Tata Engineering and Locomotive Co.
Ltd. Vs. State of Bihar & Ors  INSC 44 (25 February 1964)
25/02/1964 GAJENDRAGADKAR, P.B. (CJ)
GAJENDRAGADKAR, P.B. (CJ) WANCHOO, K.N.
AYYANGAR, N. RAJAGOPALA SIKRI, S.M.
CITATION: 1965 AIR 40 1964 SCR (6) 885
D 1970 SC 564 (17) RF 1973 SC 106 (11) R 1974
SC1300 (24) R 1981 SC1368 (7) RF 1983 SC 937 (12) RF 1984 SC 420 (46) RF 1986
citizen-Whether petition under Art. 32 by Corporation claiming a fundamental
right guaranteed under Art. 19 competent-Doctrine of piercing the corporate
veil -Exceptions to rule that Corporation has a separate legal entity-Levy of
Sales Tax challenged--Constitution of India, Arts. 19, 32 and 286(1) (a).
The petitioners were ordered to pay sales-tax
on account of certain transactions made by them in the State of Bihar.
Their contention was that the sales in
question took place outside the state and hence they were entitled to the
protection of Art. 286(1)(a). Their plea was rejected by the Sales-tax
authorities and it was held that Art.
286(1)(a) did not apply to them. The
petitioners challenged the orders of the sales-tax authorities by writ
petitions filed by them under Art. 32 of the Constitution.
A preliminary objection was taken on behalf
of respondents that the petitions were not competent as those were filed by
corporations or companies and the provisions of Art. 19 did not apply to them
as corporations were not citizens.
Dismissing the writ petition, Held.-The
petitions under Art. 32 were incompetent although in each of them one or two of
the share-holders of the petitioning companies or corporations had also joined.
Article 19 guarantees rights to citizens as
such and associations cannot lay claim to the fundamental rights guaranteed by
that Article solely on the basis of their being an aggregation of citizens.
Once a company or a corporation is formed, the business which is carried on by
the said company or corporation is the business of the company or corporation
and is not the business of the citizens who got the company or corporation
formed or incorporated and the rights of the incorporated body must be judged
on that footing and cannot be judged on the assumption that they are the right
attributable to the business of individual citizens. The petitioners cannot be
heard to say that their share-holders should be allowed to file the present
petitions on the ground that in substance, the corporations and companies are
nothing more than association of sharehorders and members thereof. If their
contention is accepted, it would really mean that what the corporations or
companies cannot achieve directly, they can achieve indirectly by relying upon
the doctrine of lifting the veil. If the corporations and companies are not
citizens, it means that the Constitution intended that they should not get the
benefit of Art. 19.
886 The position of a corporation is that it
is in law equal to a natural person and has a legal entity of its own. That entity
is entirely separate from that of its shareholders.
It bears its own name and has a seal of its
own. Its assets are separate and distinct from those of its members.
It can sue and be sued exclusively for its
own purpose. Its creditors cannot obtain satisfaction from the assets of its
members. The liability of the members or share holders is limited to the
capital invested by them. The creditors of the members have no right to the
assets of the corporation.
However. there are some exceptions to the rule
that the corporation or a company has a jurisfic or legal entity and the
doctrine of lifting the veil of a corporation and examining its face in
substance has been applied in many cases but the same does not apply in the
State of Trading Corporation of India Ltd. v.
The Commercial Tax Officer & Ors. A.I.R. 1963 S.C. 1811, Smt. Ujjam Bai v.
State of Uttar Pradesh.  1 S.C.R. 778, Indo-China Steam Navigation Co.
Ltd. v. Additional Collector of Customs.  6 S.C.R. 594, Kailash Nath v.
State of U.P.
A.I.R. 1957 S.C. 790, Thakur Amar Singhji V.
State of Rajasthan,  2 S.C.R. 303, M/s. Mohanlal Hargovind v. State of
Madhya Pradesh.  2 S.C.R. 509, Y. Mahaboob Sheriff V. Mysore State
Transport Authority.  2 S.C.R.
146, J. V. Gokar & Co. (P) Ltd. v.
Assistant Collector of Sales-tax (inspection),  2 S.C.R. 852, Universal
Imports Agency v. Chief Controller of Imports & Exports  1 S.C.R.
305, State Trading Corporation of India Ltd.
v. State of Mysore, 14 S.T.C. 188, State
Trading Corporation of India Ltd. v. State of Mysore. 14 S.T.C. 416, Salomon v.
Salomon & Co.  A.C. 22, H.L. The
English & Scottish Joint Co-operative Wholesale Society Ltd. v.
