President of India on July 19, 1969 promulgated the ‘Banking Companies
(Acquisition and Transfer of Undertaking) Ordinance’ 1969, nationalizing 14
banks having deposits exceeding Rs.50 crores. This was in utter disregard to the
existing Constitutional conventions and norms which became the hallmark of
1970s as Parliament was about to start its monsoon session just after 2 days.
 The most shocking part of the ordinance was the second schedule which spelt
out the compensation to be paid. To determine the quantum of compensation.
Compensation: The Achilles’ heel of the Govt’s Case.
 • Article 31(2) placed two major restrictions on the power of the State to
acquire private property: first, such acquisition had to be for a public purpose
and, secondly, compensation had to be paid for them.
 • The Bank Nationalization Case was not the first case where the issue of
compensation was fatal to the Government. In ‘State of West Bengal v. Bela
Benerjee AIR 1954 SC 170’ the Supreme Court interpreted the expression
‘Compensation ’ as used in Article 31(2) to mean ‘full indemnification’. The
Parliament responded to this judgment with the Constitution (Fourth)
Amendment Act 1955, thereby clarifying that inadequacy of compensation
• Despite this amendment, the Supreme Court, in P Vajravelu Mudaliar
v. Special Deputy Collector, Madras, AIR 1965 SC 1017 as well as
some other decisions held that the expression ‘Compensation’ in
Article 31(2) continued to mean ‘just equivalent’.
• However, the confusion was caused when the Court in State of Gujarat
v. Shantilal Mangaldas [1969] 3 SCR 341 held that the compensation
which was fixed or determined using the principles specified by the
legislature, was not open to challenge on the somewhat indefinite plea
that it failed to meet the standard of a just or fair equivalent. Going by
this judgment, only the principles for determination of compensation,
could be challenged as being irrelevant.
• The majority in the Bank Nationalization Case held that the Acquisition
Act was liable to be struck down as it failed to provide compensation
based on relevant principles.
 The Supreme Court upheld the right of the Union and
State Governments to nationalize banks, or, for that
matter any industry.
 The Parliament re-enacted the Bank Nationalization
Act and an additional sum of Rs.58 crores was paid to
the 14 banks.
State Of Karnataka And Anr vs
Shri Ranganatha Reddy & Anr
(1978 AIR 215)
Karnataka contract carriage (Acquisition) Act, 1976 challenged
court held that the amount payable for the acquired property
either fixed by the legislature or determined on the basis of the
principles engrafted in the law of acquisition cannot be wholly
arbitrary and illusory. In some respects it may be inadequate but
that cannot be a ground for challenge of the constitutionality of the
law under article 31(2)
To classify and allocate certain industries or services or utilities or
articles between the private and the public sectors of the national
economy is to distribute those resources. Nationalisation of
transport as a distributive process is for the good of the community.
It is a matter of public policy left to legislative wisdom whether a
particular scheme of take-over should be undertaken.
 Minerva Mills Ltd. And Ors. vs Union Of India (AIR
1980 SC 1789)
The petitioners challenged the constitutional validity of
certain provisions of the of the Sick Textile Undertakings
(Nationalisation) Act, 1974.
The only question open to judicial review under the
unamended Article 31-C was whether there is a direct and
reasonable nexus between the impugned law and the
provisions of Article 39(b) and (c).
Sanjeev Coke Manufacturing vs Bharat Coking Coal Ltd.(1983 AIR
239)

The Coking Coal Mines (Nationalisation) Act is not violative of

Article 14 of the Constitution. Nationalisation of any industry or
means of production may not be and need not be effected all at
once. It may be achieved in stages. If in the process of
nationalisation some units are left out in the earlier stages either
because it is so planned or because of some mistake it cannot be
said that there has been a violation of Article 14.
•The distribution between public, private and joint sectors and
the extent and range of any scheme of nationalisation are
essentially matters of State policy which are inherently
inappropriate subjects for judicial review. Scales of justice are
just not designed to weigh competing social and economic
factors. In such matters legislative wisdom must prevail and
judicial review must abstain.
Tinsukhia Electric Supply Co. Ltd vs State Of Assam
And Ors (1990 AIR 123)
Whenever any immunity is claimed for a law under
Article 31-C, the Court has the power to examine
whether the provisions of the law are basically and
essentially necessary for the effectuation of the
principles envisaged in Article 39(b) and (c).
Nationalization In UK
 1940-1970- Era of Nationalization
 Heavily influence by Keynesian economy
 The major nationalization efforts were achieved through statute,
including: the Bank of England Act 1946, the Coal Industry
Nationalisation Act 1946, the Civil Aviation Act 1946, the
Transport Act 1946, the Electricity Act 1947, the Gas Act 1948 and
the Iron and Steel Act 1949
 The possibility of nationalization raises important legal issues,
including state liability to the shareholders of privatized
industries.
 British law does not mandate compensation. Compensation is an
issue that will not be decided until renationalization occurs and
the terms of compensation are sta tutorily promulgated.
 Although most of the nationalization statutes provide
for compensation, they generally do not indicate the
actual amount.
 The British legal system is left to interpret the proper
level of compensation to shareholders. The courts have
traditionally interpreted the amount of compensation
to be the fair market value of the shares.
 Identifying the day upon which the value of the shares
will be assessed presents the main problem.
 The market value of the shares invariably depends on
the effect of nationalization.
 The statutes ordinarily did not specify the amount of
compensation, they did not specify the date for assessment
either. The ambiguous date of valuation fosters legal controversy.
 Studholme v. Minister of Fuel and Power, 2 KLB. 804 (C.A.
1951).
The plaintiff held stock in a gas company nationalized under the
Gas Act of 1948. Between 1945 and the Vesting date, the threat of
nationalization, consequent on the result of the general election
[in 1945], depressed the prices of comparable securities and the
company's securities.
 Plaintiff argued that evaluation of shares must exclude any
effects that the Gas Act had on these later securities
 The court denied the plaintiff's claim because the statute had not
accounted for the negative effect and therefore, neither would
the court
Lithgow and Others v. United
Kingdom, 102 Eur. Ct. H.R. (ser. A)
at 1 (1986).
 In that case, the government acquired the plaintiff's shares
when the aircraft and shipbuilding industries were
nationalized in 1977. The plaintiffs claimed that the
compensation paid for their shares was grossly inadequate
in comparison to their market value.
 The European Court found that a state can distinguish
between nationals and non-nationals and that the British
nationals were adequately compensated in this case. The
British court affirmed this result.
 British citizens receive benefits from the state that can
make up for compensation of less than fair market value.
 Additionally, the European Court additionally found
that "legitimate objectives of 'public interest,' such as
measures of economic and social reform, could call for
compensation at less than full market value.
BP Petroleum Developments
Limited v. Ryder, [1987] R.& R. 211
(1987)
 The plaintiff wished to exploit the oil field under his
land. Although the government had nationalized the
oil industry, the plaintiff could apply for the right to
exploit the oil. The government denied the plaintiff's
application and the plaintiff sued for damages.
 The court granted compensation commensurate with
the reduction in the land value, and did not allow the
plaintiff to recover lost profits.
 The court found that consequence of these principles
is that the profitability of the land to the acquirer is
irrelevant to the assessment of compensation.