Kerala High Court
Dilip Rao
Islamic Banking II: Kerala HC Judgment in Subramanyam Swamy v. State of Kerala
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The full judgment of the Kerala High Court in Subramanyam Swamy v. State of Kerala (better known as the ‘Islamic Banking’ case) is available on Judis (WP(C) No.35180 of 2009, J.Chelameswar CJ and P.R.Ramachandra Menon, Date: 27/01/2011). It is fairly well written and well reasoned; so I encourage readers to go through it in detail. For background information regarding Islamic Banking and legal and policy issues in play, I refer the interested reader to the previous post on this topic by Amit Malviya. Briefly, the reasoning it provides is as follows.

Details of the Judgment

Preliminary objections on the ground that petitioners Subramanyam Swamy and others are pro-Hindu, Anti-Muslim and ‘fundamentalist’, the petitions being a vehicle for communal baiting were dismissed by the Court on several grounds, namely that such stereotyping would have the effect of shutting out all public discourse, due process of law is not denied to even terrorists let alone ‘fundamentalists’, all shareholders in the company would be impacted by the outcome regardless of religion, legal objections in a Constitutional Court can never be said to promote communal disharmony and the issues transcend religion, a secular state and fundamental rights being guaranteed to all.

Coming to the substantive questions, the Court first addressed the question of whether Kerala State Industrial Development Corporation’s (KSIDC) 11% equity in the Al Barakh Financial Services Ltd., a registered non-banking financial company (NBFC) committed to offering Sharia compliant financial services, constitutes “undue association with a religious activity amounting to [State] favoring or promoting a religion”. It explained the well recognized position that the Indian constitution does not specifically prescribe a wall of separation between religion and state. Not only are specific exceptions to the secular doctrine made in the Constitution itself (citing Art.30(1) which grants minorities the right to administer educational institutions and Art.290A which allows for transfer of funds from the consolidated fund of India to certain temples in Tamil Nadu and Kerala for their maintenance) but State association with religious institutions is ordinarily permissible as well both in education (citing Art.28(2) and 28(3) which allow the State to administer and/or aid educational institutions set by religious endowments or trusts where religious education may be imparted) and commercial enterprise (Art.298 which grants broad executive authority to the state to engage in commercial interactions with no mention of any exception against involvement with religious denominations) so long as these ventures do not amount to the maintenance or promotion of religion (barred under Art.27). The Kerala government’s notification makes clear that the purpose here is to raise resources through commercial activity for developing the state and this does not amount to the maintenance or promotion of religion. Further, interactions between human beings as prescribed in any religion is required to be treated as a secular aspect of that faith and any association with such activity cannot be condemned as promoting or aiding the religion. State investment in a commercial venture which is to be carried out in adherence with the laws of the land would not violate secularism merely because the company in question is also, in addition, committed to compliance with the Sharia.

As far as violation of the regulatory framework is concerned, the Court did not go into it being of the view that the RBI had not yet looked into the matter and it was not its intention to preempt such an examination.

With regard to violation of equality requirement under Art.14, the petitioners’ contention was that the investment was not done in a transparent manner and was thus arbitrary (arbitrariness has been considered a ground for violation of Art.14 under the Supreme Court’s much criticized precedent in E.P.Royappa v. State of Tamil Nadu). The company argued through Rajeev Dhavan that public auction is not an absolute requirement and may be departed from when rational compelling reasons are present. The Court accepted the latter argument stating that in this instance, the nature of the transaction justified the absence of invitations for tender.


Generally speaking, with respect to the facts of the case, I find the Court’s reasoning to be sound. Without having looked at the briefs of the parties, I will mention a couple of noteworthy points.

(a) The Court did not address any Art.14 challenge on the ground that implications of this venture would unduly benefit/disadvantage some section of the public. This is not surprising considering that no discriminatory intent was evinced by the respondent State or company. To the contrary, they affirmed that services would be provided to all.

(b) The Court’s rather broad argument that all interactions between human beings as prescribed in any religion ought to be treated as secular aspects of that faith is intriguing. There are many cases where the SC has held that only the “essential” aspects of a religion are protected under the fundamental rights but I am aware of no precedent for this view. Nor does the Court cite any reference to support it. If it comes to be accepted, it could imply that any such aspect will be open to state regulation. Many rituals and practices are prescribed by scriptures to be performed by families as a unit or by the community; even when a single individual performs a rite, a priest is often present and some interactions with him/her are an integral part of it. It raises the question whether it can be said that all such interactions, howsover integral they might be to the faith, are “secular” aspects of it and thus not “essential”? Such a proposition may be hard to accept.