Commissioner of Agricultural Income-tax Assam. 1948 I.T.R. 270, Daimler Company
Ltd. v. Continental Tyre and Rubber Co. (Great Britain) Ltd.  A. C. 307
and All India Bank Employees' Association v. National Industrial Tribunal &
Ors.  3 S.C.R. 269, referred to.
CRIMINAL JURISDICTION: Writ Petitions Nos.112
and 113 of 1961 etc.
Petition under Art. 32 of the Constitution of
India for enforcement of, Fundamental rights.
N. A. Palkhivala, J. B. Dadachanji, O. C.
Mathur and Ravinder Narain, for the petitioners (in W.P. Nos. 112 and 113 of 61
and 79 to 80 of 1962).
M. C. setalvad, D. P. Singh, m. K.
Ramamurthi, R. K. Garg and S. C. Agarwal. for the respondents (in W.P. Nos. 112
and 113 of, 1961).
887 S. V. Gupte, Additional
Solicitor-General, N. S. Bindra and R. H. Dhebar, for the respondents (in W.P.
Nos. 79 and 80 of 62).
G. S. Pathak, B. Dutta, J. B. Dadachanji, O.
C. Mathur and Ravinder Narain, for the petitioners (in W.P. Nos. 202204/1961).
A. Ranganadham Chetty and T. V. R. Tatachari,
for the respondents (in W.P. Nos. 202 and 203 of 1961).
Lal Narain Sinha, M. K. Ramamurthi, R. K.
Garg and S. C. Agarwal, for the respondent (in W.P. 204 of 1961).
February 25, 1964. The Judgment of the Court
was delivered by GAJENDRAGADKAR, C.J.-These writ petitions have been placed for
hearing before us in a group, because they raise a common question of law in
regard to the validity of the demand for sales tax which has been made against
the respective petitioners by the Sales-tax Officers for different areas. The
facts in respect of each one of the writ petitions are not the same and the
years for which the demand is made are also different; but the pattern of
contention is uniform and the arguments urged in each one of them are exactly
the same. Broadly stated. the case for the petitioners is that the appropriate
authorities purporting to act under the different Sales Tax Acts are attempting
to recover from the petitioners sales-tax in respect of transactions to which
the petitioners were parties, though the said transactions are not taxable
under Art. 286 of the Constitution. Art. 286(1) (a) provides that no law of a
Sales shall impose, or authorise the imposition of, a tax on the sale or
purchase of goods where such sale or purchase takes place outside the State;
and the argument is that the sales in question are all sales which took place
outside the State and as such, are entitled to the protection of Art.
286(1) (a). The authorities under the
respective Sales Tax Acts have rejected the petitioners' contention that the
transactions in question are inter-State sales and have held that Art.
286(1)(a) is not applicable to them. A similar finding has been recorded
against the petitioners under Art.
286(2). The petitioners' grievance 888 is
that by coming to this erroneous conclusion, a tax is being levied against them
in respect of transactions protected by Art. 286(1)(a) and that constitutes a
breach of their fundamental rights under Art. 3 1 (1). It is this alleged
infringement of their fundamental rights that they seek to bring before this
Court under Art. 32(1).
It has been urged on their behalf that the
right to move this Court under Art. 32(1) is itself a fundamental right, and
so, under Art. 32(2) an appropriate order should be passed setting aside the
directions issued by the Sales-tax Authorities calling, upon the petitioners
either to pay the sales-tax, or to comply with other directions issued by them
in that behalf.
For dealing with the points raised by these
writ petitions, it is not necessary to set out the facts in respect of each one
of them. For convenience we will refer to the facts set out by the Tata
Engineering & Locomotive Co. Ltd., the petitioner in W.Ps. Nos. 112 and 113
of 1961. The petitioner is a company registered under the Indian Companies Act,
1913 and carries on the business of manufacturing, inter alia, Diesel Truck and
Bus chassis and the spare parts and accessories thereof at Jamshedpur in the
State of Bihar.
The company sells these products to dealers,
State Transport Organisations and others doing business in various States of India.
The registered office of the petitioner is in Bombay. In order to promote its
trade throughout the country, the petitioner has entered into Dealership Agreements
with different persons. The modus adopted by the petitioner in carrying on its
business in different parts of India is to sell its products to the dealers by
virtue of the relevant provisions of the Dealership Agreements.
Accordingly, the petitioner distributes and
sells its vehicles to dealers, State Transport Organisations and consumers in
the manner set out in the petition. The petitioner contends that the sales in
respect of which the present petitions have been filed were effected in the
course of inter-State trade and as such, were not liable to be taxed under the
relevant provisions of the Sales Tax Act.
