The relevant freedoms and restrictions with respect to trade under the Indian Constitution are as follows:
“19. Protection of certain rights regarding freedom of speech, etc.-
(1) All citizens shall have the right –
(g) to practise any profession, or to carry on any occupation, trade or business.
(6) Nothing in sub-clause (g) of the said clause shall affect the operation of any existing law in so far as it imposes, or prevent the State from making any law imposing, in the interests of the general public, reasonable restrictions on the exercise of the right conferred by the said sub-clause, and, in particular, nothing in the said sub-clause shall affect the operation of any existing law in so far as it relates to, or prevent the State from making any law relating to,—
(i) the professional or technical qualifications necessary for practising any profession or carrying on any occupation, trade or business, or
(ii) the carrying on by the State, or by a corporation owned or controlled by the State, of any trade, business, industry or service, whether to the exclusion, complete or partial, of citizens or otherwise.”
The text of the Constitution clarifies that the right to carry on trade or business is subject to reasonable restrictions which are imposed in the interests of the general public. Supreme Court has propounded several tests for determining “reasonableness” for the purpose of Article 19(1)(g). These have ranged from testing restrictions for arbitrariness, excessiveness and discerning their objective of compliance with the Directive Principles of State Policy.
In Chintaman Rao v. State of Madhya Pradesh, a Constitution Bench noted the importance of striking the right balance between social control and individual freedom. Justice K C Das Gupta articulated the limitation under Article 19(6) in the following terms:
“6. The phrase “reasonable restriction” connotes that the limitation imposed on a person in enjoyment of the right should not be arbitrary or of an excessive nature, beyond what is required in the interests of the public. The word “reasonable” implies intelligent care and deliberation, that is, the choice of a course which reason dictates.
Legislation which arbitrarily or excessively invades the right cannot be said to contain the quality of reasonableness and unless it strikes a proper balance between the freedom guaranteed in Article 19(1)(g) and the social control permitted by clause (6) of Article 19, it must be held to be wanting in that quality.”
In M R F Ltd. v. Inspector Kerala Government, a two judge Bench of the Court consolidated the body of precedent of the Court on Article 19(1)(g). Justice S Saghir Ahmed noted the following principles that govern the restrictions under Article 19(6):
(1) While considering the reasonableness of the restrictions, the court has to keep in mind the Directive Principles of State Policy.
(2) Restrictions must not be arbitrary or of an excessive nature so as to go beyond the requirement of the interest of the general public.
(3) In order to judge the reasonableness of the restrictions, no abstract or general pattern or a fixed principle can be laid down so as to be of universal application and the same will vary from case to case as also with regard to changing conditions, values of human life, social philosophy of the Constitution, prevailing conditions and the surrounding circumstances.
(4) A just balance has to be struck between the restrictions imposed and the social control envisaged by clause (6) of Article 19.
(5) Prevailing social values as also social needs which are intended to be satisfied by restrictions have to be borne in mind.
(6) There must be a direct and proximate nexus or a reasonable connection between the restrictions imposed and the object sought to be achieved. If there is a direct nexus between the restrictions and the object of the Act, then a strong presumption in favour of the constitutionality of the Act will naturally arise.”
The Court has also consistently held that restrictions on the freedom to carry on trade and business can take the form of a complete prohibition. However, in B P Sharma v. Union of India, a two judge Bench of the Court has espoused a higher threshold for imposition of a prohibitive restriction. A legitimate object and prejudice to the general public by non-imposition of such prohibition has to be demonstrated by the State, to discharge its burden of demonstrating reasonableness underArticle 19(6). Justice Brijesh Kumar held:
“15. The freedom under Article 19(1)(g) can also be completely curtailed in certain circumstances e.g. where the profession chosen is so inherently pernicious that nobody can be considered to have a fundamental right to carry on such business, trade, calling or profession like gambling, betting or dealing in intoxicants or an activity injurious to public health and morals.
It may be useful to refer to a few decisions of this Court on the point at this stage viz. in Saghir Ahmad v. State of U.P. [AIR 1954 SC 728 : (1955) 1 SCR 707] and J.K. Industries Ltd. v. Chief Inspector of Factories and Boilers [(1996) 6 SCC 665] . The main purpose of restricting the exercise of the right is to strike a balance between individual freedom and social control. The freedom, however, as guaranteed under Article 19(1)(g) is valuable and cannot be violated on grounds which are not established to be in public interest or just on the basis that it is permissible to do so.
For placing a complete prohibition on any professional activity, there must exist some strong reason for the same with a view to attain some legitimate object and in case of non-imposition of such prohibition, it may result in jeopardizing or seriously affecting the interest of the people in general.
If it is not so, it would not be a reasonable restriction if placed on exercise of the right guaranteed under Article 19(1)(g). The phrase “in the interest of the general public” has come to be considered in several decisions and it has been held that it would comprise within its ambit interests like public health and morals….”
The test of proportionality
Various principles have been espoused by the court to bring about a balance between the perceived interest of the state of social control over the economy, with the rights and freedoms of individuals. The judicial evolution of a four-pronged analysis of proportionality displaces the varying standards that were prescribed to determine “reasonableness” under Article 19(6). The qualitative nature of a right and the corresponding scrutiny of its violation cannot be a sole function of the degree of restriction.
Every violation of rights, irrespective of the degree of the infraction, must be evaluated through a uniform principle that promotes a culture of justification. The decision of a nine-judge Bench of this Court in K S Puttaswamy v. Union of India (“K S Puttaswamy (9J)”) prescribed a proportionality analysis for determining violations of fundamental rights under Part III. A proportionality analysis can adequately consider the constitutionality of prohibitive measures on commercial activities.
