“Nationalisation,” Indira Gandhi proclaimed, “is necessary for the speedy achievement of these objectives.”
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In a 7 August 1969 speech on All India Radio, Prime Minister Indira Gandhi called upon the ghost of “a socialist pattern of society” with control over the commanding heights of the economy to justify an ordinance that nationalised banks. She highlighted the purpose of nationalisation: removing control of the few; providing adequate credit for agriculture, small industry and exports; giving a professional bent to bank management; encouraging a new class of entrepreneurs. “Nationalisation,” she proclaimed, <1> “is necessary for the speedy achievement of these objectives.” None of those objectives materialised. Instead, the ordinance was turned into law by Parliament, under the Banking <2> Companies (Acquisition and Transfer of Undertakings) Act of 1970, deemed to have come into force on 19 July 1969, “to provide for the acquisition and transfer of the undertakings of certain banking companies, having regard to their size, resources, coverage and organisation, in order to control the heights of the economy and to meet progressively and serve better, the needs of development of the economy in conformity with national policy and objectives.” Under this law, 14 banks with 85 percent of deposits totalling Rs. 50 crore were nationalised — Central Bank of India, Bank of India, Punjab National Bank, Bank of Baroda, United Commercial Bank, Canara Bank, United Bank of India, Dena Bank, Syndicate Bank, Union Bank of India, Allahabad Bank, Indian Bank, Bank of Maharashtra and Indian Overseas Bank — to serve better the needs of development of the economy in conformity with national policy objectives. The government had come prepared, having passed the enabling provisions through the 1 February 1969 amendments to the Banking Regulation Act of 1949. But it did not stand before the Supreme Court, which held that the Act was “invalid”, and thus, the action taken in exercise of the powers under the Act were declared “unauthorised” through its 10 February 1970 order. <3> The reasons were that the Act was discriminatory, restrictive and allowed for unfair compensation. <4> Once the compensation problem was addressed, nationalisation of the 14 banks went through. It was later followed up with a second round under the 15 April 1980 Banking Companies (Acquisition and Transfer of Undertakings) Act, <5> which nationalised six other banks: Andhra Bank, Corporation Bank, New Bank of India, Oriental Bank of Commerce, Punjab & Sind Bank and Vijaya Bank.
<1> Indira Gandhi, Bank Nationalisation, The Years of Challenge, Selected Speeches of Indira Gandhi, January 1966–August 1969, 128, accessed 4 January 2018.
<2> The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, Syndicate Bank, 19 July 1969, accessed 4 January 2018.
<3> Rustom Cavasjee Cooper vs. Union of India, 1970 AIR 564, 1970 SCR (3) 530, Supreme Court of India, 10 February 1970, accessed 4 January 2018.
<4> Sadhana Sharma, “The Parliament and the Supreme Court: An Analysis,” The Indian Journal of Political Science 41, no. 2 (June 1980): 320–325, accessed 4 January 2018.
<5> The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, Ministry of Law and Justice, Government of India, 11 July 1980, accessed 4 January 2018.
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Gautam Chikermane is a Vice President at ORF. His areas of research are economics, politics and foreign policy. A Jefferson Fellow (Fall 2001) at the East-West ...
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