The Sales-tax Officer, on the other hand, has
head that the sales had taken place within the State of Bihar and were
intra-State sales and as such, were liable to assessment under the Bihar Sales
Tax 889 Act. In accordance with this conclusion, further steps are threatened
against the petitioner in the matter of recovery of the sales-tax calculated by
the appropriate authorities.
The petitioner is a company and a majority of
its shareholders are Indian citizens, two of whom have joined the present
The petitioners in W.Ps. Nos. 79 and 80/-1962
are the Automobile Products of India Ltd. and Another. The majority of the
share-holders of this company are also citizens of India and one of them has
joined the petitions.
Writ petitions Nos. 202-204/1961 have been
filed by the State Trading Corporation of India Ltd. The shareholders of this
Corporation are the President of India, and two Additional Secretaries,
Ministry of Commerce and Industry, Government of India; one of these
Secretaries, has joined the petitions. It may incidentally be stated at this
stage that these writ petitions were heard by a Special Bench of this Court on
the 26th July, 1963 in order to determine the constitutional question as to
whether the State Trading Corporation Ltd. can claim to be a citizen within the
meaning of Art. 19 of the Constitution. The majority decision rendered in these
writ petitions on the preliminary, issue referred to the Special Bench was that
the petitioner as a State Trading Corporation is not a citizen under Art. 19,
and so, could not claim the protection of the fundamental rights guaranteed by
the said Article [vide State Trading Corporation of India Ltd. v. The
Commercial Tax Officer and Others(1)]. That is why this petitioner along with
other petitioners have made the petitions in the names of the companies as well
as one or two of their shareholders respectively. It is argued on behalf of the
petitioners that though the company or the Corporation may not be an Indian
citizen under Art. 19, that should not prejudice the petitioners case, because,
in substance, the Corporation is no more than an instrument or agent appointed
by its Indian share holders and as such, it should be open to the petitioners
either acting themselves as companies or acting through (1) A.I.R. 1963 S.C
1811, 890 their shareholders to claim the relief for which the present
petitions have been filed under Art. 32.
These petitions are resisted by the
respective States on the ground that the petitions are not competent under Art.
The respondents contend that the main attack
of the petitioners is against the findings of the Sales-tax Officers in regard
to the character of the impugned sale transactions and they urge that even if
the said findings are wrong, that cannot attract the provisions of Art. 32.
The validity of the respective Sales-tax Acts
is not challenged and if purporting to exercise their powers under the relevant
provisions of the said Acts, the appropriate authorities have, during the
course of the assessment proceedings, come to the conclusion that the impugned
transactions are intra-State sales and do not fall under Art. 286(1)(a), that
is a decision which is quasi-judicial in character and even an erroneous
decision rendered in such assessment proceedings cannot be said to contravene
the fundamental rights of a citizen which would justify recourse to Art. 32. In
other words, the alleged breach of the petitioners' fundamental rights being
referable to a quasijudicial order made by a Tribunal appointed under a valid
Sales-tax Act, does not bring the case within Art. 32. That is the first
preliminary ground on which the competence of the writ petitions is challenged.
In support of this plea, reliance is placed by the respondents on a recent decision
of a Special Bench of this Court in Smt. Ujjam Bai v. State of Uttar
There is another preliminary objection raised
by the respondents against the, competence of the writ petitions, and that is
based upon the decision of this Court in the case of the State Trading
Corporation of India Ltd. (2). It is urged that the decision of this Court that
the State Trading Corporation is not a citizen, necessarily means that the
fundamental rights guaranteed by Art. 19 which can be claimed only by citizens
cannot be claimed by such a Corporation, and so, there can be no scope for
looking at the substance of the matter and giving to the shareholders
indirectly the right which the Corporation as a separate (1)  1 S.C.R.
(2) A.I.R. 1963 S.C. 1811.
891 legal entity is not directly entitled to
claim. The respondents have urged that in dealing with the plea of the
petitioners that the veil worn by the Corporation as a separate legal entity
should be lifted and the substantial character of the Corporation should be
determined without reference to the technical position that the Corporation is
a separae entity, we ought to bear in mind the decision of this Court in the
case of the State Trading Corporation of India Ltd.(1). Basing themselves on
this contention, the respondents have also argued that if the fundamental
rights guaranteed by Art. 19 are not available to the petitioners, then their
plea that the sales-tax is being collected from them contrary to Art. 31(1)
must fail and in support of this contention reliance is placed upon a recent
decision of this Court in the case of Indo-China Steam Navigation Co. Ltd. v.