An analysis of legitimate social control for the purpose of Article 19(6) has been streamlined by the Court through the lens of proportionality. A two-judge Bench of the Court in Om Kumar v. Union of India introduced the test of proportionality for determining the reasonableness of restrictions on freedoms guaranteed under Article 19(1).
Justice M Jagannadha Rao traced the historical application of the principle in this Court’s precedent and in a comparative context. The judgment defined the concept in the following terms:
“28. By “proportionality”, we mean the question whether, while regulating exercise of fundamental rights, the appropriate or least-restrictive choice of measures has been made by the legislature or the administrator so as to achieve the object of the legislation or the purpose of the administrative order, as the case may be.
Under the principle, the court will see that the legislature and the administrative authority “maintain a proper balance between the adverse effects which the legislation or the administrative order may have on the rights, liberties or interests of persons keeping in mind the purpose which they were intended to serve”.
The legislature and the administrative authority are, however, given an area of discretion or a range of choices but as to whether the choice made infringes the rights excessively or not is for the court. That is what is meant by proportionality.”
The test was made applicable to testing the validity of legislation as well as administrative action:
“53. Now under Articles 19(2) to (6), restrictions on fundamental freedoms can be imposed only by legislation. In cases where such legislation is made and the restrictions are reasonable yet, if the statute concerned permitted the administrative authorities to exercise power or discretion while imposing restrictions in individual situations, question frequently arises whether a wrong choice is made by the administrator for imposing restriction or whether the administrator has not properly balanced the fundamental right and the need for the restriction or whether he has imposed the least of the restrictions or the reasonable quantum of restriction etc.
In such cases, the administrative action in our country, in our view, has to be tested on the principle of “proportionality”, just as it is done in the case of the main legislation. This, in fact, is being done by our courts.”
A Constitution Bench, in Modern Dental College and Research Centre v. State of Madhya Pradesh (“Modern Dental College”), validated the test of proportionality for determining the reasonableness of a restriction under Article 19(6). Justice A K Sikri accepted the Canadian Supreme Court’s analysis of the doctrine of proportionality and held it to be applicable to constitutional rights in India. The Court noted:
“63. In this direction, the next question that arises is as to what criteria is to be adopted for a proper balance between the two facets viz. the rights and limitations imposed upon it by a statute. Here comes the concept of “proportionality”, which is a proper criterion. To put it pithily, when a law limits a constitutional right, such a limitation is constitutional if it is proportional.
The law imposing restrictions will be treated as proportional if it is meant to achieve a proper purpose, and if the measures taken to achieve such a purpose are rationally connected to the purpose, and such measures are necessary.
This essence of doctrine of proportionality is beautifully captured by Dickson, C.J. of Canada in R. v. Oakes [R. v. Oakes, (1986) 1 SCR 103 (Can SC)], in the following words (at p. 138):
“To establish that a limit is reasonable and demonstrably justified in a free and democratic society, two central criteria must be satisfied. First, the objective, which the measures, responsible for a limit on a Charter right or freedom are designed to serve, must be “of” sufficient importance to warrant overriding a constitutional protected right or freedom …
Second … the party invoking Section 1 must show that the means chosen are reasonable and demonstrably justified. This involves “a form of proportionality test…”
Although the nature of the proportionality test will vary depending on the circumstances, in each case courts will be required to balance the interests of society with those of individuals and groups. There are, in my view, three important components of a proportionality test.
First, the measures adopted must be … rationally connected to the objective.
Second, the means … should impair “as little as possible” the right or freedom in question …
Third, there must be a proportionality between the effects of the measures which are responsible for limiting the Charter right or freedom, and the objective which has been identified as of “sufficient importance”. The more severe the deleterious effects of a measure, the more important the objective must be if the measure is to be reasonable and demonstrably justified in a free and democratic society.”
64. The exercise which, therefore, is to be taken is to find out as to whether the limitation of constitutional rights is for a purpose that is reasonable and necessary in a democratic society and such an exercise involves the weighing up of competitive values, and ultimately an assessment based on proportionality i.e. balancing of different interests.”
The decision in K S Puttaswamy (9J) (supra) introduced the proportionality standard in determining violations of fundamental rights, particularly the right to privacy. This doctrine was affirmed in the judgments of five out of the nine judges on the Bench. Subsequently, a Constitution Bench in K S Puttaswamy v. Union of India (“Aadhar (5J)”) fleshed out the contours of a proportionality analysis and applied it to determine the constitutionality of the Aadhar Scheme and the Aadhar Act 2016.
Justice A K Sikri conducted a comparative analysis of the types of proportionality analysis globally and elucidated a four-pronged approach that could be suitable for the Indian Constitution. This test was laid down in the following terms:
“319. …This discussion brings out that following four sub-components of proportionality need to be satisfied:
319.1. A measure restricting a right must have a legitimate goal (legitimate goal stage).
319.2. It must be a suitable means of furthering this goal (suitability or rational connection stage).
319.3. There must not be any less restrictive but equally effective alternative (necessity stage).
319.4. The measure must not have a disproportionate impact on the right holder (balancing stage).”
The Court has thus propounded a four-pronged test of proportionality.
Akshay N. Patel v. Reserve Bank of India (2021)
 AIR 1951 SC 118
 (1998) 8 SCC 227
 Narendra Kumar v. Union of India, AIR 1960 SC 430
 (2003) 7 SCC 309
 (2017) 10 SCC 1, para 325
 (2001) 2 SCC 386
 (2016) 7 SCC 353
 (2019) 1 SCC 1