Sunteți pe pagina 1din 28


WP(C).No. 35180 of 2009(S)


... Petitioner
... Respondent


Respondent :SRI.M.PATHROSE MATTHAI (SR.) The Hon'ble the Chief Justice
Dated :27/01/2011


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


J.Chelameswar, C.J.

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 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 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
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:


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 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.


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.


ACS with minimum 5 years' post-qualification experience. He will

report to the CEO.


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

of certificates, recent passport size photograph, on or before 30th

September 2009, super scribing the envelope "APPLICATION
(F&A)" to:

The Managing Director,

Kerala State Industrial Development Corporation Ltd.,

Choice Towers, Manorama Junction, KOCHI - 682 016.

Web Site :"

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 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 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 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

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 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 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

"(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.

(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

(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

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

'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 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 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 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 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 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.

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 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

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".

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".

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 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.

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".

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, 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 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:

"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
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 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.

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 perhaps would be wholly impermissible under the scheme of American

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 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.

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 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

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 6th respondent would carry on its business in a Shariah compliant

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

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 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

(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
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

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 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 whether the association of the State
with any activity is to be classified as aimed at a non-secular purpose or promoting a

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 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.

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 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 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:

"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 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 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

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 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 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
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 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 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
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 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 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.

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."

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

For all the above mentioned reasons we do not see any merit in these writ petitions.
Therefore, the writ petitions are dismissed.



Chief Justice


P.R.Ramachandra Menon,