The Additional Collector of Customs and
Logically, the second preliminary objection
would come first, because if the petitioners cannot claim the status of
citizens and are not, therefore, entitled to base their petitions on the
allegation that their fundamental rights under Art. 19 have been contravened,
that would be the end of the petitions. It has been conceded before us by all
the learned counsel appearing for the petitioners that it is only if both the
preliminary objections raised by the respondents are over-ruled that the
hearing of the writ petitions would reach the stage of considering the merits
of their pleas that the sales which are sought to be taxed fall under Art. 28 6
(1) (a) of the Constitution. If the respondents succeed in either of the two
preliminary objections raised by them, the writ petitions would fail and there
would be no occasion to consider the merits of the pleas raised by them. Since
we have come to the conclusion that the second preliminary objection raised by
the respondents must be upheld, we do not propose to pronounce any decision on
the first preliminary objection. However, as the point covered by the said
objection has been elaborately argued before us, we would prefer to indicate
briefly the broad arguments urged fry both the parties in that behalf.
(1) A.I.R. 1963 S.C. 1811. (2) (1964) 6
892 The controversy between the parties as to
the scope and effect of the provisions contained in Art. 32 on which the
validity of the first preliminary objection rests, substantially centres round
the question as to what is the effect of the decision of this Court in Smt.
Ujjam Bai's case(1). The petitioners argue that though the majority view in
that case was that the writ petition filed by Ujjam Bai was incompetent, it
would appear that the reasons given in most of the judgments support the
petitioners' case that where the fundamental rights of a citizen are
contravened, may be by a quasi-judicial order, in pursuance of which a tax is
attempted to be recovered from a citizen, the erroneous conclusion in regard to
the nature of the transaction must be held to contravene the fundamental right of
the citizen, and as such, would justify the petitioners in moving this Court
under Art. 32.
On the other hand, the respondents urge that
the effect of the decision. in Ujiam Bai's case plainly tends. to show that if
a quasi-judicial decision has determined a matter in regard to the taxability
of a given transaction, there can be no question about the breach of
fundamental rights which would justify an application under Art. 32. The
argument is that the intervention of a quasi-judicial order changes the complexion
of the dispute between the parties, and in cases of that character, the only
remedy available to an aggrieved citizen is to take recourse to the appeals and
other proceedings prescribed by the taxing statute in question.
Art. 32 is not intended to confer appellate
jurisdiction on this Court so as to review or examine the propriety of
quasi-judicial orders passed by appropriate authorities purporting to exercise
their powers and jurisdictions under the several taxing statutes. It may be
that after exhausting the remedies by way of appeals and revisions prescribed
by the statute, the party may come to this Court under Art. 136, but Art. 32 is
inapplicable in such cases.
In Ujjam Bai's case(1), the first issue which
was referred to the Special Bench was whether an order of assessment made by an
authority under a taxing statute which is intra vires is open to challenge as
repugnant to (1)  1 S.C.R. 778.
893 Art. 19 (1)(g), on the sole ground that
it was based on a misconstruction of a provision of the Act or of a
notification issued thereunder; and the second question was, can the validity
of such an order be questioned in a petition under Art. 32 of the Constitution?
The majority view expressed in this case was against the petitioner. S. K. Das
J. who delivered the main judgment on behalf of the majority view observed that
where a quasi-judicial authority makes an ,order in the undoubted exercise of
its jurisdiction in pursuance of a provision of law which is intra vires, an
error -of law or fact committed by that authority cannot be impeached otherwise
than on appeal, unless the erroneous determination relates to a matter on which
the jurisdiction of that body depends; and so, he held that if the impugned
order of assessment is made by an authority under a valid taxing statute in the
undoubted exercise of its jurisdiction it cannot be challenged under Art. 32 on
the sole ground that it is passed on a misconstruction of a provision of the
Act or of a notification issued there under.
Subba Rao J., on the other hand, took the
view that Art. 32 confers wide jurisdiction on this Court to enforce the
fundamental rights, and he held that it is the duty of this Court to entertain
a writ petition wherever a fundamental right of a citizen is alleged to have
been contravened, irrespective of whether the question raised involves a
question of jurisdiction, law, or fact; this is the minority view pronounced in
Ujjam Bai's case.
Hidayatullah J., who agreed broadly with the
majority view, expressed the opinion that if a quasi-judicial tribunal embarks
upon an action wholly outside the pale of the law he is enforcing, a question
of jurisdiction would be involved and that would justify an application under
Ayyangar J. held that if it appeared that the
impugned order of assessment was based upon a plain and patent misconstruction
of the provisions of the taxing statute, that itself would give rise to a plea
that the authority was acting beyond its jurisdiction and in such a case, a
petition under Art. 32 may be justified. Proceeding on this view, the learned
Judge held that the construction placed by the taxing authority was not shown
to be patently erroneous.
894 and so, he was not prepared to grant any
relief to Ujjam Bai. That is how the learned Judge agreed with the majority
Mudholkar J., who also agreed with the
majority decision, was disposed to make an exception in cases where an
erroneous construction of the law would lead to the recovery of a tax which is
beyond the competence of the legislature, or is violative of the provisions of
Part III or of any other provisions of the Constitution.
It would, thus, be seen that though the
majority decision was that Ujjam Bai's petition should be dismissed, the
reasons given in the judgments pronounced by the learned Judges who agreed with
the majority decision are not all uniform and-do not disclose an identity of
approach or of reasons, and that naturally has given rise to the arguments in
the present writ petitions, both parties suggesting that the majority decision
in the case of Ujjam Bai supports the rival views for which they contend.
Mr. Setalvad has strongly urged that if a
misconstruction of the notification on which Ujjam Bai rested her case, was not
held to justify a petition under Art. 32, that would necessarily mean that the
misconstruction of the nature of the transaction would be no better, even
though in this 'latter case, the wrong decision on the question as to the
character of the sale transaction may involve -taxing a transaction which is
protected by Art. 286(1) (a). One can understand the argument, said Mr.
Setalvad, that a breach of the fundamental rights, however it is caused would
justify recourse to Art. 32; that would be consistent and logical;
but once it is held that a breach of the
fundamental rights alleged to have been caused by a misconstruction of a
notification or a statute placed by an appropriate authority acting under the
provisions of a valid taxing law does not attract Art. 32, it is not logically
possible to urge that another kind of breach alleged to have been caused by a
misappreciation of the nature of the transaction and an erroneous conclusion as
to its taxable character would make any difference. In the first case, the
erroneous construction of the notification violates the provisions of Art. 265
of the Constitution and thereby brings in the breach of Art.
895 31 (1); in the other case, the
misconstruction as to the taxable character of the transaction violates Art. 28
6 (1 ) (a) and thereby brings in Art. 31 (1). Therefore, it is urged that he
necessary consequence of the decision in Ujjam Bai is that even if the
Sales-tax Officer has held wrongly that the impugned transactions are not
inter-State transactions, the remedy of petition under Art. 32 is not open to
the aggrieved citizen.
On the other hand, Mr. Palkhivala has
strenuously urged that the decision in Ujjam Bai rested on the basis that the
misinterpretation of the notification did not involve the violation of any
constitutional limitations or prohibitions and he has referred us to some
passages in the judgments of Das, Kapur and Mudholkar JJ. In support of his
argument that where an erroneous decision of a salestax officer results in the
violation of a constitutional prohibition or limitation, different
considerations would arise and an aggrieved citizen would be entitled to move
this Court under Art. 32, Mr. Palkhivala has emphasised the fact that whereas
Das J. expressly held that the view taken in Kailash Nath v.
State of U.P.(1) was not right, he approved
of the other decisions which were cited at the Bar and exhaustively discussed
on the ground that those decisions 'fall under the category in which an
executive authority acts without authority of law, or a quasi-judicial
authority acts in transgression of a constitutional prohibition and without
jurisdiction"(2). These decisions are: Thakur Amar Singhji v. State of
Rajasthan(3); M/s. Mohanlal Hargovind Dass v. The State of Madhya Pradesh(4);
Y. Mahaboob Sheriff v. Mysore State Transport Authority(5); J. V. Gokar &
Co. (Private) Ltd. v. The Assistant Collector of Sales-tax (Inspection) (6);
and Universal Imports Agency v. Chief Controller of Imports and Exports ( 7 ) .
To the same effect is the observation made by Kapur J. when the learned Judge
stated that in the case of M/s. Mohanlal Hargovind Dass ( 4 ) ':he dispute did
not turn upon a misconstruction of any statute by any quasi-judicial authority,
but that was a case (1) A.I.R. 1957 S.C. 790(2)  1 S.C.R. at 842.
(3)  8 S.C.R. 303.(4)  2 S.C.R.
(5)  2 S.C.R. 146.(6)  2 S.C.R.
(7)  1 S.C.R. 305.
896 in which the very transaction was outside
the taxing powers of the State and any action taken by the taxing authorities
was one without authority of law.
In support of the same argument, both Mr.
Pathak and Mr. Palkhivala strongly relied upon the two subsequent decisions of
this Court where writ petitions filed under Art. 32 were entertained on grounds
somewhat similar to those on which the present writ petitions are founded, The
State Trading Corporation of India Ltd. and Another v. The State of Mysore and
Another(1) and The State Trading Corporation of India Ltd. and Others v. The
State of Mysore and Another(2).
Basing himself on these decisions, Mr. Pathak
has argued that the question as to whether a particular transaction of sale
attracts the protection of Art. 286(1) (a) is a collateral fact the decision of
which confers jurisdiction on the Sales-tax Officer; and he contends that the
decision of the Sales-tax Officer, who is a Tribunal of limited jurisdiction,
on a collateral jurisdictional point can always be challenged under Art. 32 of
the Constitution if the said decision impinges upon the citizen's right
protected by Art. 28 6 (1) (a).
Mr. Palkhivala urged the argument of
jurisdiction in a slightly different way. He contended that the concept of
jurisdiction on which he relied was not based on the view that jurisdiction
means authority to decide. According to him, the concept of jurisdiction was of
a different category and was of a vital character when constitutional
limitations or prohibitions were involved in the decision of any case brought
before a Sales-tax Officer.
On the other hand, Mr. Setalvad has urged
that the Sales-tax Officer is not a Tribunal of limited jurisdiction and the
charging sections in the respective Sales-tax Acts leave it to the Sales-tax
Officer and the heirarchy of officers contemplated by them to decide the
question about the taxability of any given transaction and impose a tax on it
in accordance with the provisions of the Acts. Where a tribunal is entitled to
deal with transactions which fall (1) 14 S.T.C. 188.
(2) 14 S.T.C. 416.
897 under the charging sections of the
statute, it would be erroneous to contend that the decision of the Tribunal on
the said question about the taxability of the transaction is the decision on a
collateral jurisdictional fact. If the said argument is accepted, logically, it
may mean that all questions the decision of which inevitably precedes the
imposition of the tax, would be collateral jurisdictional fact; and that
clearly cannot be the effect of the charging sections of the different Acts.
In regard to the point of constitutional
limitations and prohibitions raised by Mr. Palkhivala, Mr. Setalvad contends
that if the provisions of Art. 286(1) (a) makes the decision of the Sales-tax
Officer on the character of the sale transaction one of jurisdiction, then it
is difficult to see why his decision on other points should also not partake of
the same character. In that connection, he emphasised the fact that the
provisions of Art. 286(1) (a) cannot be distinguished from the provisions of
Art. 265. As we have already indicated, having regard to the fact that we have
come to the conclusion that the other preliminary objection urged by the
respondents must be upheld, we do not propose to express any opinion on this
part of the controversy between the parties.
That takes us to the question as to whether
the petitioners, some of whom are companies registered under the Indian
Companies Act and one of whom is the State Trading Corporation, can claim to
file the present writ petitions under Art. 32 having regard to the decision of
this Court in the case of the State Trading Corporation of India Ltd. (1).
The petitioners argue that the said decision
merely held that the State Trading Corporation of India Ltd. was not a citizen.
The question as to whether the veil of the Corporation can be lifted and the
rights of the shareholders of the said Corporation could be recognised under
Art. 19 or not, was not decided, and it is on this aspect of the question that
arguments have been urged before us in the present writ petitions.
The true legal position in regard to the
character of a corporation or a company which owes its incorporation to (1)
A.I.R. 1963 S.C. 1811.
134-159 S.C.-57 898 a statutory authority, is
not in doubt or dispute. The corporation in law is equal to a natural person
and has a legal entity of its own. The entity of the corporation is entirely
separate from that of its shareholders; it bears its own name and has a seal of
its own; its assets are separate and distinct from those of its members; it can
sue and be sued exclusively for its own purpose; its creditors cannot obtain
satisfaction from the assets of its members;
the liability of the members or shareholders
is limited to the capital invested by them; similarly, the creditors of the
members have no right to the assets of the corporation.
This position has been well-established ever
since the decision in the case of Salomon v. Salomon & Co. (1) was
pronounced in 1897; and indeed, it has always been the wellrecognised principle
of common law. However, in the course of time, the doctrine that the
corporation or a company has a legal and separate entity of its own has been
subjected to certain exceptions by the application of the fiction that the veil
of the corporation can be lifted and its face examined in substance. The
doctrine of the lifting of the veil thus marks a change in the attitude that
law had originally adopted towards the concept of the separate entity or
personality of the corporation. As a result of the impact of the complexity of
economic factors, juidical decisions have sometimes recognised exceptions to
the rule about the juristic personality of the corporation. It may be that in
course of time these exceptions may grow in number and to meet the requirements
of different economic problems, the theory about the personality of the
corporation may be confined more and more.
But the question which we have to consider is
whether in the circumstances of the present petitions, we would be justified in
acceding to the argument that the veil of the petitioning corporations should
be lifted and it should be held that their shareholders who are Indian citizens
should be permitted to invoke the protection of Art. 19, and on that basis,
move this Court under Art. 32 to challenge the validity of the orders passed by
the Sales-tax Officers in respect of transactions which, it is alleged, are not
(1)  A. C. 22. H.L. 899 Mr. Palkhivala
has very strongly urged before us that having regard to the fact that the
controversy between the parties relates to the fundamental rights of citizens,
we should not hesitate to look at the substance of the matter and disregard the
doctrinaire approach which recognises the existence of companies as separate
juristic or legal persons. If all the shareholders of the petitioning companies
are Indian citizens, why should not the Court look at the substance of the
matter and give the shareholders the right to challenge that the contravention
of their fundamental rights should be prevented. He does not dispute that the
shareholders cannot claim that the property of the companies is their own and
cannot plead that the business of the companies is their business in the strict
The doctrine of lifting of the veil
postulates the existence of dualism between the corporation or company on the
one hand and its members or shareholders on the other. So, it is no good
emphasising that technical aspect of the matter in dealing with the question as
to whether the veil should be lifted or not. In support of his plea, he has
invited our attention to the decision of the Privy Council in The English and
Scottish Joint Co-operative Wholesale Society Ltd. v. Commissioner of
Agricultural Income-tax, Assam(1), as well as the decision of the House of
Lords in Daimler Company Ltd. v. Continental Tyre and Rubber Company (Great
It is unnecessary to refer to the facts in
these two cases and the principles enunciated by them, because it is not
disputed by the respondents that some exceptions have been recognised to the
rule that a corporation or a company has a juristic or legal separate entity.
The doctrine of the lifting of the veil has been applied in the words of Palmer
in five categories of cases : where companies are in the relationship of
holding and subsidiary (or sub-subsidiary) companies; where a shareholder has
lost the privilege of limited liability and has become directly liable to
certain creditors of the company on the ground that, with his knowledge, the
company continued to carry on business six months after the number of its
members was reduced (1)  I.T.R. 270. (2)  A.C. 307.
900 below the legal minimum; in certain
matters pertaining to the law of taxes, death duties and stamps, particularly
where the question of the "controlling interest" is in issue; in the
law relating to exchange control; and in the law relating to trading with the
enemy where the test of control is adopted(1). In some of these cases, judicial
decisions have no doubt lifted the veil and considered the substance of the
Gower has similarly summarised this position
with the observation that in a number of important respects, the legislature
has rent the veil woven by the Salomon case.
Particularly is this so, 'says Gower, in the
sphere of taxation and in the steps which have been taken towards the
recognition of enterprise-entity rather than corporate entity. It is
significant, however, that according to Gower, the courts have only construed
statutes as "cracking open the corporate shell" when compelled to do
so by the clear words of the statute; indeed they have gone' out of their way to
avoid this construction whenever possible.
Thus, at present, the judicial approach in
cracking open the corporate shell is somewhat cautious and circumspect. It is
only where the legislative provision justifies the adoption of such a course
that the veil has been lifted. In exceptional cases where courts have felt
"themselves able to ignore the corporate entity and to treat the
individual shareholders as liable for its acts",(2) the same course has
been adopted. Summarising his conclusions, Gower has classified seven
categories of cases where the veil of a corporate body has been lifted. But it
would not be possible to evolve a rational, consistent and inflexible principle
which can be invoked in determining the question as to whether the veil of the
corporation should be lifted or not. Broadly stated, where fraud is intended to
be prevented, or trading with an enemy is sought to be defeated, the veil of a
corporation is lifted by judicial decisions and the shareholders are held to be
the persons who actually work for the corporation.
That being the position with regard to the
doctrine of the veil of a corporation and the principle that the said (1)
Palmer's Company Law 20th Ed. p. 136.
(2) Gower" Modern Company Law, 2nd Ed.
pp. 193 & 195.
901 veil can be lifted in some cases, the
question which arises for our decision is; can we lift the veil of the
petitioners and say that it is the shareholders who are really moving the Court
under Art. 32, and so, the existence of the legal and juristic separate entity
of the petitioners as a corporation or as a company should not make the
petitions filed by them under Art. 32 incompetent? We do not think we can
answer this question in the affirmative. No doubt, the complaint made by the
petitioners is that their fundamental rights are infringed and it is a truism
to say that this Court as the guardian of the fundamental rights of the
citizens will always attempt to safeguard the said fundamental rights; but
having regard to the decision of this Court in State Trading Corporation of
India Ltd. (1) we do not see how we can legitimately entertain the petitioners'
plea in the present petitions, because if their plea was upheld, it would
really mean that what the corporations or the companies cannot achieve
directly, can be achieved by them indirectly by relying upon the doctrine of
lifting the veil. If the corporations and companies are not citizens, it means
that the Constitution intended that they should not get the benefit of Art. 19.
It is no doubt suggested by the petitioners that though Art. 19 is confined to
citizens, the Constitution-makers may have thought that in dealing with the
claims of corporations to invoke the provisions of Art. 19, courts would act
upon the doctrine of lifting the veil and would not treat the attempts of the
corporations in that behalf as falling outside Art. 19. We do not think this
argument is well-founded. The effect of confining Art. 19 to citizens as
distinguished from persons to whom other Articles like 14 apply, clearly must
be that it is only citizens to whom the rights under Art. 19 are guaranteed. If
the legislature intends that the benefit of Art. 19 should be made available to
the corporations, it would not be difficult for it to adopt a proper measure in
that behalf by enlarging the definition of 'citizen' prescribed by the
Citizenship Act passed by the Parliament by virtue of the powers conferred on
it by Articles 10 and
11. On the other hand, the fact that the
Parliament has not chosen to make any such provision indicates that it was not
the intention of the (1) A.I.R. 1963 S.C. 1811.
902 Parliament to treat corporations as
citizens. Therefore, it seems to us that in view of the decision of this Court
in the case of the State Trading Corporation of India Ltd.(1) the petitioners cannot
be heard to say that their shareholders should be allowed to file the present
petitions on the ground that, in substance, the corporations and companies are
nothing more than associations of shareholders and members thereof. In our
opinion, therefore, the argument that in the present petitions we would be
justified in lifting the veil cannot be sustained.
Mr. Palkhivala sought to draw a distinction
between the right of a citizen to carry on trade or business which is
contemplated by Art. 19(1)(g) from his right to form associations or unions
contemplated by Art. 19 (1) (c). He argued that Art. 19(1)(c) enables the
citizens to choose their instruments or agents for carrying on the business
which it is their fundamental right to carry on. If citizens decide to set up a
corporation or a company as their agent for the purpose of carrying on trade or
business, that is a right which is guaranteed to them under Art. 19(1)(c).
Basing himself on this distinction between the two rights guaranteed by Art.
19(1)(g) and (c) respectively, Mr. Palkhivala somewhat ingeniously contended
that we should not hesitate to lift the veil, because by looking at the
substance of the matter, we would really be giving effect to the two
fundamental rights guaranteed by Art. 19(1). We are not impressed by this
The fundamental right to form an association
cannot in this manner be coupled with the fundamental right to carry on any
trade or business. As has been held by this Court in All India Bank Employees'
Association v. National Industrial Tribunal and Others(2), the argument which
is thus attractively presented before us overlooks the fact that Art. 19, as
contrasted with certain other articles like Arts. 26, 29 and 30, guarantees
rights to the citizens as such, and associations cannot lay claim to the
fundamental rights guaranteed by that Article solely on the basis of their
being an aggregation of citizens, that is to say, the right of the citizens
composing the body. The respective rights guaranteed by Art. 19(1) (1) A.I.R.
1963 S.C. 1811.
(2)  3 S.C.R. 269.
903 Cannot be combined as suggested by Mr.
Palkhivala, but must be asserted each in its own way and within its own limits;
the sweep of the several rights is no doubt
wide, but the combination of any of those two rights would not justify a claim
such as is made by Mr. Palkhivala in the present petitions. As soon as citizens
form a company, the right guaranteed to them by Art. 19(1)(c) has been
exercised and no restraint has been placed on that right and no infringement of
that right is made. Once a company or a corporation is formed, the business
which is carried on by the said company or corporation is the business of the
company or corporation and is not the business of the ,citizens who get the company
or corporation formed or incorporated, and the rights of the incorporated body
must be judged on that footing and cannot be judged on the assumption that they
are the rights attributable to the business of individual citizens. Therefore,
we are satisfied that the argument based on the distinction between the two
rights guaranteed by Art. 19(1)(c) and (g) and the effect of their combination
cannot take the petitioners' case very far when they seek to invoke the
doctrine that the veil of the corporation should be lifted. That is why we have
come to the conclusion that the petitions filed by the petitioners are
incompetent under Art. 32, even though in each of these petitions one or two of
the shareholders of the petitioning companies or corporation have joined.
The result is, the second preliminary
objection raised by the respondents is upheld and the writ petitions are
dismissed as being incompetent under Art. 32 of the Constitution. There would
be no order as to costs.